IRS PROVIDES NEW MORTGAGE REVENUE BOND SAFE HARBORS FOR GUAM AND PUERTO RICO.

Rev. Proc. 90-51

SECTION 1. PURPOSE

This revenue procedure adds average area purchase price safe harbor limitations for Guam and Puerto Rico to Rev. Proc. 89-59, 1989-2 C.B. 771, as modified by Rev. Proc. 90-24, 1990-18 I.R.B. 15.

SEC. 2. BACKGROUND

01 Issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and mortgage credit certificates, as defined in section 25(c), must satisfy several requirements if the interest on the bonds is to be excludable from gross income under section 103(a) or the credit attributable to the certificates is to be allowable against federal income tax. One of the requirements is that the cost of each residence financed must not exceed a certain percentage of the average area purchase price applicable to the residence. The average area purchase price with respect to any residence is the average purchase price of single- family residences in the statistical area in which the residence is located that were purchased during the most recent 12-month period for which sufficient statistical information is available.

02 Prior to the enactment of the Tax Reform Act of 1986 (1986 Act), section 1301, 1986-3 (Vol. 1) C.B. 519, former section 103A(f) of the Code provided that the acquisition cost of each residence could not exceed 110 percent (120 percent for a targeted area residence) of the average area purchase price. The 1986 Act repealed section 103A(f) and replaced it with section 143(e), which provides that the acquisition cost can not exceed 90 percent (110 percent for a targeted area residence) of the average area purchase price. The 1986 Act generally is effective with respect to bonds issued after August 15, 1986. The Revenue Reconciliation Act of 1989, section 7104(a)-(b), 1990-11 I.R.B. 11, 18, extended the qualified mortgage bond provisions to bonds issued through September 30, 1990, and extended the mortgage credit certificate provisions for elections made for periods through that date.

03 Current average area purchase price safe harbor limitations for the states and the District of Columbia are contained in Rev. Proc. 89-59. Safe harbor limitations for the most recent prior periods were set forth in Rev. Proc. 88-48, 1988-2 C.B. 635, OBSOLETING Rev. Proc. 87-20, 1987-1 C.B. 713, OBSOLETING Rev. Proc. 85-42, 1985-2 C.B. 496.

04 Prior to the present revenue procedure, average area purchase price safe harbor limitations for Guam and Puerto Rico were set forth in Rev. Proc. 89-27, 1989-1 C.B. 892, which supplemented Rev. Proc. 88-48.

05 The average area purchase price safe harbor limitations for the Commonwealth of the Northern Mariana Islands were published in Rev. Proc. 87-19, 1987-1 C.B. 712, which supplemented Rev. Proc. 85- 42.

SEC. 3. APPLICATION

The average area purchase price safe harbor limitations for Guam and Puerto Rico are set forth in Table 1. These limitations have not been adjusted to reflect either the 90 percent of the average area purchase price described in section 143(e)(1) of the Code or the 110 percent of the average area purchase price described in section 143(e)(5).

                       Rev. Proc. 90-51, Table 1

Rev. Proc. 89-59 is supplemented.

The safe harbor limitations for Guam and Puerto Rico, as added to Rev. Proc. 88-48 by Rev. Proc. 89-27, are obsolete except as provided in section 5.02 of this revenue procedure.

SEC. 5. EFFECTIVE DATES

01 The average area purchase price safe harbor limitations contained in this revenue procedure must be used to compute the housing cost/income ratio under section 143(f)(5) of the Code and to satisfy the purchase price requirement under section 143(e) for commitments to provide financing that are made, or (if the purchase precedes the financing commitment) for residences that are purchased, in the period specified in the following sentence. The period begins on October 9, 1990, the date of publication of this revenue procedure in the Internal Revenue Bulletin, and ends on the date as of which these average area purchase price safe harbor limitations are rendered obsolete by a new revenue procedure. If an issuer computes different average area purchase price limitations for Guam or Puerto Rico based on more accurate and comprehensive data for the purpose of computing the housing cost/income ratio, the issuer must use data from a 12-month period that does not begin earlier than July 1, 1988, or end later than June 30, 1990.

02 Issuers of qualified mortgage bonds and mortgage credit certificates in Guam and Puerto Rico may continue to rely on the average area purchase price safe harbor limitations added to Rev. Proc. 88-48 by Rev. Proc. 89-27 with respect to bonds sold (and bond authority exchanged for authority to issue mortgage credit certificates) before November 8, 1990, 30 days after publication of this revenue procedure in the Internal Revenue Bulletin, if the commitments to provide financing for mortgages and the commitments to issue the certificates are made before January 7, 1991, 90 days after publication of this revenue procedure in the Internal Revenue Bulletin.

03 Issuers of qualified mortgage bonds and mortgage credit certificates in the Commonwealth of the Northern Mariana Islands may continue to rely on the average area purchase price safe harbor limitations added to Rev. Proc. 85-42 by Rev. Proc. 87-19.

DRAFTING INFORMATION

The principal author of this revenue procedure is Gene Overton of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue procedure contact Mr. Overton on (202) 566-4310 (not a toll-free call).