Rev. Rul. 75-271

Advice has been requested concerning the Federal income tax treatment of assistance payments made by the Department of Housing and Urban Development under section 235 of the National Housing Act.

An individual who files his returns for the calendar year and uses the cash receipts and disbursements method of accounting qualified for assistance payments under section 235 of the National Housing Act, as amended, 12 U.S.C. 1715z.

Section 235 of the Act provides, in part, that for the purpose of assisting lower income families in acquiring home ownership the Secretary of Housing and Urban Development is authorized to make periodic assistance payments under contracts between the Secretary and mortgagees when the mortgage meets the requirements specified in section 235 of the Act.

The legislative history of the program indicates that the payments are in substance interest subsidies. The Senate Report states that section 235 was intended to provide home ownership assistance "in the form of periodic payments to the mortgagee which would serve to reduce interest costs . . ." Report of the Committee on Banking and Currency on S. 3497, 90th Cong., 2d Sess., Report No. 1123, May 15, 1968, at 7. Similarly, the House Report indicated that "homeownership assistance would be provided in the form of periodic payments to the mortgagee which would serve to reduce interest costs on a market-rate home mortgage . . ." Report of the Committee on Banking and Currency of the House of Representatives on H.R. 17989, 90th Cong., 2d Sess., Report No. 1585, June 25, 1968, at 6.

The housing program is based on need, and payments thereunder, computed in accordance with the Act, will vary under determinations by the Department of Housing and Urban Development according to the income of the homeowner. The homeowner's income must be recertified periodically by the Department of Housing and Urban Development and appropriate adjustments in the payments will be made to reflect any changes.

It is held that the assistance payments under section 235 of the National Housing Act are in the nature of general welfare. As such, they are not includible in the individual's gross income for Federal income tax purposes.

¹ Also released as TIR-1387, dated June 18, 1975.