IRS Revenue Procedure
2002-24

 Code Secs. 25, 103, 143



<<FULL TEXT>>

26 CFR 601.601: Rules and regulations.
(Also Part I, sections 25, 103, 143; 1.25-4T, 1.103-1, 6a.103A-2.)


REV. PROC. 2002-24

SECTION 1. PURPOSE

This revenue procedure provides guidance concerning the United States
and area median gross income figures that are to be used by issuers of
qualified mortgage bonds, as defined in section 143(a) of the Internal
Revenue Code, and issuers of mortgage credit certificates, as defined in
section 25(c), in computing the housing cost/ income ratio described in
section 143(f)(5).


SECTION 2. BACKGROUND

.01 Section 103(a) provides that, except as provided in section 103(b),
gross income does not include interest on any state or local bond. Section
103(b)(1) provides that section 103(a) shall not apply to any private
activity bond that is not a "qualified bond" within the meaning of section
141. Section 141(e) provides that the term "qualified bond" includes any
private activity bond that (1) is a qualified mortgage bond, (2) meets the
volume cap requirements under section 146, and (3) meets the applicable
requirements under section 147.

.02 Section 143(a)(1) provides that the term "qualified mortgage bond"
means a bond that is issued as part of a "qualified mortgage issue".
Section 143(a)(2)(A) provides that the term "qualified mortgage issue"
means an issue of one or more bonds by a state or political subdivision
thereof, but only if (i) all proceeds of the issue (exclusive of issuance
costs and a reasonably required reserve) are to be used to finance
owner-occupied residences; (ii) the issue meets the requirements of
subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of section 143;
(iii) the issue does not meet the private business tests of paragraphs (1)
and (2) of section 141(b); and (iv) with respect to amounts received more
than 10 years after the date of issuance, repayments of $250,000 or more
of principal on financing provided by the issue are used not later than
the close of the first semi-annual period beginning after the date the
prepayment (or complete repayment) is received to redeem bonds that are
part of the issue.

.03 Section 143(f) imposes eligibility requirements concerning the
maximum income of mortgagors for whom financing may be provided by
qualified mortgage bonds. Section 25(c)(2)(A)(iii)(IV) provides that
recipients of mortgage credit certificates must meet the income
requirements of section 143(f). Generally, under sections 143(f)(1) and
25(c)(2)(A)(iii)(IV), these income requirements are met only if all
owner-financing under a qualified mortgage bond and all certified
indebtedness amounts under a mortgage credit certificate program are
provided to mortgagors whose family income is 115 percent or less of the
applicable median family income. Under section 143(f)(6), the income
limitation is reduced to 100 percent of the applicable median family
income if there are fewer than three individuals in the family of the
mortgagor.

.04 Section 143(f)(4) provides that the term "applicable median family
income" means the greater of (A) the area median gross income for the area
in which the residence is located or (B) the statewide median gross income
for the state in which the residence is located.

.05 Section 143(f)(5) provides for an upward adjustment of the income
limitations in certain high housing cost areas. Under section
143(f)(5)(C), a high housing cost area is a statistical area for which the
housing cost/income ratio is greater than 1.2. The housing cost/income
ratio is determined under section 143(f)(5)(D) by dividing (a) the
applicable housing price ratio by (b) the ratio that the area median gross
income bears to the median gross income for the United States. The
applicable housing price ratio is the new housing price ratio (new housing
average purchase price for the area divided by the new housing average
purchase price for the United States) or the existing housing price ratio
(existing housing average area purchase price divided by the existing
housing average purchase price for the United States), whichever results
in the housing cost/income ratio being closer to 1. This income adjustment
applies only to bonds issued and nonissued bond amounts elected after
December 31, 1988.

.06 The Department of Housing and Urban Development (HUD) has computed
the median gross income for the United States, the states, and statistical
areas within the states. The income information was released to the HUD
regional offices on January 31, 2002, and may be obtained by calling the
HUD reference service at 1-800-245-2691. The income information is also
available at HUD's World Wide Web site, http:huduser.org.html,
which provides a menu from which you may select the year and type of data
of interest. The Internal Revenue Service annually publishes only the
median gross income for the United States.

.07 The most recent nationwide average purchase prices and average area
purchase price safe harbor limitations were published on September 6,
1994, in Rev. Proc. 94-55 (1994-2 C.B. 716).


SECTION 3. APPLICATION

.01 When computing the housing cost/ income ratio under section
143(f)(5), issuers of qualified mortgage bonds and mortgage credit
certificates must use $54,400 as the median gross income for the United
States. See section 2.06 of this revenue procedure.

.02 When computing the housing cost/ income ratio under section
143(f)(5), issuers of qualified mortgage bonds and mortgage credit
certificates must use the area median gross income figures released by HUD
on January 31, 2002. See section 2.06 of this revenue procedure.


SECTION 4. EFFECT ON OTHER REVENUE PROCEDURES

.01 Rev. Proc. 2001-35 (2001-22 C.B. 1293) is obsolete except as
provided in section 5.02 of this revenue procedure.

.02 This revenue procedure does not affect the effective date
provisions of Rev. Rul. 86-124 (1986-2 C.B. 27). Those effective date
provisions will remain operative at least until the Service publishes a
new revenue ruling that conforms the approach to effective dates set forth
in Rev. Rul. 86-124 to the general approach taken in this revenue
procedure.


SECTION 5. EFFECTIVE DATES

.01 Issuers must use the United States and area median gross income
figures specified in section 3 of this revenue procedure for commitments
to provide financing that are made, or (if the purchase precedes the
financing commitment) for residences that are purchased, in the period
that begins on January 31, 2002, and ends on the date when these United
States and area median gross income figures are rendered obsolete by a new
revenue procedure.

.02 Notwithstanding section 5.01 of this revenue procedure, issuers may
continue to rely on the United States and area median gross income figures
specified in Rev. Proc. 2001-35 with respect to bonds originally sold and
nonissued bond amounts elected not later than May 29, 2002, if the
commitments or purchases described in section 5.01 are made not later than
July 28, 2002.


DRAFTING INFORMATION

The principal author of this revenue procedure is Zoran Stojanovic of
the Office of Assistant Chief Counsel (Exempt Organizations/Employment
Tax/Government Entities). For further information regarding this revenue
procedure, contact Mr. Stojanovic at (202) 622-3980 (not a toll-free
call).

<<END RULING>>



 

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