Compliance

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On March 23, President Trump signed the Consolidated Appropriations Act, 2018 (H.R. 1625), a $1.3 trillion spending bill that funds the federal government through Sept. 30, 2018. In addition to preventing a government shutdown, this omnibus spending bill incorporated two key improvements adopted from the Cantwell-Hatch Affordable Housing Credit Improvement Act intended to strengthen and expand the LIHTC.

In the November 2017 issue of the Insider, we discussed the vacant unit rule and its requirement to make reasonable attempts to rent vacant units (see “Follow Five Dos & Don'ts to Comply with the Vacant Unit Rule).” Beyond showing compliance with the vacant unit rule, there are other important reasons to keep good records of your efforts to market your units to qualified low-income households.

As a tax credit manager, you need to know about certain elections that owners make when they file Form 8609 with the IRS to keep your site in compliance with the tax credit program’s requirements. But because owners complete this form, you may not get to see it. As a result, you may operate your site based on inaccurate information or false assumptions about which elections your site owner made.

When the President declares a major disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, LIHTC sites are afforded temporary relief from certain requirements of the LIHTC program. As a result of Hurricanes Maria, Irma, and Harvey, major disaster declarations have been made for various counties in Texas, Florida, and Georgia, as well as Puerto Rico and the U.S. Virgin Islands.

To qualify your site for the tax credit program, you must lease up enough units to qualified low-income households. But those units don’t automatically stay low-income for the rest of the compliance period. As a tax credit site’s manager, you must follow rules to make sure units stay low-income. If you make mistakes, you might disqualify some units, which means the owner may no longer be entitled to claim credits for them. This could lead to major problems if your site ends up with too few qualified low-income units to maintain its minimum set-aside.

Good leasing agents can help you fill vacancies quickly with qualified households. But if your agents don’t know enough about the tax credit law, they can also create problems. For instance, there’s no way to know whether prospects are eligible until you’ve calculated and verified their income. So agents who lead prospects to believe they can live at your site could get you into trouble if it turns out the prospects aren’t eligible.

Section 504 of the Rehabilitation Act of 1973 bans disability-based discrimination in any program or activity that receives federal financial assistance from any federal agency (including HUD) or in any programs conducted by federal agencies. Many tax credit managers haven’t heard of this law and those who have heard of Section 504 may mistakenly believe that it doesn’t ever apply to tax credit sites. If Section 504 applies to your site and you don’t know it, you risk HUD investigations and possible penalties.

As a tax credit manager, meeting your site’s minimum set-aside is the most important goal. If you meet the set-aside, the owner of your site will be entitled to claim its tax credits. If you don’t meet the set-aside, your site won’t qualify for the tax credit program, which means the owner won’t be able to claim any of the credits it was allocated. And unlike many other types of noncompliance, failure to meet the minimum set-aside isn’t correctable.

A key aspect of your job as a tax credit manager is performing calculations. For instance, you must perform calculations to correctly determine whether a household is eligible to occupy a low-income unit, how much rent you can charge, and how many low-income units you need to set aside at your site. When performing these calculations, it’s easy to make mistakes. And because the tax credit program requirements are very precise, even one small mistake can cost the owner its tax credits.

Every tax credit site must meet and maintain a “minimum set-aside” throughout the 15-year compliance period to qualify for the tax credit program. To meet the set-aside, you must rent a certain percentage of the units in your building or site to qualified low-income households.

All tax credit owners must formally notify the IRS of their minimum set-aside election for their building or site when they file IRS Form 8609. If an owner doesn’t elect a set-aside on this form, all the tax credits the owner was allocated for its site may be lost.