IRS challenges low-income artist loftsby Marianne Combs, Minnesota Public Radio
Starting this year, artists may have a harder time finding places to live and work for cheap. A new IRS ruling says low-income artist lofts are not in compliance with federal tax regulations.
St. Paul, Minn. — Rebecca Thayer is president of the board of Frogtown Family Lofts, formerly known as the Frogtown Family Lofts Artists Cooperative.
The building in which she lives has served as an artists cooperative for 17 years, offering spaces where artists can work and live often for 25 percent less than market rate.
The co-op changed its name at the start of the year, when the building owner informed her that because of the IRS ruling it could no longer give preference to artists seeking housing. Now the co-op will offer its affordable housing on a "first-come, first-served" basis to people who qualify financially.
Thayer says she's doing her best to make sure the people at the head of the line are all artists.
"We're trying to do the word of mouth, say, 'Talk to your artist friends, have them look at your apartment and if they like it, get them on in here!'" says Thayer.
It should be noted that Rebecca Thayer is not an artist -- she lives with her sister, who is. In fact, many of the current residents of the co-op are not artists.
The co-op has never been restricted to artists only, and has several times opened up its lofts to non-artists when it was having a hard time filling the building. But when the building was relatively full, and there were several applicants, preference was given to people with a creative passion.
In an era when the phrase "creative class" is bandied about regularly, cities across the country are using affordable housing to attract artists, in the hopes they will bring with them urban renewal.
At least a dozen cities turned to Artspace to help them. Artspace is a 20-year-old nonprofit based in Minneapolis. Its mission is to create foster and preserve affordable housing for artists.
It has been able to create artist lofts across the country using the IRS' Section 42 Low Income Housing Tax Credit. The credit often paid for anywhere between 35 percent to 60 percent of the capital costs of building or renovating a building.
Bill Mague is portfolio director for Artspace. He says he doesn't understand how after 20 years of financing artist loft developments, the IRS could rule that his organization isn't serving the general public.
"All of our projects have people who fit every possible demographic - age, gender, religion, sexual orientation, primary source of income," says Mague. "And so that's why I don't think we come even close to any of these concerns that the IRS is voicing. And I think if they were to prevail, it would significantly impair a very powerful federal housing tool."
Mague says the IRS couldn't even claim the tenants all have the same occupation, because so few of them are actually working as artists for a living -- they are working two or three different part-time jobs in order to support their artistic pursuits.
Grace Robertson is a senior program analyst with the IRS low-income housing credit program. By law she can't comment on the specifics of the Artspace case, but she can do her best to explain IRS tax language.
Section 42 says a building can't qualify for the low-income housing credit if it offers housing only to members of a certain social organization, which appears the most likely part of the credit that could be questioned when it comes to artist lofts.
Robertson says the term "social organization" first appeared back in 1986, and the IRS has never provided an official definition.
"I can tell you that when we audit a taxpayer owning low-income property, we consider whether the taxpayer is effectively denying the general public access to the housing," says Robertson. "It is a very fact-driven determination, and every case is different."
Artspace hopes to successfully appeal the IRS's decision.
Meanwhile, Frogtown Family Lofts president Rebecca Thayer, who has managed several low-income housing co-ops, says she worries what the future will bring as more and more non-artists move into her building.
"A co-op needs some sort of unifying vision aside from rental housing to keep going strong," says Thayer. "And in this case it's the artist thing that keeps it going. And with just the rental housing, I've found that these rental cooperatives tend to fall apart."
Thayer says the real impact of the IRS's decision has yet to be felt in her building, because since it took effect, no one has moved out.
- All Things Considered, 01/31/2008, 6:24 p.m.