On December 1, 2021, the IRS issued Revenue Ruling 2021-20 and Revenue Procedure 2021-43.
Since the Taxpayer Certainty and Disaster Tax Relief Act of 2020 created the 4% Minimum Floor, there have been questions surrounding what qualifies a low income housing tax credit building to receive the 4% rate. Revenue Ruling 2021-20 clarified that the 4% floor does NOT apply to the following situations:
1) Draw down bonds with an issue date in 2020 and the building is placed in service after December 31, 2020
2) Building financed in part with proceeds of an exempt facility bond issue that was issued in 2020 and in part with proceeds of a different exempt facility bond issue that was issued in a de minimis amount after December 31, 2020
3) Building which receives an allocation of housing credits in 2020 and a de minimis additional allocation after December 31, 2020
The applicable percentage of the buildings for the above 3 situations is determined without regard to the 4 percent floor. Therefore, the applicable percentage of the buildings in the above situations would be determined based on the applicable percentage for the month elected (same as before).
Revenue Procedure 2021-43, determined that for a bond issuance after December 31, 2021 NOT to be deemed as de minimis, the bond issuance has to be at least 10% of the total tax exempt obligations that finance the building and for a post 2020 allocation of low income housing tax credits to be deemed NOT de minimis, the allocation of credits has to be at least 10% of the total allocation of credits to the building.
Thus, if you receive both a 2020 and 2021 bond issuance (or allocation of low income housing tax credits), the 2021 bond issuance (or allocation of low income housing tax credits) needs to be at least 10% of the total bond issuance (or total allocation of low income housing tax credits) in order to receive the 4% minimum floor.