Compliance

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On March 3, the IRS and the Treasury Department published amended regulations for utility allowances at LIHTC sites. The two sets of regulations issued help owners use a consumption-based utility allowance at properties that are either submetered or generate and sell energy using onsite renewables. These regulations affect the maximum rent that LIHTC building owners can charge tenants.

One of the biggest concerns owners and managers face is housing tax credit recapture. Under Section 42 of the Internal Revenue Code, low-income housing tax credits are allocated to a site annually over a 10-year period. But these tax credits are subject to a 15-year compliance period. This means, because credits are earned over 15 years and claimed over 10 years, there’s a portion of the credits being claimed in the first 10 years that hasn’t yet been earned. These unearned credits in the first 10 years are referred to as the accelerated portion of the credits.

The Fair Housing Act (FHA) prohibits discrimination against persons with disabilities. The law broadly defines “disability” as a physical or mental impairment that substantially limits one or more major life activities. And fair housing law classifies hearing impairments as disabilities when they substantially limit—that is, prevent or severely restrict—major life activities such as hearing or communicating.

If you’re like most tax credit managers, you probably contact an outside party such as your state housing agency or a tax credit consultant to get guidance when you’re not sure how to handle certain day-to-day management issues. When you get this guidance, it’s a good idea to document what you’ve been told in writing, preferably on a form for that purpose so you don’t omit any key information.

Federal law imposes numerous accessibility requirements that tax credit sites must follow. If your site was designed and constructed after March 13, 1991, you must make your site readily accessible to and usable by people with disabilities. Federal requirements say that all ground-floor and elevator-accessible units (meaning all units in a building with an elevator), public use areas, and common areas must be accessible to people with mobility impairments at first occupancy. The law defines “first occupancy” as a building that has never before been used for any purpose.

The IRS recently released a memo, entitled “Low-Income Housing Credit—Noncompliance Resulting from Conflicting Program,” directed to examiners auditing LIHTC issues. The memo addressed whether a building could continue to qualify as low income under Section 42 of the Internal Revenue Code (IRC) if an owner doesn’t renew a tenant’s lease because the tenant’s increase in income was above the amount allowed under requirements of a local, state, or other federal program.

The IRS recently released a memorandum issued by the Office of Chief Counsel dated June 2, 2014, which addressed circumstances that could affect the eligibility of employee units such as manager or maintenance personnel units in a LIHTC site to qualify for the tax credit. Specifically, the memo discussed the effect of charging rent to resident managers and maintenance personnel and whether, by doing so, those units could be characterized as “residential rental units.”

When you verify a household’s income with employers or other verification sources, you may get information that contradicts what household members told you during the household’s certification or annual recertification. For instance, a household member may tell you that he gets $50 per month in disability payments. But when you verify those payments with the government, you may learn that the member actually gets $65 per month.

You may want to keep a unit at your tax credit site available as a model to show prospects. But you should be careful about which unit you choose to set aside as your model, and what you do with that unit as occupancy changes occur.

The IRS recently released its new audit technique guide (ATG) for IRC Section 42, Low-Income Housing Credit. The purpose of the ATG is to help IRS examiners audit owners of LIHTC projects. It’s organized in the order an examiner might address issues during an examination, starting with an overview of the credit and how to complete a precontact analysis through calculating an adjustment to the credit and writing the audit report. Two related topics, auditing partners and completing the Examination of Income, are also addressed.