Nixon Peabody's Katrina memo

The high-powered Washington firm of Nixon Peabody sent out a detailed "alert" yesterday on the implications of Hurricane Katrina for tax credit housing developers. The 9-page PDF document will presumably appear at some point here and/or here, but the firm seems to leave considerable time between distributing its alerts by email and posting them on its site.

Nixon Peabody summarizes a "disaster policy" issued by HUD on September 2 that is apparently this document now posted at the Katrina site of the Public Housing Authorities Directors Association. This is important information for people trying to work with their local public housing authorities on disaster relief.

On tax issues, the "alert" notes the lack of detail in last week's announcement of a waiver allowing developers who are subsidized by low-income housing tax credits (LIHTC) anywhere in the country to house people of any income level who are classified as disaster victims. It notes that the IRS has yet to flesh out this decision in a formal notice giving details. It says a similar waiver granted last year in Florida remained in effect for "approximately one year."

It refers investors with damaged properties to Internal Revenue Code Sec. 42(j)(4)(E) and Chief Counsel Memorandum 200134006 on the question of how soon a "casualty" must be repaired to avoid recapture of previously claimed credits. It suggests that per the memorandum, "Accordingly, properties damaged by Katrina that are restored by December 31, 2007 (for calendar year taxpayers) would avoid recapture." It also references the extensive disaster relief scheme outlined in Revenue Procedure 95-28, which the Florida Housing Finance Corporation has helpfully posted here. The same Florida Housing page posts IRS Notice 2004-76 on Hurricanes Charley, Frances, Ivan and Jean -- and Nixon Peabody points out the relevance of this notice as a possible model for future Katrina announcements.

Additionally, this extremely well-placed Washington firm gives the following insight into current lobbying activity:

Several national affordable housing trade associations are already discussing with senior HUD officials and Capitol Hill the possibility of using a portion of the emergency funds to provide 'emergency' vouchers to displaced residents. The vouchers, which should be 'need blind' for an initial period, would allow victims to find adequate housing without regard to income. Many owners of privately held affordable housing apartments are contacting HUD's Office of Housing to inform HUD of available housing units. Long-term rebuilding efforts should include new project-based Section 8 rental assistance and increases for low-income housing tax credits and tax-exempt bonds for the States affected by Katrina's wrath. Lastly, there is the possibility of transferring project-based Section 8 contracts covering projects devastated by Hurricane Katrina to other properties.