SECTION 2. BACKGROUND — Internal Revenue Bulletin 2021-15

.01 Section 103(a) provides that, ex cept as provided in § 103(b), gross income does not include interest on any State or local bond. Section 103(b)(1) provides that § 103(a) does not apply to any private activity bond that is not a qualified bond (within the meaning of § 141). Section 141(e) provides that the term “qualified bond” includes any private activity bond that (1) is a qualified mortgage bond, (2) meets the applicable volume cap require ments under § 146, and (3) meets the ap plicable requirements under § 147.

.02 Section 143(a)(1) provides that the term “qualified mortgage bond” means a bond that is issued as part of a “qualified mortgage issue”. Section 143(a)(2)(A) provides that the term “qualified mort gage issue” means an issue of one or more bonds by a State or political subdivision thereof, but only if: (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residenc es; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of § 143; (iii) the issue does not meet the private business tests of para graphs (1) and (2) of § 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of prin cipal on financing provided by the issue are used not later than the close of the first semi-annual period beginning after the date the prepayment (or complete repay ment) is received to redeem bonds that are part of the issue.

.03 Section 25(c)(1) provides that the term “mortgage credit certificate” means any certificate that: (1) is issued under a qualified mortgage credit certificate pro gram by the State or political subdivision having the authority to issue a qualified mortgage bond to provide financing on the principal residence of the taxpayer; (2) is issued to the taxpayer in connection with the acquisition, qualified rehabilitation, or qualified home improvement of the tax payer’s principal residence; (3) specifies the certificate credit rate and the certified indebtedness amount; and (4) is in such form as the Secretary of the Treasury or the Secretary’s delegate (Secretary) may prescribe.

.04 Section 25(c)(2) provides that the term “qualified mortgage credit certifi cate program” means any program under which, among other requirements, the indebtedness certified by mortgage cred it certificates meets the requirements of § 143(f). See § 25(c)(2)(A)(iii)(IV).

.05 Section 143(f) imposes eligibility requirements concerning the maximum income of mortgagors for whom financ ing may be provided by qualified mort gage bonds. Generally, under §§ 143(f) (1) and 25(c)(2)(A)(iii)(IV), these income requirements are met only if all owner-fi nancing under a qualified mortgage bond and all certified indebtedness amounts un der a mortgage credit certificate program are provided to mortgagors whose family income is 115 percent or less of the ap plicable median family income. Under § 143(f)(3), in the case of targeted area res idences, the income limitation of § 143(a) applies to 2/3 of the owner financing and is treated as satisfied if the family income of the mortgagor is 140 percent or less of the applicable median family income. Under § 143(f)(6), if there are fewer than three individuals in the family of the mort gagor, the income limitation of § 143(a) is reduced to 100 percent of the applicable median family income and, in the case of targeted area residences, the income lim itation of § 143(a) is satisfied if the family income of the mortgagor is 120 percent or less of the applicable median family in come.

.06 Section 143(f)(2) provides that, for purposes of § 143(f), the family income of mortgagors, and area median gross income, are determined by the Secretary

April 12, 2021 1008 Bulletin No. 2021–15

after taking into account the regulations prescribed under section 8 of the United States Housing Act of 1937 (if terminated, a successor program) (Housing Act).

.07 Section 143(f)(4) provides that the term “applicable median family income” means, with respect to a residence, the greater of (A) the area median gross in come for the area in which the residence is located, or (B) the statewide median gross income for the state in which the residence is located.

.08 Section 143(f)(5) provides for an upward adjustment of the income limita tions in certain high housing cost areas. Under § 143(f)(5)(C), a high housing cost area is a statistical area for which the housing cost/income ratio is greater than 1.2. The housing cost/income ratio with respect to any statistical area is de termined under § 143(f)(5)(D) by dividing (a) the applicable housing price ratio for such area by (b) the ratio that the area me dian gross income for such area bears to the median gross income for the United States. The applicable housing price ratio for any area is the new housing price ratio (new housing average purchase price for the area divided by the new housing aver age purchase price for the United States) or the existing housing price ratio (exist ing housing average purchase price for the area divided by the existing housing aver age purchase price for the United States), whichever results in the housing cost/in come ratio being closer to 1.

.09 The Department of Housing and Ur ban Development (HUD) annually com putes the median gross income (adjust ed by family size) for the United States, the states, and statistical areas within the states. HUD releases the annually updated income figures to its regional offices in a notice. The most recent income figures are generally available by calling the HUD reference service at 1-800-245-2691, or at HUD’s website, http://www.huduser.gov/ portal/datasets/il.html (including a menu from which the year and type of data of interest may be selected).

.10 Rev. Rul. 86-124, 1986-2 C.B. 27, provides the manner in which the income limits under § 143(f) applicable to quali fied mortgage bonds and mortgage credit certificates are determined. In particular, the revenue ruling provides that, for pur poses of § 143(f)(4), to determine the area

median gross income for an area or state in a manner consistent with the determi nation of “median gross income” for the area or state under section 8 of the Hous ing Act, issuers must use the income limits released by HUD for Lower Income and Very Low Income under the Housing Act. Further, Rev. Rul. 86-124 provides the manner in which issuers must apply these income limits. See generally, Rev. Rul. 86-124, Guidelines. .11 The Internal Revenue Service (IRS) has published a revenue procedure in the Internal Revenue Bulletin annually, pro viding guidance with respect to the Unit ed States and area median gross income figures that are to be used by issuers of qualified mortgage bonds and issuers of mortgage credit certificates for purposes of computing the income requirements under § 143(f). See, e.g., Rev. Proc. 202033, 2020-25 I.R.B. 956. .12 The IRS has also published a rev enue procedure in the Internal Revenue Bulletin annually, providing the most re cent nationwide average purchase prices and average area purchase price safe har bor limitations for purposes of § 143(f) (5). See, e.g., Rev. Proc. 2020-18, 2020-15 I.R.B. 592.

.13 The Department of the Treasury (Treasury Department) and the IRS re quested public comments on whether, in stead of publishing a revenue procedure annually, such as Rev. Proc. 2020-33, the IRS should publish permanent guidance that would allow issuers to rely on the HUD income figures immediately upon release. See Rev. Proc. 2020-33, Section 6. The Treasury Department and the IRS also requested public comments on the two-year convention with respect to the issuers’ reliance on the HUD income fig ures, as provided in section 3.01 of Rev. Proc. 2020-33, and a transition period, if necessary. See Rev. Proc. 2020-33, Sec tion 6. Comments received consistently favored publication of permanent guid ance, retention of the two-year conven tion, and provision of a transition period, such as a period of 90 days following the release of the HUD income figures. As a result, the Treasury Department and the IRS have decided to publish this revenue procedure as permanent guidance consis tent with comments received and to cease publishing annual revenue procedures

providing income figures for purposes of computing the income requirements of § 143(f).