Final Average Income Test Regulations Released; Placed-In-Service Deadlines Extended

Average Income Test



Today, the White House announced key progress on implementing its Housing Supply Action Plan (Plan). The Plan outlines key administrative and legislative priorities to address the housing supply shortfall. In conjunction with the announcement, the Administration released final regulations on the Average Income Test (AIT) minimum set-aside. The final rule will be effective when it is published in the Federal Register, scheduled for October 12, 2022.

Administration and White House officials believe the final rule addresses many of the concerns industry partners shared with the Administration in a December 2021 letter. As we continue to review the final rule, we are pleased to see that thus far, our concerns with the proposed regulations were addressed. The final guidance:

· Eliminates the “cliff effect” in which a small number of units out of compliance can threaten recapture for immediate failure to meet the minimum set-aside.

· Allows for the average income test to be satisfied if at least 40 percent of the building’s units collectively average 60 percent or less of AMGI.

· Eliminates the mitigating actions that were included in the proposed regulations, noting that “because the final regulations differ from the proposed regulations in a way that avoids that risk, there is no longer a need for mitigating actions.”

· Provides greater flexibility to change unit designations, now including several circumstances in which it is allowed.

As we continue to review the regulations, please let us know if you have questions or comments.

Extension of Place in Service Deadlines

The Internal Revenue Service today announced additional temporary relief with respect to placed-in-service deadlines, extending them by one to two years, depending on the allocation year. Notice 2022-52 provides the following:

· If the original deadline for a low-income building to be placed in service is the close of calendar year 2020, the new deadline is the close of calendar year 2022 (that is, December 31, 2022).

· If the original placed-in-service deadline is the close of calendar year 2021 and the original deadline for the 10-percent test in § 42(h)(1)(E)(ii) was before April 1, 2020, the new placed-in-service deadline is the close of calendar year 2023 (that is, December 31, 2023).

· If the original placed-in-service deadline is the close of calendar year 2021 and the original deadline for the 10-percent test in § 42(h)(1)(E)(ii) was on or after April 1, 2020, and on or before December 31, 2020, then the new placed-in-service deadline is the close of calendar year 2023 (that is, December 31, 2023).

· If the original placed-in-service deadline is the close of calendar year 2022 (and thus the original deadline for the 10-percent test in § 42(h)(1)(E)(ii) was in 2021), then the new placed-in-service deadline is the close of calendar year 2024 (that is, December 31, 2024).

· If the original placed-in-service deadline is the close of calendar year 2023 (and thus the original deadline for the 10-percent test in § 42(h)(1)(E)(ii) was in 2022), then the new placed-in-service deadline is the close of calendar year 2024 (that is, December 31, 2024).

The notice also provides a 24-month extension for reasonable restoration periods; extends the correction periods by 12 months; and extends the temporary waiver of compliance monitoring physical inspections.

As we stated, we are still reading through the revised regulations on AIT but it is clear the Administration heard the concerns of Congress and the industry. We are very appreciative of the efforts of the Treasury tax staff and the staffs of the Domestic Policy Council (DPC), the National Economic Council (NEC) and the Office of Management and Budget (OMB) as well as the staff at the Internal Revenue Service.

In closing, these revised regulations and the expedited action on the PIS deadlines are a testament to the efforts of our industry and our advocates on Capitol Hill and in the Administration.