Compliance

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In the Fall 2016 Special Issue, we discussed how a site owner may comply with first-year certification requirements under Internal Revenue Code (IRC) Section 42(l)(1). Making the certification involves Form 8609, Low-Income Housing Credit Allocation and Certification. The agency executes Part I and then mails the Form 8609 to the owner. The owner then completes the certification required under IRC Section 42(l)(1) for the first year of the credit period by completing Part II of the Form 8609 and submitting it, one time, to the IRS.

At some tax credit sites, setting up a household file may mean randomly tossing all the paperwork concerning a household into a folder. Or household files may be organized in a way that’s understood by only one or two staffers. But practices like these can cost the owner its tax credits. When IRS or state housing agency auditors need to review your files, they could be sifting through decades’ worth of documents.

As the end of the calendar year nears, your site’s annual certification to your state housing agency is approaching. Under Treasury Regulation Section 1.42-5(c)(1), owners are required to certify to the state agency that allocated the credit at least annually that, for the preceding 12-month period, the site was operated in compliance with Internal Revenue Code (IRC) Section 42 requirements. Most state agencies define “annual period” as the calendar year with due dates for submission.

In addition to annual certifications, owners are required to complete a “First-Year Certification” under Internal Revenue Code (IRC) Section 42(l)(1). The certification is made to identify specific information needed for the administration of the program and document specific elections that will govern how the site is operated.

You probably know that when a low-income household’s income exceeds 140 percent of the income limit (or 170 percent in the case of deep rent-skewed units), you must follow the Next Available Unit (NAU) rule to make sure the owner can continue claiming credits for the over-income unit. But you might not realize that changes in a household’s size can trigger the NAU rule. This can occur if a household’s size increases or decreases.

In the May issue, we discussed HUD’s new guidance on criminal background checks. The new guidelines spell out how HUD will evaluate fair housing complaints in cases where a site refuses to rent or renew a lease based on an individual’s criminal history. The new guidance has brought about many questions concerning whether and when criminal background checks may be used to screen applicants.

From time to time, you or a staff member may get a rent check from someone other than the resident named on the lease. If you deposit the check and it turns out that the resident is illegally subletting his unit to the person who sent the rent check, you could run into problems. A court may rule that you have had knowledge of and consented to the sublet by accepting and depositing the rent check even if you never intended to.

The tax credit law allows low-income units to remain qualified even when a household goes over-income. But to maintain the unit’s low-income status, when a household’s income exceeds 140 percent of the income limit (or 170 percent in deep rent-skewed units), you must follow the next available unit (NAU) rule. To do this, you must rent the next available unit of comparable or smaller size in the same building to a qualified low-income household.

During an inspection, Real Estate Assessment Center (REAC) inspectors look at specific areas of the site for health and safety hazards. Most of these hazards can cost you points on your inspection score but don’t necessarily subject you to other, more serious penalties.

HUD’s Office of General Counsel (OGC) recently issued guidance addressing how refusing to rent or renew a lease based on an individual’s criminal history could violate the Fair Housing Act (FHA). Last year, in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the U.S. Supreme Court upheld “disparate impact” liability under the FHA.