SB2440 102ND GENERAL ASSEMBLY

LRB102 16481 HLH 21873 b

102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
SB2440

Introduced 2/26/2021, by Sen. Mattie Hunter

SYNOPSIS AS INTRODUCED:

New Act
35 ILCS 5/232 new

Creates the Build Illinois Homes Tax Credit Act. Provides that the Illinois Housing Development Authority and the City of Chicago Department of Housing may allocate tax credits to the owners of qualified developments. Provides that the term "qualified development" means a qualified low-income housing project. Amends the Illinois Income Tax Act to make conforming changes. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1-1. Short title. This Act may be cited as the Build Illinois Homes Tax Credit Act.

Section 1-5. Definitions. As used in this Act, unless the context clearly requires otherwise:

"Allocation" means an award of tax credits to the owner of a qualified development in any allocation round, to be claimed ratably annually over the credit period.

"Allocation round" means all allocations by the Authority of credits under this Act to qualified developments in any calendar year.

"Allocation schedule certification" means the certification issued by the owner of a qualified development or its designee pursuant to subsection (d) of Section 1-10 of this Act.

"Authority" means:

(1) the Illinois Housing Development Authority; or

(2) the City of Chicago Department of Housing.

"Community revitalization strategy" means an implemented strategy that is designed to lead to measurable increases in access to employment, access to healthcare services, access to transportation, access to community amenities, improvement to the quality of housing stock, or affordable housing opportunities.

"Credit" means the credit allowed pursuant to this Act.

"Credit period" means the period of 10 taxable years beginning with the taxable year in which a qualified development is placed in service. If a qualified development consists of more than one building, the qualified development is deemed to be placed in service in the taxable year during which the last building of the qualified development is placed in service.

"Department" means the Department of Revenue.

"Federal tax credit" means the federal low-income housing tax credit provided by Section 42 of the federal Internal Revenue Code, including federal low-income housing tax credits issued pursuant to 26 U.S.C. 42(h)(3) and 26 U.S.C. 42(h)(4).

"Opportunity area" means an area of low poverty and high income with exact determination methodology determined yearly by each individual Authority.

"Qualified allocation plan" means the qualified allocation plan adopted by the Authority pursuant to Section 42(m) of the federal Internal Revenue Code of 1986.

"Qualified basis" means the qualified basis of the qualified development as determined pursuant to Section 42 of the federal Internal Revenue Code of 1986.

"Qualified development" means a qualified low-income housing project, as that term is defined in Section 42 of the federal Internal Revenue Code of 1986, that is located in the State and is determined to be eligible for the federal tax credit set forth in Section 42 of the Internal Revenue Code, whether or not a federal tax credit is allocated with respect to that qualified development.

"Qualified taxpayer" means an individual, person, firm, corporation, or other entity that owns an interest, direct or indirect, in a qualified development and is subject to any or all of the following: (i) the taxes imposed by the Illinois Income Tax Act; or (ii) any privilege tax or retaliatory tax, penalty, fee, charge or payment imposed by the Illinois Insurance Code.

"State credit eligibility statement" means a statement issued by the Authority under Section 1-7.

"State tax return" means the income tax return filed with the Department or the privilege and retaliatory tax return filed with the Department of Insurance, as applicable.

Section 1-7. State credit eligibility statements. A State credit eligibility statement shall be issued by the Authority with respect to each building within the qualified development following construction or rehabilitation of the qualified development certifying that each such building within that qualified development qualifies for the credit and specifying:

(1) the calendar year in which the last building of the qualified development was placed in service;

(2) the amount of the credit allowed for each year of the credit period;

(3) the maximum qualified basis of the qualified development taken into account in determining such annual credit amount; and

(4) a unique identification number for each State credit eligibility statement issued.

The State credit eligibility statement shall be issued by the Authority simultaneously with IRS Form 8609 if the qualified development was also allocated federal tax credits.

The State credit eligibility statement shall include a Section to be completed by the owner of the qualified development annually for each year of the credit period certifying that the qualified development was in conformance with all compliance requirements. That certification shall be filed with the project owner's State tax return annually of each year of the credit period.

Section 1-10. Credit for low-income housing developments.

(a) The Authority shall include the credit in its annual qualified allocation plan each year until expiration of this Act. Each allocation round shall be simultaneous with allocations of federal tax credits.

(b) For taxable years beginning on or after January 1, 2022, the Authority may allocate a credit to the owner of a qualified development in any allocation round in an amount determined by the Authority, subject to the following guidelines:

(1) the Authority must find that the credit is necessary for the financial feasibility of the qualified development;

(2) the aggregate sum of credits allocated to qualified developments in any allocation round shall not exceed $35,000,000, plus the amount of unallocated credits, if any, from the preceding allocation round, plus the amount of any credit recaptured or otherwise returned to the Authority since the previous allocation round;

(3) of the $35,000,000 annual allocation: (i) 75.5% of the available credits in each allocation round shall be allocated by the Illinois Housing Development Authority, plus any credits the Illinois Housing Development Authority did not allocate from the previous allocation round, plus the amount of any credits recaptured or otherwise returned to the Illinois Housing Development Authority since the previous allocation round; and (ii) 24.5% of the available credits in each allocation round shall be allocated by the City of Chicago Department of Housing, plus any credits the City of Chicago Department of Housing did not allocate from the previous allocation round, plus the amount of any credits recaptured or otherwise returned to the City of Chicago Department of Housing since the previous allocation round;

(4) the scoring process used by the Illinois Housing Development Authority to award credits, detailed in the yearly Qualified Allocation Plan, must have 25% of available points given to projects built in opportunity areas, projects that use a community revitalization strategy, or some combination of those factors;

(5) units of local government and home rule communities that submit qualified allocation plans for affordable housing may use their own metrics for awarding credits so long as these metrics are no less restrictive than paragraph (4); and

(6) unless otherwise provided in this Act, or unless the context clearly requires otherwise, the Authority must determine eligibility for credits and allocate credits in accordance with the standards and requirements set forth in Section 42 of the federal Internal Revenue Code of 1986.

(c) For tax years during the credit period, any qualified taxpayer is allowed a credit as provided in this Act against any or all of the following: (i) the taxes imposed by subsections (a) and (b) of Section 201 of the Illinois Income Tax Act; or (ii) any privilege tax or retaliatory tax, penalty, fee, charge, or payment imposed under the Illinois Insurance Code.

(d) If a taxpayer receiving an allocation of a credit is (i) a corporation that has an election in effect under Subchapter S of the federal Internal Revenue Code, (ii) a partnership, or (iii) a limited liability company, that is required to file a tax return, the credit provided under this Act may be claimed by the shareholders of the corporation, the partners of the partnership, or the members of the limited liability company in the same manner as those shareholders, partners, or members account for their proportionate shares of the income or losses of the corporation, partnership, or limited liability company, or as provided in the bylaws or other executed agreement of the corporation, partnership, or limited liability company. Credits granted to a partnership, a limited liability company taxed as a partnership, or other multiple owners of property shall be passed through to the partners, members, or owners respectively on a pro rata basis or pursuant to an executed agreement among the partners, members, or owners documenting any alternative distribution method, regardless of whether any such person is deemed a partner for federal income tax purposes, as long as the partner, shareholder or member would be considered a partner, shareholder, or member for State law purposes in accordance with Chapter 805 of the Illinois Compiled Statutes, and whether or not those persons are allocated or allowed any portion of the federal tax credit with respect to the qualified development, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code, relating to determination of distributive share. In the case of multiple tiers of pass-through entities, the credit may be so allocated through any number of pass-through entities on a pro rata basis or pursuant to an executed agreement among the partners, members, or owners documenting any alternative distribution method. Notwithstanding the foregoing, no credit shall be passed through an entity that is considered a disregarded entity for tax purposes. A qualified taxpayer may claim a credit so long as its direct or indirect interest in the qualified development is acquired prior to the filing of its tax return claiming the credit. On or before February 28th following each year of the credit period, the owner must submit an allocation schedule certification to the Department and the Department of Insurance detailing the amount of credit allocated to each qualified taxpayer for the applicable year and whether each qualified taxpayer intends to apply the credit to income tax or insurance premium tax, or the owner must notify the Department and the Department of Insurance that it has assigned the duty of the allocation schedule certification to its designee who must provide such allocation schedule certification to the Department by the deadline. Such allocation schedule certification may be amended in the event the State credit eligibility statement for a project is received after the deadline for filing the allocation schedule certification. Any such amendment shall be filed prior to any taxpayer attempting to claim tax credits associated with the applicable State credit eligibility statement. Each qualified taxpayer is allowed to claim its allocated amount of credit subject to any restrictions set forth in this Section.

(e) No credit may be allocated pursuant to this Act unless the qualified development is the subject of a recorded restrictive covenant requiring the development to be maintained and operated as a qualified development; this requirement for a recorded restrictive covenant may be satisfied by the agreement for an extended low-income housing commitment required for the federal tax credits as defined in Section 42(h)(6)(B) of the federal Internal Revenue Code of 1986.

(f) If, during a taxable year, there is a determination that no recorded restrictive covenant meeting the requirements of subsection (e) was in effect as of the beginning of that year, such determination shall not apply to any period before that year and subsection (e) shall be applied without regard to that determination if the failure is corrected within one year from the date of the determination.

(g) The credit amount may be taken against the taxes imposed by the Illinois Income Tax Act for each taxable year of the credit period. The credit amount may be taken against the taxes, penalties, fees, charges, and payments imposed by the Illinois Insurance Code for each reporting period in the credit period. Any credit amount that exceeds the tax due for a taxable year may be carried forward as a tax credit against payments due for up to 5 taxable years following the tax year to which the credit relates and must be applied first to the earliest reporting periods possible. Credits that are not claimed may not be refunded to the qualified taxpayer.

(h) By January 15, 2022 and by January 15 of each year thereafter, the Authority shall provide to the Department an electronic file containing all data related to all State credit eligibility statements issued during the preceding year in the manner and form as provided by the Department.

Section 1-15. Recapture. If, under Section 42 of the Internal Revenue Code of 1986, a portion of any federal tax credit claimed with respect to a qualified development is required to be recaptured during the first 10 years after a project is placed in service, then the Authority shall provide written notice, upon a form created by the Authority, to the Department of the amount to be recaptured. The amount of credit subject to recapture shall be proportionately equal to the amount of the qualified development's federal tax credits which are subject to recapture. The Department shall notify the qualified taxpayer that claimed the credit of the amount recaptured, and the qualified taxpayer subject to recapture shall increase the qualified taxpayer's tax by the amount of any credit wrongfully claimed in the tax year the qualified taxpayer is notified of the recapture. Those adjustments shall be made in the year the reduction in qualified basis is identified.

Section 1-20. Filing requirements. An owner of a qualified development that has received an allocation and each qualified taxpayer claiming any portion of the credit must file with their State tax returns a copy of the State credit eligibility statement issued by the Authority for that qualified development. A qualified taxpayer receiving an allocation of credit through a pass-through entity shall attach to its State tax return a copy of the Schedule K-1-P or other written statement from the pass-through entity stating the portion of the annual credit shown on the State credit eligibility statement that is allocated to that partner, member or shareholder for that taxable year. In addition, the owner of a qualified development or its designee shall file a copy of the allocation schedule certification prior to any tax return being filed claiming a State credit for such qualified development.

Section 1-25. Rules. The Illinois Housing Development Authority and the Department, in consultation with each other, shall adopt such rules as are necessary to carry out their respective responsibilities under this Act.

Section 1-30. Compliance monitoring. The Authority, in consultation with the Department, shall monitor and oversee compliance with the provisions of this Act and shall report specific occurrences of noncompliance to the Department.

Section 1-35. Report to the General Assembly.

(a) The Illinois Housing Development Authority must, by December 31 of each allocation year, provide a written report to the General Assembly and must publish that report on its website.

(b) The report shall:

(1) set forth the number of qualified developments that have been allocated tax credits under this Act during the allocation year and the total number of units supported by each qualified development;

(2) describe each qualified development that has been allocated tax credits under this Act including, without limitation, the geographic location of the qualified development, the household type and any specific demographic information available about residents intended to be served by the qualified development, the income levels intended to be served by the qualified development, and the rents or set-asides authorized for each qualified development;

(3) provide housing market and demographic information that demonstrates how the qualified developments supported by the tax credits are addressing the need for affordable housing within the communities they are intended to serve as well as information about any remaining disparities in the affordability of housing within those communities; and

(4) provide information on the percentage of qualified developments allocated credits that received incentive scoring points in the qualified allocation plan as a result of the general contractor, property manager, architect, or sponsor being certified under the Business Enterprise Program for Minorities, Females, and Persons with a Disability.

Section 1-40. Exempt from automatic sunset. The credit under this Act is exempt from the provisions of Section 250 of the Illinois Income Tax Act.

Section 1-90. The Illinois Income Tax Act is amended by adding Section 232 as follows:

(35 ILCS 5/232 new)

Sec. 232. Build Illinois Homes Tax Credit Act.

(a) For taxable years beginning on or after January 1, 2022, any eligible taxpayer with respect to a credit awarded in accordance with the Build Illinois Homes Tax Credit Act that is named on the allocation schedule certification for a particular tax year is entitled to a credit against the taxes imposed by subsections (a) and (b) of Section 201 as provided in the Build Illinois Homes Tax Credit Act.

(b) The taxpayer shall attach a copy of the allocation schedule certification and the State credit eligibility certificate issued under the Build Illinois Homes Tax Credit Act to the tax return on which the credits are to be claimed.

(c) If, during any taxable year, a taxpayer is notified of a recapture of a credit previously claimed on a State income tax return in accordance with the Build Illinois Homes Tax Credit Act, the tax imposed under subsections (a) and (b) of Section 201 for that taxpayer for that taxable year shall be increased. The amount of the increase shall be determined by (i) recomputing the Build Illinois Homes Tax Credit that would have been allowed for the year in which the credit was originally allowed by eliminating the recaptured amount from such computation, and (ii) subtracting that recomputed credit from the amount of credit previously allowed. No Build Illinois Homes tax Credit shall be allowed with respect to any credit subject to a recapture notice for any taxable year ending after the issuance of a recapture notice.

(d) This Section is exempt from the provisions of Section 250.

Section 99. Effective date. This Act takes effect upon becoming law.