Low-income housing credit improvements

(a)

Renaming the low-income housing credit as the affordable housing credit

(1)

In general

The heading of section 42 of the Internal Revenue Code of 1986 (relating to low-income housing credit) is amended by striking

Low-income

and inserting

Affordable

. (2)

Conforming amendments

(A)Sections 38(b)(5), 42(a), 772(a)(7), and 772(d)(5) of such Code are each amended by striking low-income and inserting affordable. (B)The headings of subparagraphs (3)(D) and (6)(B) of section 469(i) of such Code are each amended by striking

low-income

and inserting

affordable

. (C)The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 42 and inserting the following:

Sec. 42. Affordable housing credit.

(b)

Modification of rules for determining applicable percentage

(1)

In general

Subsection (b) of section 42 of the Internal Revenue Code of 1986 (relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings) is amended to read as follows:

(b)

Applicable percentage

(1)

In general

For purposes of this section, the term applicable percentage means— (A)9 percent in the case of any building to which subparagraph (B) does not apply, and (B)4 percent in the case of— (i)any existing building, and (ii)any new building if, at any time during the taxable year or any prior taxable year, there is or was outstanding any obligation— (I)not taken into account under section 146, (II)which is exempt from tax under section 103, and (III)the proceeds of which are or were used (directly or indirectly) with respect to such building or the operation thereof. (2)

Cross references

(A)For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e). (B)For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3). (C)For authority of housing credit agency to limit applicable percentage and qualified basis which may be taken into account under this section with respect to any building, see subsection (h)(7).

(2)

Modification of rules related to Federal subsidies

Paragraph (2) of section 42(i) of such Code (relating to determination of whether building is Federally subsidized) is amended to read as follows:

(2)

Exceptions for certain new buildings otherwise subject to 4 percent credit limitation

(A)

Election to reduce eligible basis by proceeds of obligations

A tax-exempt obligation shall not be taken into account under subsection (b)(1)(B)(ii) if the taxpayer elects to exclude the proceeds of such obligation from the eligible basis of the building for purposes of subsection (d). (B)

Special rule for subsidized construction financing

A tax-exempt obligation used to provide construction financing for any building shall not be taken into account under subsection (b)(1)(B)(ii) if— (i)such obligation (when issued) identified the building for which the proceeds of such obligation would be used, and (ii)such obligation is redeemed before such building is placed in service.

(c)

Increase in credit for buildings in State designated areas

(1)

In general

Clause (i) of section 42(d)(5)(C) of the Internal Revenue Code of 1986 (relating to increase in credit for buildings in high cost areas) is amended by striking or difficult development area and inserting , difficult development area, or State designated project. (2)

State designated project

Subparagraph (C) of section 42(d)(5) of such Code is amended by adding at the end the following new clause:

(v)

State designated project

For purposes of this subparagraph, the term State designated project means any project designated by the housing credit agency as meeting such criteria for designation under this clause as the State in which such project is located may specify. The rules of clauses (ii)(II) and (iv) shall not apply for purposes designations made under this clause.

(3)

Conforming amendment

The heading of subparagraph (C) of section 42(d)(5) of such Code is amended by striking

buildings in high cost areas

and inserting

certain buildings

. (d)

Modification of scattered site rule

Paragraph (7) of section 42(g) of the Internal Revenue Code of 1986 (relating to scattered site projects) is amended to read as follows:

(7)

Scattered site projects

Buildings which would (but for their lack of proximity) be treated as a project for purposes of this section shall be so treated if the rent-restricted (within the meaning of paragraph (2)) residential units of such project are distributed among such buildings in proportion to the number of residential units in each building.

(e)

Affordable housing credits allowed for section 8 moderate rehabilitation developments

Paragraph (2) of section 42(c) of the Internal Revenue Code of 1986 (relating to qualified low-income building) is amended by striking the last sentence. (f)

Effective date

The amendments made by this section shall apply to— (1)housing credit dollar amounts allocated after December 31, 2006, and (2)buildings placed in service after such date to the extent paragraph (1) of section 42(h) of the Internal Revenue Code of 1986 does not apply to such building by reason of paragraph (4) thereof, but only with respect to bonds issued after such date.

Repeal of required use of certain principal repayments on qualified mortgage issues to redeem bonds

(a)

In general

Subparagraph (A) of section 142(a)(2) of the Internal Revenue Code of 1986 (relating to qualified mortgage issue defined) is amended by inserting and at the end of clause (ii), by striking , and at the end of clause (iii) and inserting a period, and by striking clause (iv) and the last sentence. (b)

Conforming amendment

Clause (ii) of section 142(a)(2)(D) of such Code is amended by striking (and clause (iv) of subparagraph (A)). (c)

Effective date

The amendments made by this section shall apply to repayments received after the date of the enactment of this Act.

Coordination of certain rules applicable to affordable housing credit and qualified residential rental project exempt facility bonds

(a)

Determination of next available unit

Paragraph (3) of section 142(d) of the Internal Revenue Code of 1986 (relating to current income determinations) is amended by adding at the end the following new subparagraph:

(C)

Exception for projects with respect to which affordable housing credit is allowed

In the case of a project with respect to which credit is allowed under section 42, the second sentence of subparagraph (B) shall be applied by substituting building (within the meaning of section 42) for project.

(b)

Students

Paragraph (2) of section 142(d) of the Internal Revenue Code of 1986 (relating to definitions and special rules) is amended by adding at the end the following new subparagraph:

(C)

Students

Students (as defined in section 151(c)(4)) shall not be treated as satisfying the requirements of subparagraph (A) or (B) of paragraph (1) except under rules similar to the rules of 42(i)(3)(D).

(c)

Single-room occupancy units

Paragraph (2) of section 142(d) of the Internal Revenue Code of 1986 (relating to definitions and special rules), as amended by this Act, is further amended by adding at the end the following new subparagraph:

(D)

Single-room occupancy units

A unit shall not fail to be treated as a residential unit merely because such unit is a single-room occupancy unit (within the meaning of section 42).

(d)

Effective date

The amendments made by this section shall apply to determinations of the status of qualified residential rental projects for periods beginning after the date of the enactment of this Act, with respect to bonds issued before, on, or after such date.

Displaced homemakers, single parents, and certain disaster victims treated as first-time home buyers under rules for mortgage revenue bonds

(a)

In general

Paragraph (2) of section 143(d) of the Internal Revenue Code of 1986 (relating to exceptions) is amended by striking and at the end of subparagraph (B), and by inserting after subparagraph (C) the following new subparagraphs:

(D)financing provided to a displaced homemaker or a single parent, and (E)financing provided for the acquisition of a residence located in an area determined by the President to warrant assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by an individual whose prior primary residence was in such area and was destroyed or otherwise rendered uninhabitable as a result of such disaster,

(b)

Displaced homemaker; single parent

Subsection (d) of section 143 of such Code (relating to 3-year requirement) is amended by adding at the end the following new paragraph:

(4)

Displaced homemaker; single parent

For purposes of paragraph (2)(D)— (A)

Displaced homemaker

The term displaced homemaker means an individual who— (i)is an adult, (ii)has not worked full-time full-year in the labor force for a number of years but has, during such years, worked primarily without remuneration to care for the home and family, and (iii)is unemployed or underemployed and is experiencing difficulty in obtaining or upgrading employment. (B)

Single parent

The term single parent means an individual who— (i)is not a married individual, and (ii)who has one or more dependents (within the meaning of section 152).

(c)

Effective date

The amendment made by this section shall apply to bonds originally issued after the date of the enactment of this Act.

Repeal of recapture bond rule

(a)

In general

Paragraph (6) of section 42(j) of the Internal Revenue Code of 1986 (relating to recapture of credit) is amended to read as follows:

(6)

No recapture on disposition of building (or interest therein) reasonably expected to continue as a qualified low-income building

(A)

In general

In the case of a disposition of a building or an interest therein, the taxpayer shall be discharged from liability for any additional tax under this subsection by reason of such disposition if it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remaining compliance period with respect to such building. (B)

Statute of limitations

(i)

Extension of period

The period for assessing a deficiency attributable to the application of subparagraph (A) with respect to a building (or interest therein) during the compliance period with respect to such building shall not expire before the expiration of 3 years after the end of such compliance period. (ii)

Assessment

Such deficiency may be assessed before the expiration of the 3-year period referred to in clause (i) notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

(b)

Information reporting

(1)

In general

Subpart B of part III of subchapter A of chapter 61 of such Code (relating to information concerning transactions with other persons) is amended by inserting after section 6050T the following new section:

6050U.

Returns relating to payment of low-income housing credit repayment amount

(a)

Requirement of reporting

Every person who, at any time during the taxable year, is an owner of a building (or an interest therein)— (1)which is in the compliance period at any time during such year, and (2)with respect to which recapture is required by section 42(j),

shall, at such time as the Secretary may prescribe, make the return described in subsection (b).

(b)

Form and manner of returns

A return is described in this subsection if such return— (1)is in such form as the Secretary may prescribe, and (2)contains— (A)the name, address, and TIN of each person who, with respect to such building or interest, was formerly an investor in such owner at any time during the compliance period, (B)the amount (if any) of any credit recapture amount required under section 42(j), and (C)such other information as the Secretary may prescribe. (c)

Statements to be furnished to persons with respect to whom information is required

Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return a written statement showing— (1)the name and address of the person required to make such return and the phone number of the information contact for such person, and (2)the information required to be shown on the return with respect to such person.

The written statement required under the preceding sentence shall be furnished on or before March 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

(d)

Compliance period

For purposes of this section, the term compliance period has the meaning given such term by section 42(i).

(2)

Assessable penalties

(A)Subparagraph (B) of section 6724(d)(1) of such Code (relating to definitions) is amended by redesignating clauses (xiii) through (xviii) as clauses (xiv) through (xix), respectively, and by inserting after clause (xii) the following new clause:

(xiii)section 6050U (relating to returns relating to payment of low-income housing credit repayment amount),

(B)Paragraph (2) of section 6724(d) of such Code is amended by striking or at the end of subparagraph (AA), by striking the period at the end of subparagraph (BB) and inserting , or, and by adding after subparagraph (BB) the following new subparagraph:

(CC)section 6050U (relating to returns relating to payment of low-income housing credit repayment amount).

(C)

Clerical amendment

The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after the item relating to section 6050S the following new item:

Sec. 6050U. Returns relating to payment of low-income housing credit repayment amount.

(c)

Effective date

(1)

In general

The amendments made by this section shall apply with respect to any liability for the credit recapture amount under section 42(j) of the Internal Revenue Code of 1986 that arises after the date of the enactment of this Act. (2)

Special rule for low-income housing buildings sold before date of enactment of this Act

In the case of a building disposed of before the date of the enactment of this Act with respect to which the taxpayer posted a bond (or alternative form of security) under section 42(j) of the Internal Revenue Code of 1986 (as in effect before the enactment of this Act), the taxpayer may elect (by notifying the Secretary of the Treasury in writing)— (A)to cease to be subject to the bond requirements under section 42(j)(6) of such Code, as in effect before the enactment of this Act, and (B)to be subject to the requirements of section 42(j) of such Code, as amended by this Act.

Affordable housing credit allowed against alternative minimum tax

(a)

In general

Subsection (c) of section 38 of the Internal Revenue Code of 1986 (relating to limitation based on amount of tax) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:

(5)

Special rules for affordable housing credit

(A)

In general

In the case of the affordable housing credit— (i)this section and section 39 shall be applied separately with respect to such credit, and (ii)in applying paragraph (1) to such credit— (I)the tentative minimum tax shall be treated as being zero, and (II)the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the affordable housing credit). (B)

Affordable housing credit

For purposes of this subsection, the term affordable housing credit means the portion of the credit under subsection (a) which is attributable to the credit determined under section 42 (relating to affordable housing credit).

(b)

Conforming amendments

(1)Subclause (II) of section 38(c)(2)(A)(ii) of such Code is amended by striking and the specified credits and inserting the specified credits, and the affordable housing credit. (2)Subclause (II) of section 38(c)(3)(A)(ii) of such Code is amended by striking and the specified credits and inserting , the specified credits, and the affordable housing credit. (3)Subclause (II) of section 38(c)(4)(A)(ii) of such Code is amended by inserting and the affordable housing credit after the specified credits. (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

Interest on qualified mortgage bonds, qualified veterans’ mortgage bonds, and qualified residential rental project exempt facility bonds exempt from alternative minimum tax

(a)

In general

Clause (ii) of section 57(a)(5)(C) of the Internal Revenue Code of 1986 (relating to exception for qualified 501(c)(3) bonds) is amended to read as follows:

(ii)

Exception for certain bonds

For purposes of clause (i), the term private activity bond shall not include— (I)any qualified 501(c)(3) bond (as defined in section 145), (II)any qualified mortgage bond (as defined in section 143(a)), (III)any qualified veterans’ mortgage bond (as defined in section 143(b)), and (IV)any exempt facility bond (as defined in section 142(a)) issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide qualified residential rental projects (as defined in section 142(d)).

(b)

Effective date

The amendment made by this section shall apply to bonds originally issued after the date of the enactment of this Act.