Td 10036

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Federal Register / Vol. 90, No. 187 / Tuesday, September 30, 2025 / Rules and Regulations

■ 3. In § 522.3, revise paragraph (b)(2) to
read as follows:

§ 522.3

Amendment.

*

*
*
*
*
(b) * * *
(2) Any submission under § 522.2(b)
through (g) that has been modified since
its prior conveyance to the Chair for an
ordinance, resolution, or amendment
approval; and
*
*
*
*
*
Sharon M. Avery,
Acting Chair.
Jean Hovland,
Vice Chair.
[FR Doc. 2025–19063 Filed 9–29–25; 8:45 am]
BILLING CODE 7565–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 10036]
RIN 1545–BQ47

Section 42, Low-Income Housing
Credit Average Income Test
Procedures
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:

This document contains final
regulations setting forth recordkeeping
and reporting requirements for the
average income test for purposes of the
low-income housing credit. If a building
is part of a residential rental project that
satisfies the average income test, the
building may be eligible to earn lowincome housing credits. These final
regulations affect owners of low-income
housing projects, State or local housing
credit agencies that monitor compliance
with the requirements for low-income
housing credits, and, indirectly, tenants
in low-income housing projects.
DATES:
Effective date: These regulations are
effective on September 30, 2025.
Applicability date: For dates of
applicability, see § 1.42–19(f).
FOR FURTHER INFORMATION CONTACT:
Waheed Olayan at (202) 317–4137 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:

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SUMMARY:

Authority
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under section 42 of the Internal
Revenue Code (Code) relating to

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recordkeeping and reporting
requirements for the average income test
for purposes of the low-income housing
credit (final regulations). The final
regulations are issued under the
authority granted to the Secretary of the
Treasury or the Secretary’s delegate
(Secretary) in sections 42(n) and 7805(a)
of the Code.
Section 42(n) provides, in part, ‘‘The
Secretary shall prescribe such
regulations as may be necessary or
appropriate to carry out the purposes of
[section 42] . . .’’
Section 7805(a) provides, ‘‘[T]he
Secretary shall prescribe all needful
rules and regulations for the
enforcement of [the Code], including all
rules and regulations as may be
necessary by reason of any alteration of
law in relation to internal revenue.’’
Background
The Tax Reform Act of 1986, Public
Law 99–514, 100 Stat. 2085 (1986 Act)
created the low-income housing credit
under section 42. Section 42(a) provides
that the amount of the low-income
housing credit for any taxable year in
the credit period is an amount equal to
the applicable percentage (effectively, a
credit rate) of the qualified basis of each
qualified low-income building.
Section 42(c)(1)(A) provides that the
‘‘qualified basis’’ of any qualified lowincome building for any taxable year is
an amount equal to: (i) the applicable
fraction, determined as of the close of
the taxable year, multiplied by (ii) the
eligible basis of the building
(determined under section 42(d)).
Section 42(c)(1)(B) defines the term
‘‘applicable fraction’’ as the smaller of
the unit fraction or floor space fraction.
The unit fraction is the number of lowincome units in the building divided by
the number of residential rental units
(whether or not occupied) in the
building. The floor space fraction is the
total floor space of low-income units in
the building divided by the total floor
space of residential rental units
(whether or not occupied) in the
building.
Subject to certain exceptions in
section 42(i)(3)(B), section 42(i)(3)
defines the term ‘‘low-income unit’’ as
any unit in a building if the unit is rentrestricted and the individuals occupying
the unit meet the income limitation
under section 42(g)(1) that applies to the
project of which the building is a part.
Section 42(d)(1) and (2) describe how
to calculate the eligible basis of a new
building or an existing building,
respectively.
Section 42(c)(2) defines the term
‘‘qualified low-income building’’ as any
building which is part of a qualified

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low-income housing project at all times
during the compliance period (as
defined in section 42(i)(1), the period of
15 taxable years beginning with the first
taxable year of the credit period).
For a project to qualify as a lowincome housing project, it must satisfy
one of the section 42(g) minimum setaside tests, as elected by the taxpayer.
Prior to the enactment of the
Consolidated Appropriations Act of
2018, Public Law 115–141, 132 Stat. 348
(2018 Act), section 42(g) contained two
minimum set-aside tests, known as the
20–50 test and the 40–60 test. Under the
20–50 test, an electing taxpayer cannot
earn any low-income housing credits
unless at least 20 percent of the
residential units in the project both are
rent-restricted and are occupied by
tenants whose gross income is 50
percent or less of the area median gross
income (AMGI). Under the 40–60 test,
an electing taxpayer cannot earn any
low-income housing credits unless at
least 40 percent of the residential units
in the project both are rent-restricted
and are occupied by tenants whose
gross income is 60 percent or less of
AMGI.
The 2018 Act added section
42(g)(1)(C), which gives taxpayers a
third option for their election of a
minimum set-aside test—the average
income test. Under the average income
test, an electing taxpayer cannot earn
any low-income housing credits
unless—(i) 40 percent 1 or more of the
residential units in the project both are
rent-restricted and are occupied by
tenants whose income does not exceed
the imputed income limitation that the
taxpayer designated with respect to the
specific unit; and (ii) the average of the
imputed income designations of these
units does not exceed 60 percent of
AMGI.
Special rules in section
42(g)(1)(C)(ii)(I) through (III) govern the
income limitations of low-income units
as well as the role of those limitations
in the average income test. Under the
20–50 and 40–60 tests, the income
limitations for all low-income units flow
automatically from the taxpayer’s
election of one of those two set-side
tests. In contrast, under the average
income test, the electing taxpayer must
designate each unit’s imputed income
limitation, which will then be taken into
account in applying the test. In
addition, section 42(g)(1)(C)(ii)(III)
requires the imputed income limitation
designated for any unit to be 20, 30, 40,
50, 60, 70, or 80 percent of AMGI.
1 In the case of a project described in section
142(d)(6), this ‘‘40 percent’’ is replaced with ‘‘25
percent.’’

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Federal Register / Vol. 90, No. 187 / Tuesday, September 30, 2025 / Rules and Regulations
Under section 42(g), once a taxpayer
elects to use a particular set-aside test
for a project, that election is irrevocable.
Thus, once a taxpayer has elected to use
any of the three tests, the taxpayer may
not subsequently elect to use one of the
others. Although a taxpayer may have
elected the 20–40 or 40–60 test before
the average income test became
available, the later availability of the
average income test does not affect the
irrevocability of the earlier election.
Under section 42(m)(1), every State or
local housing credit agency (Agency)
making allocations of the ability to earn
low-income housing credits must have a
qualified allocation plan (QAP) to guide
it in making those allocations.
Under section 42(m)(1)(B)(iii), a QAP
must also contain a procedure that the
Agency (or its agent) will follow in
monitoring noncompliance with lowincome housing credit requirements and
in notifying the IRS of any such
noncompliance. See § 1.42–5 of the
Income Tax Regulations for rules
implementing this requirement.
Section 1.42–5(e)(2) provides that a
QAP must require an Agency to provide
prompt written notice to the owner of a
low-income housing project if the
Agency does not receive the
certification described in § 1.42–5(c)(1),
or does not receive, or is not permitted
to inspect, the tenant income
certifications, supporting
documentation, and rent records
described in § 1.42–5(c)(2)(ii), or
discovers by inspection, review, or in
some other manner, that the project is
not in compliance with the provisions
of section 42.
Section 1.42–5(e)(4) both sets the
correction period after an Agency has
notified an owner under § 1.42–5(e)(2)
and provides that the correction period
shall be that period specified in the
monitoring procedure during which an
owner must supply any missing
certifications and bring the project into
compliance with the provisions of
section 42. The correction period is not
to exceed 90 days from the date of the
notice to the owner described in § 1.42–
5(e)(2). An Agency may extend the
correction period for up to 6 months,
but only if the Agency determines there
is good cause for granting the extension.
On October 30, 2020, the Department
of Treasury (Treasury Department) and
the IRS published a notice of proposed
rulemaking (REG–119890–18) in the
Federal Register (85 FR 68816)
proposing regulations setting forth
guidance on the average income test
under section 42(g)(1)(C) (2020
proposed regulations). On March 24,
2021, the Treasury Department and the

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IRS held a public hearing on the 2020
proposed regulations.
The possibility of a ‘‘cliff’’ (as
described in following two paragraphs)
was one of the main concerns that
commenters expressed regarding the
2020 proposed regulations. Almost all
projects earning low-income housing
credits have more than the minimum
number of low-income units needed for
the project to qualify for the credits.
Thus, with the 20–50 or 40–60 tests, a
later discovery that some unit failed to
be a low-income unit generally would
reduce the amount of credit earned but
would not totally preclude a project’s
eligibility.
By contrast, in response to the 2020
proposed regulations, commenters were
concerned about the following
possibility with respect to the average
income test: Suppose that a taxpayer
identified well over 40 percent of units
whose income limits averaged exactly
60 percent of AMGI, and further
suppose that one of the units with the
lowest income limit turned out to fail
the criteria for being a low-income unit.
In that case, the remaining units
identified by the taxpayer would have
an average income above 60 percent.
The commenters were concerned that,
in this situation and except for timelimited mitigation measures described
in the 2020 proposed regulations, the
2020 proposed regulations would apply
the average income test to all remaining
units. Discovery of a single unit’s failure
might occur only after the proposed
mitigation measures were no longer
available. Thus, because no mitigation
would be possible, the entire project
would fail the average income set-aside
test and would be denied any lowincome housing credits. Some
commenters called this total
disqualification a ‘‘cliff,’’ and many
believed that this result was
inappropriate since, despite the loss of
that unit, at least 40 percent of the units
in the project were units whose income
limits averaged to 60 percent or less of
AMGI.
On October 12, 2022, the Treasury
Department and the IRS published
average-income-test final regulations
(TD 9967) in the Federal Register (87 FR
61489) (2022 final regulations). In the
same Treasury decision, the Treasury
Department and the IRS published
temporary regulations providing
recordkeeping and reporting
requirements needed to facilitate
administrability of, and compliance
with, the 2022 final regulations
(temporary regulations).
Under the 2022 final regulations, a
project for residential rental property
meets the requirements of the average

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income test if the taxpayer’s project
contains a qualified group of units that
constitutes 40 percent 2 or more of the
residential units in the project. Section
1.42–19(b)(2)(i) requires the units in a
qualified group to, first, individually
satisfy the criteria that would qualify
each unit as a low-income unit under
section 42(i)(3) (the same criteria that
apply to the 20–50 or 40–60 set-asides).
Specifically, the rules in § 1.42–
19(b)(1)(i) through (iii) require that each
unit be rent-restricted, occupants of the
unit meet the income limitation for the
unit, and no other provision in section
42 (including section 42(i)(3)(B) through
(E)) or the regulations thereunder denies
low-income status to the unit. In
addition, § 1.42–19(b)(2)(ii) requires that
the average of the designated imputed
income limitations of the units in the
group not exceed 60 percent of AMGI.
The qualified group of units must be
identified as required in § 1.42–
19(b)(3)(i).
The Treasury Department and the IRS
expected that commenters’ concerns
would be fully assuaged by the qualified
group approach in the 2022 final
regulations, as implemented with the
flexibility in the temporary regulations.
In the same issue of the Federal
Register in which the 2022 final and
temporary regulations were published,
the Treasury Department and the IRS
published a notice of proposed
rulemaking (REG–113068–22, 87 FR
61543) regarding the administration of
the average income test (2022 proposed
regulations). The text of the temporary
regulations served as the text of the
2022 proposed regulations.
Four public comments were
submitted in response to the 2022
proposed regulations. The comments are
available for public inspection at
www.regulations.gov or upon request.
The Treasury Department and the IRS
considered all comments in the
development of this Treasury decision,
which follows the basic framework of
the 2022 proposed and temporary
regulations, with some revisions. The
following Summary of Comments and
Explanation of Revisions discusses the
comments received and the revisions
adopted.
In addition, the final regulations
include some minor, non-substantive
revisions to the 2022 proposed
regulations that are not discussed in the
Summary of Comments and Explanation
of Revisions.
2 In the case of a project described in section
142(d)(6), this ‘‘40 percent’’ is replaced with ‘‘25
percent.’’

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Federal Register / Vol. 90, No. 187 / Tuesday, September 30, 2025 / Rules and Regulations

Summary of Comments and
Explanation of Revisions
These final regulations provide
recordkeeping and reporting
requirements for the average income test
under section 42(g)(1)(C).

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I. Impact of Noncompliant Unit
Included in Identified Qualified Group
of Units
As with the 2020 proposed
regulations, commenters expressed
concern that the temporary regulations
(and thus the 2022 proposed
regulations) might be interpreted as
again creating such a cliff effect in
circumstances where a taxpayer
identified well over 40 percent of units
whose income limits averaged exactly
60 percent of AMGI. The commenters
stated that the temporary regulations
could be interpretated as meaning that
a post-year-end discovery that one of the
units with the lowest income limit
failed the criteria for being a lowincome unit could cause an entire
project to lose eligibility to earn lowincome housing credits. Specifically, if
the later-discovered noncompliant unit
was in the qualified group of units
reported to the Agency to demonstrate
compliance with the average income
test, then excluding that unit’s (below60 percent of AMGI) income limit
would cause the average of the
remaining units in the identified group
to exceed 60 percent of AMGI.
Commenters also raised the possibility
that the reported qualified group might
contain exactly 40 percent of the units
in the project, even though other units
were available to include in the reported
qualified group. In that case, removing
the now-disqualified unit would reduce
the qualified group of units to less than
40 percent of the project’s total units.
In such cases, commenters suggested
that the taxpayer could have taken steps
to preserve the qualification of the
project if the regulations allowed other
units to be substituted in the qualified
group that is used to satisfy the
requirements of the average income test.
Some of the comment letters proposed
revising § 1.42–19T(c)(4), regarding an
Agency’s waiver authority, to expressly
allow a taxpayer to submit a corrected
group of qualified units.
The 2022 final regulations were
intended to eliminate the risk of a cliff.
Consistent with that intention, the
temporary regulations were not
intended to cause disqualification
because of a post-year-end discovery
that one of the identified units failed the
criteria for being a low-income unit in
circumstances where the taxpayer could
have identified a different group of

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qualified units. The purpose of the
recordkeeping and reporting rules for
the average income test is similar to the
rules for the other set-aside tests. Thus,
the rules in the temporary regulations
are intended to create a
contemporaneous record of the qualified
groups of units. This record helps
document and later verify that the
taxpayer met the requirements of the
average income test and correctly
calculated the applicable fraction of the
building.
The Treasury Department and the IRS
agree with commenters that the final
regulations should more clearly allow
the submission of a corrected qualified
group when the taxpayer or Agency
realizes that a previously submitted
group fails to be a qualified group. For
example, suppose that a unit with a 40
percent imputed income designation is
included in a reported qualified group
but is later determined to have been
noncompliant during the relevant time
period. In such a case, submitting a
revised qualified group can document
both the removal of that noncompliant
unit and any removal of other units. For
example, simultaneously removing the
noncompliant unit and one or more
higher-limitation units may be needed
to reduce the average imputed income
designations of units in the identified
group down to 60 percent or less of
AMGI. This updated reporting
requirement will be helpful for
demonstrating that the average income
test was met as of the prior year end. It
will also be useful for identifying more
clearly the qualified group of units to be
used for calculating the applicable
fraction.
Accordingly, these final regulations
adopt the commenters’ suggestion to
permit the submission of a corrected
qualified group of units. The Treasury
Department and the IRS note that
allowing submission of a revised
qualified group does not allow a
taxpayer retroactively to change income
designations for any unit in a building
after a taxable year has closed. A change
in an income designation is not allowed
even if a tenant’s income would have
supported a lower designation prior to
year end.
II. Reporting of Two Groups of Qualified
Units
Proposed § 1.42–19(c)(1)(ii) would
require taxpayers to report two separate
groups of qualified units: (i) one for the
minimum set-aside test; and (ii) one for
computing the applicable fractions of
buildings in the project. Some
commenters suggested that reporting
two separate groups of qualified units is
unnecessary because a single list of all

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units submitted for determining the
applicable fraction would include the
information needed to determine
whether the minimum set-aside is met.
Under the definition of qualified group,
the designations of the low-income
units in the applicable-fraction qualified
group must average 60 percent or less of
AMGI. Thus, if that group includes at
least 40 percent of the units in the
project, that group of units is a qualified
group that satisfies the average-income
set-aside.
The commenters recommended that
the final regulations streamline the
reporting process to allow a taxpayer to
report to the Agency a single qualified
group of low-income units that is large
enough to include at least 40 percent of
the residential units in the project. This
qualified group of units demonstrates
compliance with the set aside, and data
on the units in each building
represented in the group is available to
compute the applicable fraction(s) for
each such building.
Section 1.42–19(c) of the 2022
proposed regulations would give
Agencies flexibility to determine the
best time and manner for taxpayers to
communicate the required information
so that each Agency can adopt a system
that best serves that particular Agency.
This flexibility is intended to enable the
Agency to minimize burden on the
Agency and taxpayers.
The Treasury Department and the IRS
agree with commenters that one list can
be sufficient. However, it is important to
maintain flexibility for any Agency that
finds two separate lists helpful. Thus,
the final regulations revise the language
in the 2022 proposed regulations to
provide that Agencies have discretion to
permit taxpayers to report either one or
two qualified groups of low-income
units. The final regulations also include
examples illustrating the application of
this rule.
III. Timing of Agency Waiver
Proposed § 1.42–19(c)(4) would
provide Agencies with the discretion,
on a case-by-case basis, to waive in
writing any failure to comply with the
proposed regulations’ recordkeeping
and reporting requirements. The waiver
may be granted up to 180 days after
discovery of the failure, whether by the
taxpayer or Agency.
One commenter was concerned that
180 days may be insufficient to address
a failure, especially if the waiver
discretion is being used to remedy the
‘‘cliff test’’ reporting issue described
earlier. This commenter recommended
revising the final regulations so that the
180-day period starts with the
determination of a designation or

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Federal Register / Vol. 90, No. 187 / Tuesday, September 30, 2025 / Rules and Regulations
identification failure, rather than a
discovery of a failure. The commenter
suggested that this determination be
defined as the Agency’s issuance to the
IRS of Form 8823 (Low-Income Housing
Credit Agencies Report of
Noncompliance or Building
Disposition). Other commenters
recommended that the 180-day period
start after the end of the correction
period in § 1.42–5(e)(4) (90 days after
notice from Agency under § 1.42–
5(e)(2), plus up to an additional six
months at Agency’s discretion).
The Treasury Department and the IRS
considered these recommendations, and
the final regulations adopt a revised
version of the 2022 proposed
regulations. These revisions align the
§ 1.42–19 reporting requirements with
the rules in § 1.42–5. The modification
in § 1.42–19(c)(4) is also necessary
because the final regulations now allow
owners of low-income housing projects
to submit a corrected list upon
discovery of a problem with a
previously submitted list, whether the
discovery is by the taxpayer or Agency.
The final regulations in § 1.42–
19(c)(4) provide that a failure to comply
with the procedural requirements of
§ 1.42–19(c)(1), (c)(2), or (c)(3)(iv) is
treated as corrected in three situations:
(i) if a taxpayer discovers the failure to
comply, the taxpayer has up to 180 days
after discovery of the failure to give the
Agency a revised submission, such as a
revised qualified group of units; (ii) if an
Agency discovers a failure to comply,
the Agency should provide prompt
notification in a manner similar to
§ 1.42–5(e)(2), and then the taxpayer
must satisfactorily address the failure
within the correction period of § 1.42–
5(e)(4); or (iii) in all cases, an Agency
has discretion to waive in writing any
failure to comply with the procedural
requirements of § 1.42–19(c)(1), (c)(2), or
(c)(3)(iv). This waiver must occur within
the applicable time period (dependent
on whether a taxpayer or Agency
discovered failure). As indicated in the
preceding paragraph, the final
regulations distinguish noncompliance
discovered by an Agency and
noncompliance discovered by a
taxpayer. In the case of a taxpayer
discovery, providing the taxpayer with
180 days after discovery to give the
Agency a revised submission should
provide sufficient time for taxpayers to
comply, because the period does not
begin before taxpayers have knowledge,
or an appreciation, that there is, indeed,
a failure.
In contrast, when an Agency
discovers the failure, the final
regulations align with the rules that
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§ 1.42–5. The Agency must provide
prompt notice under § 1.42–5(e)(2) to
start the correction period in § 1.42–
5(e)(4). Aligning the § 1.42–19 rules
with the notice provision in § 1.42–
5(e)(2) and the correction period
provided by § 1.42–5(e)(4) places
taxpayers and Agencies in the same
position with an Agency-discovered
average income issue as the taxpayer is
in when the Agency discovered that
otherwise failed to certify under § 1.42–
5, or when the Agency discovered any
other noncompliance. The final
regulations do not adopt commenters’
suggestion to start the correction period
after a ‘‘determination’’ by the Agency.
Under that suggestion, determination
means the issuance of a Form 8823 as
detailed in § 1.42–5(e)(3). Adopting
such a late deadline would misalign
these rules with the rules in § 1.42–5.
For example, when an Agency
‘‘discovers’’ that a project is not in
compliance with the provisions of
section 42, § 1.42–5(e)(2) requires the
Agency to provide prompt written
notice to start the correction period in
§ 1.42–5(e)(4). If, instead, a
‘‘determination’’ were required for an
Agency-discovered error regarding
average-income, then the permitted
correction period would extend past the
date of the correction period for other
Agency-discovered errors or failed
certifications under § 1.42–5(e)(4) (such
as correcting the physical
noncompliance of a unit). The burden
on the taxpayer in this situation
(submitting a corrected list of units)
does not justify a longer or different
period of time than other Agencyidentified issues.
Effect on Other Documents
The temporary regulations are
removed effective September 30, 2025.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
These final regulations are not subject
to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (July 4,
2025) between the Treasury Department
and the Office of Management and
Budget regarding review of tax
regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) (PRA) requires
that a Federal agency obtain the
approval of OMB before collecting
information from the public, whether
such collection of information is
mandatory, voluntary, or required to
obtain or retain a benefit. The

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collections of information contained in
these regulations has been approved by
OMB under control number 1545–0988.
Section 1.42–19(c)(1) provides
recordkeeping and reporting
requirements related to the
identification of a qualified group of
units for each of (i) satisfaction of the
average income set-aside test and (ii)
applicable fraction determinations.
Section 1.42–19(c)(2) provides reporting
requirements to the Agency with
jurisdiction over a project. Section 1.42–
19(c)(3)(iv) provides recordkeeping and
reporting requirements related to
designations of the imputed income
limitations for residential units. Section
1.42–19(d)(2) provides recordkeeping
and reporting requirements related to
changing a unit’s designated imputed
income limitation.
This information in the collections of
information will generally be used by
the IRS and Agencies for tax compliance
purposes and by taxpayers to facilitate
proper reporting and compliance.
Specifically, the collections of
information in § 1.42–19 apply to
owners of projects that receive the lowincome housing credit and elect the
average income set-aside. With respect
to the recordkeeping requirements in
§ 1.42–19(c)(3)(iv), and (d)(2), section
42(g)(1)(C)(ii)(I) requires that the
taxpayer designate the imputed income
limitations of the units taken into
account for purposes of the average
income test. Thus, the recordkeeping
requirements that are provided allow for
a process of designation that will result
in a reliable record of both the original
designations of the imputed income
limitations of low-income units and any
redesignations of units’ limitations
within a project.
The recordkeeping rules in § 1.42–
19(c)(1) with respect to a qualified
group of units are similarly needed to
ensure there is a reliable record to show
that the units used for purposes of the
average income set-aside test and for
determining a building’s applicable
fraction were part of a group of units
within the project whose average
designated imputed income limitations
do not exceed 60 percent of AMGI. This
limitation is consistent with the
requirement in section 42(g)(1)(C)(ii)(II).
The annual reporting requirements in
§ 1.42–19(c)(1), (c)(3), and (d)(2) are also
similar in substance to other annual
certifications required of taxpayers. For
example, minimum certifications by
owners are required in qualified
allocation plans as provided in § 1.42–
5(c). The reporting requirements in
these final regulations also provide
added flexibility by allowing the
applicable Agency to determine the time

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and manner for the reporting under
§ 1.42–19(c)(2)(i). Also, § 1.42–19(c)(4)
gives taxpayers the ability to correct
failures and maintains the Agencies the
ability to waive any failure of reporting
on a case-by-case basis.
A summary of paperwork burden
estimates follows:
Estimated number of respondents:
Approximately 200 taxpayers elected
the average income test for just over
2,000 buildings between 2018 and 2022.
When viewed annually, we project that
approximately 100 additional taxpayers
will have eligible buildings and 1,000
additional buildings will be eligible
under the average income test.
Estimated burden per response: We
estimate that identifying which units are
for use in the average income set-aside
test and applicable fraction
determinations and designating a unit’s
imputed income limitation takes an
average of 15 minutes per unit. Based on
an estimated average of 15 units per
building and an average 15 minutes of
time per unit, an impacted taxpayer will
incur an average of 225 minutes per
building to record the additional
designations due to the flexibility under
the regulations for the average income
test. Total average annual burden for
recording the designations per building
is 11,250 hours (15 units × 15 minutes
× 3,000 buildings).
Taxpayers are also required to report
redesignation of units, and why they are
required to redesignate units during the
year. For purposes of this analysis, we
assume that an average of 4 units per
building will be redesignated annually.
We estimate each redesignation will
take an average of 10 minutes. Thus, we
estimate the average number of minutes
per year to record redesignations for an
impacted taxpayers to be 40 minutes per
building for a total average annual
burden of 2,000 hours (40 minutes ×
3,000 buildings).
In addition, we estimate an annual
reporting burden related to the
expanded flexibility rules to average 20
minutes per impacted taxpayers for a
total burden of 100 hours (20 minutes ×
300 taxpayers).
Estimated frequency of response:
Annual.
Estimated total burden hours: The
annual burden hours for this regulation
is estimated to be 13,350 hours. Using
a monetization rate of $56.60 per hour
(2024 dollars), the burden for this
regulation is $755,610 for impacted
taxpayers.
A Federal agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.

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III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (RFA) (5 U.S.C. chapter 6), the
Secretary of the Treasury hereby
certifies that this final regulation will
not have a significant economic impact
on a substantial number of small
entities. This certification is based on
the fact that, prior to the publication of
this final regulation and before the
enactment of the 2018 Act, taxpayers
were already required to satisfy either
the 20–50 test or the 40–60 test, as
elected by the taxpayer, in order to
qualify as a low-income housing project.
The 2018 Act added a third minimum
set-aside test (the average income test)
that taxpayers may elect. This final
regulation sets forth requirements for
the average income test, and the costs
associated with the average income test
are similar to the costs associated with
the 20–50 test and 40–60 test.
As described in more detail in the
PRA analysis section of the preamble,
approximately 200 taxpayers elected the
average income test for just over 2,000
buildings between 2018 and 2022.
When viewed annually, we project that
approximately 100 additional taxpayers
will have eligible buildings and 1,000
additional buildings will be eligible
under the average income test. We
estimate that identifying which units are
for use in the average income set-aside
test and applicable fraction
determinations and designating a unit’s
imputed income limitation takes an
average of 15 minutes per unit. Based on
an estimated average of 15 units per
building and an average 15 minutes of
time per unit, an impacted taxpayer will
incur an average of 225 minutes per
building to record the additional
designations due to the flexibility under
the regulations for the average income
test. In addition, taxpayers are also
required to report redesignation of units,
and why they are required to
redesignate units during the year. For
purposes of this analysis, we assume
that an average of 4 units per building
will be redesignated annually. We
estimate each redesignation will take an
average of 10 minutes. Thus, we
estimate the average number of minutes
per year to record redesignations for an
impacted taxpayer to be 40 minutes per
building for a total average annual
burden of 2,000 hours. We also estimate
an annual reporting burden related to
the expanded flexibility rules to average
20 minutes per impacted taxpayer for a
total burden of 100 hours.
IV. Section 7805(f)
Pursuant to section 7805(f), the
proposed regulation was submitted to

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the Chief Counsel for the Office of
Advocacy of the Small Business
Administration for comment on its
impact on small business, and no
comments were received. The Treasury
Department and the IRS also requested
comments from the public.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or Tribal government,
in the aggregate, or by the private sector,
of $100 million in 1995 dollars, updated
annually for inflation. This final rule
does not include any Federal mandate
that may result in expenditures by State,
local, or Tribal governments, or by the
private sector in excess of that
threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial,
direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. These regulations do
not have federalism implications and do
not impose substantial direct
compliance costs on State and local
governments or preempt State law
within the meaning of the Executive
order.
VII. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs
designated this rule as not a ‘‘major
rule,’’ as defined by 5 U.S.C. 804(2).
VIII. Executive Order 13175:
Consultation and Coordination With
Indian Tribal Governments
Executive Order 13175 (Consultation
and Coordination With Indian Tribal
Governments) prohibits an agency from
publishing any rule that has Tribal
implications if the rule either imposes
substantial, direct compliance costs on
Indian Tribal governments, and is not
required by statute, or preempts Tribal
law, unless the agency meets the
consultation and funding requirements
of section 5 of the Executive order. This
final rule does not have substantial
direct effects on one or more Federally
recognized Indian tribes and does not
impose substantial direct compliance

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The principal author of these
regulations is Waheed Olayan, Office of
the Associate Chief Counsel (Energy,
Credits, and Excise Tax). However,
other personnel from the Treasury
Department and the IRS participated in
their development.

(f) * * *
(4) Taxable years beginning on or after
September 30, 2025.
Par. 3. Section 1.42–19 is amended
by:
■ 1. Adding paragraphs (c)(1) and (2),
(c)(3)(iv), (c)(4), and (d)(2).
■ 2. Revising paragraphs (f)(1) and
(f)(2)(ii).
■ 3. Adding paragraph (f)(4).
The revisions and additions read as
follows:

List of Subjects in 26 CFR Part 1

§ 1.42–19

Income taxes, Reporting and
recordkeeping requirements.

*

costs on Indian Tribal governments
within the meaning of the Executive
order.
Drafting Information

Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by removing the
entry for § 1.42–19T to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *

*

*

*

*

*

Section 1.42–19 also issued under 26
U.S.C. 42(n);

*

*
*
*
*
Par. 2. Section 1.42–0 is amended by,
in the table of contents for § 1.42–19,
adding entries for (c)(1), (c)(1)(i) and (ii),
(c)(2), (c)(2)(i) and (ii), (c)(3)(iv), (c)(4),
(c)(4)(i) through (iv), (d)(2), and (f)(4) to
read as follows:
§ 1.42–0

*

*

§ 1.4219

Table of contents.

*

*

*

Average income test.

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*

*
*
*
*
(c) * * *
(1) Identification of low-income units
for use in the average income set-aside
test or the applicable fraction
determination.
(i) In general.
(ii) Recording and communicating.
(2) Notifications to the Agency with
jurisdiction over a project.
(i) Agency flexibility.
(ii) Examples.
(3) * * *
(iv) Recording, retention, and annual
communications related to designations.
(4) Correcting failures to comply with
procedural requirements.
(i) In general.
(ii) Discovery by taxpayer.
(iii) Discovery by Agency.
(iv) Waiver by Agency.
(d) * * *
(2) Process for changing a unit’s
designated imputed income limitation.
*
*
*
*
*

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Average income test.

*
*
*
*
(c) * * *
(1) Identification of low-income units
for use in the average income set-aside
test or the applicable fraction
determination—(i) In general. For a
taxable year, a taxpayer must follow the
procedures described in paragraph
(c)(1)(ii) of this section to identify—
(A) A qualified group of units that
satisfy the average income set-aside test;
and
(B) A qualified group of units to be
used to determine the applicable
fraction.
(ii) Recording and communicating. A
taxpayer must—
(A) Record the identification in its
books and records, where the
identification must be retained for a
period not shorter than the recordretention requirement under § 1.42–
5(b)(2); and
(B) Communicate the annual
identifications to the applicable housing
credit agency (Agency) as provided in
paragraph (c)(2) of this section.
(2) Notifications to the Agency with
jurisdiction over a project—(i) Agency
flexibility. An Agency may establish the
time and manner in which information
is annually provided to it.
(ii) Examples. The following fact
patterns illustrate some of the
approaches that paragraph (c)(2)(i) of
this section allows an Agency to use to
establish the time and manner in which
a taxpayer annually provides
information to the Agency.
(A) Example 1. Agency A requires
taxpayers annually to submit a single list
reporting all low-income units in a qualified
group to be used by the taxpayer in
determining the applicable fraction(s) for all
building(s) in the project. The identification
of each unit on the list must include the
unit’s imputed income designation.
Consequently, Agency A can identify within
the list a group or groups of units that
constitute a qualified group that satisfies the
average income set-aside test and taxpayers
are considered to have identified a qualified
group of units that satisfy the average income
test.
(B) Example 2. Agency B has the same
requirements for taxpayers as Agency A in

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46761

paragraph (c)(2)(ii)(A) of this section
(Example 1) for the initial annual report, but
thereafter Agency B permits taxpayers, in
lieu of a full list, to submit a statement
describing the differences from the previous
year’s information (or, when applicable, by
reporting that there are no such differences).
(C) Example 3. Agency C requires
taxpayers to annually provide two separate
lists of low-income units: one list identifying
the qualified group of units for use in the
average income set-aside; and a second list
identifying the qualified group of units for
use in the applicable fraction determination.
The identification of each unit on the lists
must include the unit’s imputed income
designation.

(3) * * *
(iv) Recording, retention, and annual
communications related to
designations. A taxpayer designates a
unit’s imputed income limitation by
recording the limitation in its books and
records, where it must be retained for a
period not shorter than the record
retention requirement under § 1.42–
5(b)(2). The preceding sentence applies
both to units whose first occupancy is
as a low-income unit and to previously
market-rate units that are converted to
low-income status. The designation
must also be communicated annually to
the applicable Agency as provided in
paragraph (c)(2) of this section.
(4) Correcting failures to comply with
procedural requirements—(i) In general.
If there is a failure to comply with the
requirements of paragraph (c)(1) or (2)
or (c)(3)(iv) of this section and any of
the procedures described in paragraph
(c)(4)(ii), (iii), or (iv) of this section are
followed, then the failure is treated as
corrected and the relevant requirements
are treated as having been satisfied. In
such case, the tax consequences under
this section correspond to that deemed
satisfaction.
(ii) Discovery by taxpayer. If a
taxpayer discovers a failure to comply,
the taxpayer must submit a correction to
the Agency. Such a correction may be in
the form of a revised qualified group of
units. This submission must occur not
more than 180 days after discovery of
the failure.
(iii) Discovery by Agency. If an
Agency discovers a failure to comply,
the Agency must provide prompt
notification to the taxpayer in a manner
similar to the one described in § 1.42–
5(e)(2), and the taxpayer must submit a
correction to the Agency within a time
period no longer than the period
described in § 1.42–5(e)(4).
(iv) Waiver by Agency. In all cases, if
a correction is required due to a failure
to comply with the requirements of
paragraph (c)(1) or (2) or (c)(3)(iv) of this
section, then the Agency has the
discretion to waive that failure in

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writing. For the waiver to be effective,
this writing must be provided to the
taxpayer within the time limit described
in paragraph (c)(4)(ii) or (iii) of this
section, as applicable.
(d) * * *
(2) Process for changing a unit’s
designated imputed income limitation.
The taxpayer effects a change in a unit’s
imputed income limitation by recording
the new designation in its books and
records, where it must be retained for a
period not shorter than the record
retention requirement under § 1.42–
5(b)(2). The new designation must also
be communicated to the applicable
Agency as provided in paragraph (c)(2)
of this section and must become part of
the annual report to the Agency of
income designations. The prior
designation must be retained in the
books and records for the period
specified in paragraph (c)(3)(iv) of this
section. A designation under this
paragraph (d)(2) satisfies paragraph
(c)(3) of this section.
*
*
*
*
*
(f) * * *
(1) In general. Except as provided in
paragraphs (f)(3) and (4) of this section,
this section applies to taxable years
beginning after December 31, 2022.
(2) * * *
(ii) The designation required by
paragraph (f)(2)(i) of this section must
comply with paragraphs (c)(3)(ii) and
(iv) of this section, without taking into
account paragraph (c)(4) of this section.
Paragraph (c)(2) of this section applies
to these designations, except that the
Agency may allow the notification to be
made along with any other notifications
for the first taxable year beginning after
December 31, 2022.
*
*
*
*
*
(4) Taxable years beginning on or
after September 30, 2025. Paragraphs
(c)(1) and (2), (c)(3)(iv), (c)(4), (d)(2), and
(f)(2)(ii) of this section apply to taxable
years beginning on or after September
30, 2025. For taxable years beginning
before September 30, 2025, see § 1.42–
19T as contained in 26 CFR part 1, as
revised April 1, 2025. For taxable years
beginning before September 30, 2025,
taxpayers, however, may choose to
apply the rules of paragraphs (c)(1) and
(2), (c)(3)(iv), (c)(4), (d)(2), and (f)(2)(ii)
of this section, provided the taxpayers
apply the rules in their entirety and in
a consistent manner.

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§ 1.42–19T

[Removed]

Par. 4. Section 1.42–19T is removed.
Edward T. Killen,
Acting Chief Tax Compliance Officer.
Approved: September 19, 2025.
Kenneth J. Kies,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2025–19005 Filed 9–29–25; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 300
[TD 10035]
RIN 1545–BR55

Preparer Tax Identification Number
(PTIN) User Fee Update
Internal Revenue Service (IRS),
Treasury.
ACTION: Interim final rule.
AGENCY:

This document contains
interim final regulations relating to the
imposition of certain user fees on tax
return preparers. These regulations
reduce from $11 to $10 the amount of
the user fee to apply for or renew a
preparer tax identification number
(PTIN) and affect individuals who apply
for or renew a PTIN. The Independent
Offices Appropriation Act of 1952
authorizes the charging of user fees. The
text of these interim final regulations
also serves as the text of the proposed
regulations set forth in the notice of
proposed rulemaking on this subject in
this issue in the Proposed Rules section
of this edition of the Federal Register.
DATES:
Effective date: These final regulations
are effective on September 30, 2025.
Applicability date: For date of
applicability, see § 300.11(d) of these
interim final regulations.
FOR FURTHER INFORMATION CONTACT:
Concerning the interim final
regulations, Jamie Song at (202) 317–
6845; concerning cost methodology,
Maria E. Arias-Buchanan at (202) 803–
9569 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
SUMMARY:

Authority
This document contains interim final
amendments to 26 CFR part 300
regarding user fees to apply for or renew
a PTIN.
The Independent Offices
Appropriation Act of 1952 (IOAA),
which is codified at 31 U.S.C. 9701,
authorizes agencies to prescribe

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regulations that establish user fees for
services provided by the agency. The
IOAA provides that regulations
implementing user fees are subject to
policies prescribed by the President;
these policies are set forth in the Office
of Management and Budget Circular A–
25, 58 FR 38142 (July 15, 1993) (OMB
Circular A–25).
Under OMB Circular A–25, Federal
agencies that provide services that
confer benefits on identifiable recipients
are to establish user fees that recover the
full cost of providing the service. An
agency that seeks to impose a user fee
for government-provided services must
calculate the full cost of providing those
services. In general, a user fee should be
set at an amount that allows the agency
to recover the direct and indirect costs
of providing the service, unless the
Office of Management and Budget
(OMB) grants an exception. OMB
Circular A–25 provides that agencies are
to review user fees biennially and
update them as necessary.
Background
A. PTIN Requirement
Section 6109(a)(4) of the Internal
Revenue Code (Code) authorizes the
Secretary of the Treasury or the
Secretary’s delegate (Secretary) to
prescribe regulations for the inclusion of
a tax return preparer’s identifying
number on a return, statement, or other
document required to be filed with the
IRS. On September 30, 2010, the
Department of the Treasury (Treasury
Department) and the IRS published final
regulations (TD 9501) under section
6109 in the Federal Register (75 FR
60309) to provide that, for returns or
claims for refund filed after December
31, 2010, the identifying number of a tax
return preparer is the individual’s PTIN
or such other number prescribed by the
IRS in forms, instructions, or other
appropriate guidance. Those regulations
require a tax return preparer who
prepares or who assists in preparing all
or substantially all of a tax return or
claim for refund after December 31,
2010, to have a PTIN.
B. PTIN User Fee
Final regulations (TD 9503) published
in the Federal Register (75 FR 60316) on
September 30, 2010, established a $50
user fee to apply for or renew a PTIN,
based on a 2010 Cost Model. In
addition, a $14.25 fee for a new
application and a $13 fee for an
application for renewal was payable
directly to a third-party contractor.
In 2013, the IRS conducted a biennial
review of the PTIN user fee and issued
a new Cost Model that estimated an

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