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In January 2014, the IRS released a draft version of the Section 42 Audit Technique Guide. The audit technique guide was prepared to assist IRS examiners audit owners of tax credit sites. The audit technique guide consists of 20 chapters, in nine parts, plus 10 appendices that include case law to illustrate examples of litigation concerning tax credit issues such as eligible basis, credit recapture, and nonprofit participation. The guide will be published in its final form later this year.
The “first-year fraction” is the “applicable fraction” for the first year of the compliance period. The applicable fraction is the percentage of a building that’s treated as low-income use and generally eligible for the tax credits as of the close of that year of the compliance period. Once you’ve calculated your first-year fraction, you must maintain this figure as your applicable fraction for each year of the compliance period.
The “net rent” is the amount a low-income household is charged to live in its unit. The “gross rent” is the net rent plus the utility allowance for the unit plus any non-optional fees.
The "allocation date" is the date your state housing agency allocated or committed tax credits to the owner for the site. The "placed-in-service" (PIS) date marks the first day the owner can begin qualifying units at the site as low-income units to claim its tax credits.
The "credit period" is the 10-year period during which the owner claims its tax credits. It began either the same taxable year your building was placed in service or the following year.
The "compliance period" is the 15-year period during which you must follow the tax credit law to keep your site in compliance. It starts the same year the credit period does but lasts five years longer. This is because you must maintain compliance for 15 years, even though the owner claims its 15 years' worth of tax credits over just 10 years.
The “Qualified Allocation Plan” (QAP) is a document your state housing agency publishes that contains the selection criteria it uses to award credits. Because the QAP describes how a state housing agency awards credits, it's mainly written for owners. But because your agency's QAP also describes some of the agency's procedures for monitoring noncompliance, managers need to read the QAP, as well.
Test your knowledge of common acronyms used in the low-income housing tax credit industry. On the lines below (or on a blank piece of paper), write down the terms associated with each of the following 50 acronyms. The answers appear on p. 8. This list was provided by Karen Graham of Karen A. Graham Consulting LLC.
The laws and rules governing the tax credit program include Section 42 of the Internal Revenue Code and its regulations, Internal Revenue Service (IRS) Revenue Notices, IRS Revenue Procedures, and IRS Revenue Rulings. The laws and rules are binding on everyone who's involved with a tax credit site, especially owners and managers.
An “empty unit” is a unit that has never been occupied. A “vacant unit” is a qualified low-income unit that's no longer occupied.
It's natural to think that these terms refer to the same concept, since they're normally synonymous, admits tax credit expert A.J. Johnson. But under the tax credit law they have special meanings.
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