Young-led bipartisan, bicameral group urges IRS to usher in more affordable housing

With Americans facing a severe housing supply and affordability crisis, U.S. Sen. Todd Young (R-IN) and a bipartisan, bicameral contingent of congressional members urged the Biden administration to ensure an upcoming Internal Revenue Service (IRS) final rule provides a workable solution to incentivize the production of more affordable housing.

In a May 26 letter sent to the U.S. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig, the lawmakers specifically requested swift finalization of the average income test rule under the Low-Income Housing Tax Credit (LIHTC) program, which finances affordable rental homes. 

“We urge you to expedite release of a final rule that ensures the average income test is workable and responsive to feedback on the IRS’s October 30, 2020 proposed rule,” wrote Sen. Young and his eight colleagues, who included U.S. Sens. Rob Portman (R-OH) and Michael Bennet (D-CO), as well as U.S. Reps. Jackie Walorski (R-IN) and Suzan DelBene (D-WA).

The new average income test, which owners can choose instead of the two previously existing minimum set-aside elections, requires that at least 40 percent of housing units be rent-restricted and occupied by households with incomes not exceeding the imputed income limitation designated by the owner, according to their letter. 

“While the average income test is intended to expand affordable housing to more families, stakeholders from across the affordable housing community have raised concerns that implementing IRS’s proposed regulations will be highly complex and risky compared to the LIHTC program’s existing set-aside tests,” the lawmakers wrote, noting that since the publication of the proposed rule, few investors have been willing to invest in average income test properties due to the risk associated with that structure, contradicting congressional intent to broaden the program.

Additionally, during the comment period, stakeholders overwhelmingly urged the IRS to make its final rule more consistent with the existing LIHTC program and with other resources used in affordable housing finance, wrote Sen. Young and his colleagues.

And while pleased by President Joe Biden’s May 16 announcement that the IRS will finalize the income averaging rule no later than Sept. 30, the lawmakers wrote that “the urgency and severity of our nation’s affordable housing crisis” also requires the administration “to meet or exceed this deadline.”