IRS Changes Veteran Housing Policy

The Internal Revenue Service (IRS) issued guidance this week that a 2008 clarification to the Low Income Housing Tax Credit’s (LIHTC) general public use requirement extends to Private Activity Bond (PAB) funding received by a LIHTC project. PABs are a critical component of affordable housing finance that often works in tandem with the housing credit. The 2008 amendment to the LIHTC statute clarified that rental projects would not fail to meet the general public use requirement solely because the project has occupancy restrictions or preferences that favor military veterans, or other specified groups. (26 USC 42(g)(9)). A similar clarification does not exist in the statute governing the general public use requirement for Private Activity Bonds.

The IRS notice comes just weeks after a group of U.S. Senators, led by Diane Feinstein (D-CA), sent a letter to IRS Commissioner Charles Rettig expressing frustration with a recent informal and unpublished IRS interpretation of the statute that would preclude the use of PABs for LIHTC projects that serve veterans. The letter cited a specific veteran housing development in California that could not break ground because of this interpretation. The Senators claimed IRS had “misinterpreted the statute and congressional intent,” and called on IRS to issue a notice clarifying that affordable housing projects that comply with the LIHTC public use criteria are also eligible for PABs.

In a statement, Senator Feinstein said, “I’m grateful the IRS listened to our concerns and clarified that veteran housing projects can continue to receive funding through tax-exempt private activity bonds. These bonds are critical to building affordable housing for veterans, and losing access to them would have imperiled projects around the country.”

Read the IRS notice here.