Written by Glenn Graff, Published by Novogradac & Company LLP, Journal of Tax Credits, April 2011, Volume II, Issue IV
On February 11, 2011 the Internal Revenue Service (IRS) released Offi ce of Chief Counsel Memo 201106008 stating that Tax Credit Assistance Program (TCAP) grants are taxable and that the income accrues at the time the grant agreements are signed. Should developers be concerned? Does a check need to be cut to Uncle Sam for 35 percent of the amount of the TCAP funds that a project receives? The answer for most developers is that no check needs to be cut and no taxes are due. But the memo is interesting and bears some analysis.
Congress passed the American Recovery and Reinvestment Act (ARRA) in 2009 to help stimulate the economy. One of the provisions of ARRA created the TCAP program and provided $2.25 billion in funds to help projects using federal low-income housing tax credits (LIHTCs). The funds were granted to the state credit agencies that then loaned or granted the funds to owners of LIHTC projects. While the LIHTC rules normally provide that a project’s LIHTC eligible basis is reduced by the amount of a federal grant, the TCAP statute specifi cally states that TCAP funds do not reduce eligible basis. However, other than this reference to eligible basis, the TCAP statute was silent as to the tax treatment of TCAP funds.
Memo 201106008 asked two questions: Are TCAP grants included in the gross income of the recipient? And if the grant is taxable, would the grant be included into income in the year the grant is awarded or the year the grant is received?
Following discussions with IRS personnel involved in the creation of the memo, the IRS Chief Counsel Office was requested to issue the memo to assist in drafting an upcoming revised audit guide for the LIHTC program.