Feature

RSS

The Fair Trade Commission (FTC) recently issued new guidance for owners who use background checks to screen tenants to help them comply with the federal Fair Credit Reporting Act (FCRA), which the FTC helps enforce. If part of your applicant screening process involves running a tenant background check through a company that compiles background information, you must take certain steps before using such services and after taking an adverse action based on a report.

State housing agencies incur expenses to monitor your site throughout the 15 years of the compliance period. The IRS allows the agencies to pass some of these expenses on to owners as “compliance monitoring fees.” As the manager of a tax credit site, you’re responsible for making sure the site’s compliance monitoring fees are paid on time. Although the fees may not be very high, the penalty for paying them late can be costly. And by paying late, you may also damage your relationship with your state housing agency.

IRS auditors may flag sites for further review based on state agencies’ noncompliance reports. The owner’s tax returns and IRS Form 8823 noncompliance reports and other information are initially evaluated. If it’s determined that an audit is needed, an IRS auditor will formally notify the owner by mail that an audit has been scheduled.

The Low Income Housing Tax Credit (LIHTC) program is the country’s most extensive affordable housing program. The program was added to Section 42 of the Internal Revenue Code (IRC) in 1986 to provide private owners with an incentive to create and maintain affordable housing. The LIHTC program works through a subsidy mechanism. The Internal Revenue Service (IRS) allocates funds on a per-capita basis to each state. And each state has a housing finance or other agency that assumes responsibility for allocating tax credits to developers.

An owner may hire you to manage tax credit sites in a different state from the one where your current tax credit sites are located. You may think that because the tax credit program is a federal program, you can simply apply the same rules you’re currently complying with to the site in the new state. But that would be a mistake.

The owner of a tax credit site you manage may tell you that the site also gets bonds—that is, participates in the tax-exempt bond program. Owners who get approved for these bonds for their site enjoy a tax-exempt status, which means they get lower interest rates on mortgages. They also don’t have to compete with other owners in your state for tax credits. If you manage such a site, you must know how to comply with both programs’ requirements. If you’re not sure what to do, you risk jeopardizing both the owner’s tax credits and its tax-exempt status.

Suppose people showed up at your management office with official-looking badges and asked to see a copy of a resident’s file. Chances are you may not have encountered a situation like this before. Many well-meaning managers would probably hand over the file, especially if the agents said they were investigating some serious crime involving the resident.

An owner seeking to evict a resident can’t begin an eviction lawsuit without first legally terminating the tenancy. This means giving the resident written notice, as specified in the state’s termination statute. If the tenant doesn’t move or fix the issue, for example, by paying the rent or finding a new home for an unauthorized occupant, you can then file a lawsuit to evict. State laws set out very detailed requirements to end a tenancy.

By Carolyn E. Zezima, Esq.

To calculate household income for determining whether a household is eligible at a tax credit site, you’re required to follow the rules set out in HUD Handbook 4350.3. Sections 1 and 3 of Chapter 5 of the HUD Handbook (Determining Income and Calculating Rent) set out the rules you must follow for calculating and verifying income. You should ignore Sections 2 and 4 of this chapter. Section 2 doesn’t apply because it concerns adjusted income, which doesn’t come into play when calculating household income at tax credit sites.