NTCIC President Joins Patrick Robertson of Confluence Government Relations to Discuss Legislative Updates for the HTC in the December Issue of the Novogradac Journal of Tax Credits
Originally featured in the Novogradac Journal of Tax Credits
When most Americans think of Washington, D.C., they think of monuments, school field trips, recent champion sports teams, and, in 2019, political dysfunction. However, Congress and the executive branch agencies are working to accomplish a number of bipartisan issues that fly under the radar of the 24-hour news cycle.
A handful of those policies will affect the historic tax credit (HTC) community, including proposed legislation that would expand and modernize the credit, work at the National Park Service (NPS) on making reviews more efficient, potential new rules from the Internal Revenue Service (IRS) and the potential for updated Community Reinvestment Act (CRA) guidance. With some hard work and engagement from the HTC community, many of these changes are well within the realm of possibility over the next 12 months
The House and the Senate both introduced versions of the Historic Tax Credit Growth and Opportunity Act (HTC-GO). These bills would enhance the value of the credit, expand the availability for more developments (including nonprofit-owned) and make it more compatible with other tax incentives such as the low-income housing tax credit (LIHTC).
The House version was introduced in May by Reps. Earl Blumenauer, D-Ore.; Mike Kelly, R-Pa.; Terri Sewell, D-Ala.; and Mike Turner, R-Ohio, and now has nearly 60 cosponsors. The Senate version was introduced in October by Sens. Bill Cassidy, R-La.; Ben Cardin, D-Md.; Susan Collins, R-Maine, and Maria Cantwell, D-Wash. Both bills have significant support among members of the tax-writing committees who will be responsible for shepherding them through appropriate legislation. These bills are also considered relatively “affordable” in the unique way that Congress does the math, which helps line up bipartisan priorities that could move in a package of tax items.
The proposed provisions were vetted and suggested by stakeholders across the industry and are the No. 1 priority of the Historic Tax Credit Coalition (HTCC) for 2019 and into 2020 if no tax legislation moves this year. The bills would:
- Make it easier to do small deals (defined as qualified rehabilitation expenses of $3.75 million or less) by increasing the credit to 30 percent for these projects;
- Make more buildings eligible for the credit by lowering the substantial rehabilitation test;
- Eliminate the back-end basis adjustment that decreases the value of the credit, making the credit easier to pair with the LIHTC and with the new opportunity zones incentive; and
- Make developments that house community health centers, local art centers, and community services easier to accomplish by eliminating the disqualified lease rules for nonprofits.
The bill introduced in the House also includes a provision that would allow the certification of the federal credit for small deals (defined as qualified rehabilitation expenses of less than $3.75 million). It is important to note that this bill cannot move forward on its own. Like all others interested in tax policy, supporters of the HTC must wait and see if Congress will move a package of tax items before the end of the year. This package would likely include expiring tax credits (often referred to as tax extenders), fixes lingering from the 2017 tax reform, new green incentives and other priorities of members of the House and Senate. In order to pass, it will need to be paired with other must-pass legislation, such as bills to fund the federal government.
The HTCC has been working toward enacting these provisions, or some subset of them, in order to strengthen and modernize the HTC. These changes would allow the HTC to recoup some of the value lost in tax reform but also to improve on some of the longstanding shortcomings of the incentive.
National Park Service Update
The HTCC has been working in concert with the NPS to address understaffing at the reviewer level over the past few years. If you have been to industry conferences or spoken with the NPS recently, you will know the agency is well on its way to being fully staffed. Leadership at the agency has filled many open positions, with a few hires still to come. This boost in staffing, funded by the user fees paid by applicants for the HTC, combined with application levels normalizing after a rush during tax reform, should bring the review process into more of a steady-state.
At the same time, the HTCC has been in conversations with the NPS and the National Conference of State Historic Preservation Officers (NCSHPO) about ways to ensure review timelines for Part 2 submissions that better align with program guidelines. The industry has seen a sharp uptick in the amount of time it takes to review developments, especially big projects, over the past decade, and the HTCC is working to help identify some of the causes of that delay and collaborate with our agency partners on potential solutions.
The IRS has been working hard to get through all of the tax law changes, and it intends to issue guidance for the changes implemented at the end of2017.
Internal Revenue Service
The IRS published its priority guidance list recently for fiscal year 2020, which runs from Oct. 1, 2019, through Sept. 30, 2020. This list is published twice a year and controls the guidance projects undertaken by the IRS. The list is not complete nor binding, but it offers a good sense of where the IRS is planning to regulate in the year ahead. This year’s priority guidance document includes updating HTC rules after the passage of tax reform. The IRS has been working hard to get through all of the tax law changes, and it intends to issue guidance for the changes implemented at the end of 2017. The HTCC has a long history of working with the IRS on these guidance projects and expects to do the same this year.
Community Reinvestment Act
The Office of the Comptroller of the Currency (OCC) issued a new fact sheet on the HTC at the end of October, addressing changes in the program after tax reform. In addition, the HTCC commented on the OCC’s proposal to revise the CRA rules. The comments encouraged the OCC to make all HTC properties eligible for CRA credit. We anticipate the OCC will release a draft of its proposed update before the end of the calendar year.
In addition to focusing on the above issues, the HTCC is looking forward to other opportunities to make the HTC better or address challenges that might fact the industry. The members of the HTCC drive this process and the HTCC is in the planning phases for 2020 and beyond, thinking about what kind of changes might be warranted. All of this only happens with continued engagement and advocacy through direct outreach in Washington; local engagement through tours, groundbreakings, and ribbon cuttings; and sustained relationships with policymakers. We encourage you to join us in sharing your successes and ideas for improvement with us so we can amplify your voice with members of Congress and the agencies that administer the credit.
This article first appeared in the December 2019 issue of the Novogradac Journal of Tax Credits.
Merrill Hoopengardner is the president of the National Trust Community Investment Corporation, chair of the Historic Tax Credit Coalition (HTCC) and a member of the Novogradac Journal of Tax Credits Advisory Board. Patrick Robertson is the founder of Confluence Government Relations, a full-service government affairs and business advisory firm, and is a lobbyist for the HTCC.