[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.42-2]

[Page 148-151]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.42-2  Waiver of requirement that an existing building eligible for the low-income housing credit was last placed in service more than 10 years prior to 
          acquisition by the taxpayer.

    (a) Low-income housing credit for existing building. Section 42 
provides that, for purposes of section 38, new and existing qualified 
low-income buildings are eligible for a low-income housing credit. The 
eligibility rules for new and existing buildings differ. Under section 
42(d)(2), an existing building may be eligible for the low-income 
housing credit based upon the acquisition cost and amounts chargeable to 
capital account (to the extent properly included in eligible basis) if--
    (1) The taxpayer acquires the building by purchase (as defined in 
section 179(d)(2), as applicable under section 42(d)(2)(D)(iii)(I)),
    (2) There is a period of at least 10 years between the date of the 
building's acquisition by the taxpayer and the later of--(i) The date 
the building was last placed in service, or
    (ii) The date of the most recent nonqualified substantial 
improvement of the building, and
    (3) The building was not previously placed in service by the 
taxpayer, or by a person who was a related person (as defined in section 
42(d)(2)(D)(iii)(II)) with respect to the taxpayer as of the time the 
building was last previously placed in service.
    (b) Waiver of 10-year holding period requirement. Section 42(d)(6) 
provides that a taxpayer may apply for a waiver of the 10-year holding 
period requirement specified in paragraph (a)(2) of this section. The 
Internal Revenue Service will grant a waiver only if--
    (1) The existing building satisfies all of the requirements in 
paragraph (c) of this section, and
    (2) The taxpayer makes an application in conformity with the 
requirements in paragraph (d) of this section.
    (c) Waiver requirements--(1) Federally-assisted building. To satisfy 
the requirement of this paragraph, a building must be a Federally-
assisted building. The term ``Federally assisted building'' means any 
building which is substantially assisted, financed, or operated under 
section 8 of the United States Housing Act of 1937, section 221(d)(3) or 
236 of the National Housing Act, or section 515 of the Housing Act of 
1949, as such acts were in effect on October 22, 1986.
    (2) Federal mortgage funds at risk. To satisfy the requirement of 
this paragraph, Federal mortgage funds must be at risk with respect to a 
mortgage that is secured by the building or a project

[[Page 149]]

of which the building is a part. For purposes of this paragraph, Federal 
mortgage funds are at risk if, in the event of a default by the 
mortgagor on the mortgage secured by the building or the project of 
which the building is a part--
    (i) The mortgage could be assigned to the Department of Housing and 
Urban Development or the Farmers' Home Administration, or
    (ii) There could arise a claim against a Federal mortgage insurance 
fund (or such Department or Administration).
    (3) Statement by the Department of Housing and Urban Development or 
the Farmers' Home Administration. (i) To satisfy the requirement of this 
paragraph, a letter or other written statement must be made or received 
and approved by the national office of the Department of Housing and 
Urban Development or the Farmers' Home Administration (``the Federal 
agency''). This letter or statement shall include the following:
    (A) A statement that, as of the earlier of the time of the 
taxpayer's acquisition of the building or the taxpayer's application for 
a waiver, the building is a Federally-assisted building within the 
meaning of paragraph (c)(1) of this section and identifies the source of 
Federal assistance;
    (B) A statement that a waiver of the 10-year holding period 
requirement is necessary to avert Federal mortgage funds being at risk 
within the meaning of paragraph (c)(2) of this section; and
    (C) A statement that the Federal agency has taken a Federal agency 
action as described in paragraph (c)(3)(ii) of this section.
    (ii) The following specified Federal agency actions shall be the 
only means of satisfying the requirement of this paragraph:
    (A) The Federal agency intends to accept an assignment of a mortgage 
secured by the building or the project of which the building is a part, 
and such assignment requires payments by the agency or a mortgage 
insurance fund maintained by the agency to the prior mortgagee;
    (B) The Federal agency or a mortgage insurance fund maintained by 
the agency intends to accept, as a consequence of foreclosure 
proceedings or otherwise, conveyance of the building or the project of 
which the building is a part;
    (C) The Federal agency or a mortgage insurance fund maintained by 
the agency intends, as a consequence of default, to take possession of, 
hold title to, or otherwise assume ownership of the building or the 
project of which the building is a part; or
    (D) The Federal agency has designated the building or the project of 
which the building is a part as a troubled building or project. A 
designation of a troubled building or project must satisfy the following 
requirements:
    (1) Designation of troubled status must be based on a review by the 
Federal agency of the financial condition of the building or project and 
on a determination by the Federal agency of a history of financial 
distress or mortgage defaults;
    (2) Designation of troubled status must be made or received and 
approved by the national office of the Federal agency; and
    (3) Federal agency regulations or procedures must provide that, in 
the event of transfer of the ownership of a designated troubled building 
or project, the building or project may be subject to continued review 
by the Federal agency. Each Federal agency may prescribe its own 
standards and procedures for designating a troubled building or project 
so long as such standards are consistent with the requirements of this 
paragraph (c)(3)(ii)(D).
    (4) No prior credit allowed. The requirement of this paragraph is 
satisfied only if no prior owner was allowed a low-income housing credit 
under section 42 for the building.
    (d) Application for waiver--(1) Time and manner. In order to receive 
a waiver of the 10-year holding period requirement specified in 
paragraph (a)(2) of this section, a taxpayer must file an application 
(including the applicable user fee) that complies with the requirements 
of this paragraph (d) and Rev. Proc. 90-1, 1990-1 I.R.B. 8 (or any 
subsequent applicable revenue procedure). The application must be filed 
by a taxpayer who has acquired the building by purchase or who has a 
binding contract to purchase the building.

[[Page 150]]

Such binding contract may be conditioned upon the granting of a waiver 
under this section. The application may be filed at any time after a 
binding contract has been entered into, but no later than 12 months 
after the taxpayer's acquisition of the building. An application for a 
waiver of the 10-year holding period requirement must not contain a 
request for a ruling on any other issue arising under section 42 or 
other sections of the Internal Revenue Code. An application for a waiver 
of the 10-year holding period requirement must be mailed or delivered to 
the address listed in section 3.01 of Rev. Proc. 90-1 (or any subsequent 
applicable revenue procedure).
    (2) Information required. An application for a waiver of the 10-year 
holding period requirement must contain the following information:
    (i) The taxpayer's name, address and taxpayer identification number;
    (ii) The name (if any) and address of the acquired building and the 
project (if any) of which it is a part;
    (iii) The date of acquisition or the date of the binding contract 
for acquisition of the building by the taxpayer and the expected date of 
acquisition, the amount of consideration paid or to be paid for the 
acquisition (including the value of any liabilities assumed by the 
taxpayer), and the taxpayer's certification that such acquisition is by 
purchase (as defined in section 179(d)(2), as applicable under section 
42 (d)(2)(D)(iii)(I));
    (iv) The identity of the person from whom the building is acquired, 
and whether such person is a Federal agency, a mortgagee holding title 
to the building, or the mortgagor or prior owner;
    (v) The date the building was last placed in service and the date of 
the most recent (if any) nonqualified substantial improvement of the 
building (as defined in section 42 (d)(2)(D)(i));
    (vi) The taxpayer's certification that the building was not 
previously placed in service by the taxpayer, or by a person who was a 
related person (as defined in section 42(d)(2)(D)(iii)(II)) with respect 
to the taxpayer as of the time the building was last placed in service;
    (vii) The amount and disposition (e.g., discharge, assignment, 
assumption, or refinance) of the outstanding mortgage at the time of 
acquisition and the identities of the mortgagee and mortgagor;
    (viii) The taxpayer's certification that no prior owner was allowed 
a low-income housing credit under section 42 for the building (made to 
the best of the taxpayer's knowledge, with no documentation from other 
persons needed to be submitted); and
    (ix) The statement from the Federal agency required by paragraph 
(c)(3)(i) of this section.
    (3) Other rules. (i) In the event that an acquired building will be 
owned by more than one taxpayer, a single application for waiver may be 
filed by one taxpayer on behalf of the co-owners if the application 
contains the names, addresses and taxpayer identification numbers of the 
other owners. A general partner or a designated limited partner may file 
an application for waiver on behalf of a partnership.
    (ii) In the event that multiple Federally-assisted buildings in a 
project are being acquired by the taxpayer, a single application for 
waiver with respect to such buildings may be filed if the application 
contains the required information set out for the address of each 
Federally-assisted building involved.
    (iii) In the event that specific Federally-assisted buildings are 
being acquired by the taxpayer in a project consisting of multiple 
buildings that may or may not be Federally-assisted, a single 
application for waiver with respect to the Federally-assisted buildings 
being acquired may be filed if the application contains the required 
information set out for the address of each Federally-assisted building 
being acquired.
    (4) Effective date of waiver. A waiver will be effective when 
granted in writing by the Internal Revenue Service after submission of a 
completed application for waiver filed under this paragraph (d).
    (5) Attachment to return. A waiver letter granted by the Internal 
Revenue Service shall be filed with the taxpayer's Federal income tax 
return for the first taxable year the low-income housing credit is 
claimed by the taxpayer.

[[Page 151]]

    (e) Effective date of regulations. The provisions of Sec. 1.42-2 are 
effective for buildings placed in service by the taxpayer after December 
31, 1986.

[T.D. 8302, 55 FR 21189, May 23, 1990; 55 FR 25973, June 26, 1990]