Treasury Responds to Lawmakers On Sandy Aid and Florida CDD

A high ranking Treasury official has assured Sen. Frank Lautenberg, D-N.J., that the department will consider his proposal to increase available financing for rehabilitating affordable housing units damaged by Hurricane Sandy.

Separately, Joseph Grant, acting commissioner of the Internal Revenue Service’s Tax-Exempt and Government Entities division told Sen. Bill Nelson, D-Fla., that the agency is not contemplating tax guidance on whether community development districts are political subdivisions.

Lautenberg on Jan. 3 had requested guidance from the Treasury about whether a taxpayer who purchases a qualified low-income housing project and uses tax-exempt bonds for rehabilitation costs necessitated by a federally-declared disaster will cause the project to lose its pre-casualty tax credit of 9%.

In the letter dated Jan. 14, Treasury’s Assistant Secretary for Legislative Affairs Alastair Fitzpayne responded, saying the IRS is “considering this proposal as part of that guidance process.”

“Since Hurricane Sandy struck, Treasury and the Internal Revenue Service have been actively working on guidance to assist homeowners and other victims of the hurricane,” Fitzpayne wrote.

Lautenberg represents one of the states hardest hit by Sandy and requested clarification on this aspect of the low income housing tax credit program to help expand all financial options for rehabilitating nearly 300,000 damaged housing units in New Jersey.

Meanwhile, Grant told Nelson in a letter dated Jan. 9,  that the issues he raised, including whether a CDD is a political subdivision,  “are not part of a general guidance project under consideration at this time.”

“Whether the issues are presented in the context of a particular taxpayer’s liability is not something we can address in this response,” Grant wrote. “The law does not allow us to share information about a taxpayer absent consent from that taxpayer.”

The issue has come up with regard to the Villages, a retirement community encompassing more than 21,000 acres primarily located in Sumter County, Fla. CDDs are authorized under Florida law to levy and collect special assessments to pay debt service on bonds and maintenance assessments to fund district operations.

The IRS has been auditing the bonds of the Village CDD and contends they are not tax-exempt in part because the CDD is not a political subdivison. The CDD has challenged that finding and requested a technical advice memorandum from the IRS’ Office of Chief Counsel for Financial Institutions and Products.

Fitch Ratings recently assigned an “A” rating to Village CDD No. 5 special assessment bonds and said that it believes the district’s “independent governance structure insulates it from a recent tentative IRS finding that the commercial Village CDD is not a ‘political subdivision’ of the state.”

Neither Sens. Lautenberg or Nelson’s offices were available to comment on the letters.

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