Community Service Facilities
subsequent years, the owner will follow the rules outlined in IRC §42(f)(3) for increases in qualified basis; i.e., the “2/3 credit” rules.
As part of the Community Renewal Tax Relief Act of 2000, a new IRC §42(d)(4)(C) was added to include property used to provide services to nontenants as part of the eligible basis used for determining the LIHC amount.
There are specific requirements:
The property must be located in a qualified census tract. *(See former IRC §42(d)(5)(C)(ii) for buildings placed in service prior to July 31, 2008, and IRC §42(d)(5)(B)(ii) for buildings placed in service after July 30, 2008.)*
The property must be subject to the allowance for depreciation and not otherwise accounted for.
The property must be used throughout the taxable year in providing any community service facility.
Under IRC §42(d)(4)(C)(iii), a community service facility must be designed to service primarily individuals whose income is 60 percent or less of the area median income. According to Rev. Rul. 2003-77, the requirement is satisfied if the following conditions are met:
The facility must be used to provide services that will improve the quality of life for community residents; i.e., day care, career counseling, literacy training, education (including tutorial services), recreation, and out-patient clinical health care.
The owner must demonstrate that the services provided at the facility will be appropriate and helpful to individuals in the area of the project whose income is 60 percent or less of area median income. This may, for example, be demonstrated in the market study required under IRC §42(m)(1)(A)(iii), or a similar study.
The facility must be located on the same tract of land as one of the buildings that comprises the qualified low-income housing project.
If fees are charged for the services provided, they must be affordable to individuals whose income is 60 percent or less of the area median income.
*For buildings placed in service on or before July 30,2008,* the increase in the adjusted basis of any building that includes the community service facility cannot exceed 10 percent of the eligible basis of the qualified low-income housing project of which it is a part. All community service facilities that are part of the same qualified low-income housing project are treated as one facility. *For buildings placed in service after July 30, 2008, the allowable community service facility cannot exceed (1) 25 percent of the eligible basis of the qualified low-income housing project of which it is a part and does not to exceed $15,000,000 plus (2) 10 percent of the eligible basis of the project in excess of (1) above.*
Revised October 2009