SECTION 2. BACKGROUND

.01 Section 42 of the Code allows a 10-year tax credit for investment in qualified low-income buildings placed in service after December 31, 1986. If, as of the close of any taxable year in the compliance period, the amount of the qualified basis of any building with respect to the taxpayer is less than the amount of such basis as of the close of the preceding taxable year, § 42(j)(1) provides that the taxpayer’s tax for the taxable year shall be increased by the credit recapture amount.

.02 Prior to the Act, § 42(j)(6) of the Code provided that in the case of a disposition of a building or an interest therein the taxpayer would be discharged from liability for any additional tax by reason of such disposition if (A) the taxpayer furnished to the Secretary a bond in an amount satisfactory to the Secretary and for the period required, and (B) it was reasonably expected that such building would continue to be operated as a qualified low-income building for the remainder of the building’s compliance period. A building’s compliance period is defined in § 42(i)(1).

.03 Form 8693, Low-Income Housing Credit Disposition Bond, was developed by the Service for use as a “surety bond” for taxpayers to use to avoid or defer recapture of low-income housing tax credits under § 42(j)(6) of the Code following a disposition of a building (or interest

therein). Rev. Rul. 90–60, 1990–2 C.B. 3, provides guidance to taxpayers on the amount of “surety bond” considered satisfactory by the Secretary and the period of the bond required by the Secretary under § 42(j)(6).

.04 Rev. Proc. 99–11, 1999–1 C.B. 275, establishes a collateral program as an alternative to providing a surety bond to avoid or defer recapture of low-income housing tax credits under § 42(j)(6) of the Code. Under this program, taxpayers may establish a TDA and pledge certain United States Treasury securities to the Internal Revenue Service as security for the taxpayer’s recapture liability.

.05 Taxpayers must use Form 8693 in posting a surety bond and in establishing a TDA. The Internal Revenue Service must approve Form 8693 before it will take effect.

.06 Section 42(j)(6)(A) of the Code, as amended by section 3004(c) of the Act, provides that, in general, the increase in tax under § 42(j)(1) shall not apply solely by reason of the disposition of a building (or an interest therein) if it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remainder of the building’s compliance period.

.07 Section 42(j)(6)(B) of the Code, as amended by section 3004(c) of the Act, provides that if a building (or interest therein) is disposed of during any taxable year and there is any reduction in the qualified basis of such building which results in an increase in tax for such taxable or any subsequent taxable year, then (i) the statutory period for the assessment of any deficiency with respect to such increase in tax shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of such reduction in qualified basis, and (ii) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

.08 Under section 3004(i) of the Act, the amendments made to § 42(j)(6) of the Code by section 3004(c) of the Act apply to interests in buildings disposed of after July 30, 2008, the date of enactment of the Act. In addition, the amendments also apply to interests in buildings disposed of

2008–43 I.R.B. 1006 October 27, 2008