A preservation exception to the 10-year rule

An IRS private letter ruling (PLR) posted this past Friday granted an exception to keep the new acquisition/rehab purchaser of a Sec. 8 project from losing eligibility for low-income housing tax credits (LIHTC) because of a foreclosure in the property's history. The seller of this multi-unit project had previously sold it to another party, but then had re-acquired it through foreclosure when the other buyer couldn't pay as agreed. The foreclosure officially changed the placed-in-service date of the project, so that the planned LIHTC purchase was formally about to break the 10-year holding rule, which allows LIHTC tax benefits only for acquisition/rehabs taking place more than 10 years after the most recent date a preexisting property was placed in service. The IRS saved the deal by granting a waiver under Sec. 42(d)(6)(A), essentially saying that the acquisition/rehab would preserve the property as low-income housing by preventing the prepayment of its federally subsidized mortgage. The decision is PLR No. 200607013. Private letter rulings may not be cited as precedent.