added to the rent, exceeded the gross rent limitation for all the units and resulted in a violation of the minimum set-aside requirement for year 2003. The state agency conducted a review on February 2004 and noted the violation of the rent rules. The owner stopped charging the fee on March 1, 2004.
The owner did not meet the minimum set-aside *as of the close of 2003* and should not claim any credit for 2003. The date of noncompliance with the minimum set-aside requirement is December 31, 2003. The owner will be back in compliance at the end of the taxable year in the compliance period in which the minimum set-aside is again met.
The submission of a Form 8823 identifying noncompliance with the minimum set- aside should not be delayed even if the taxpayer demonstrates that the minimum set- aside will be restored by the end of the taxable year in the compliance period. State agencies should file Form 8823 within 45 days after the end of the correction period. A second Form 8823 should be filed after the end of the first taxable tax year in which the minimum set-aside is restored.
Documentation of Corrected Noncompliance
Documentation of corrected noncompliance with the minimum set-aside requirement will be specific to the noncompliance issue resulting in failure to satisfy the set-aside.
Example 1: Rental to Ineligible Tenants Violates Minimum Set-Aside Requirement
Upon inspection, it is determined that the number of units qualifying as LIHC units did not satisfy the minimum set-aside requirement during a year following the first year of the credit period because the owner rented to ineligible tenants. To correct the minimum set-aside violation, the owner must rent units to IRC §42 eligible income- qualified households until the minimum set-aside is restored.
At a minimum, documentation should include the tenant’s application/eligibility questionnaire, income verifications, tenant income certification, and student verification, if necessary.
Rev. Rul. 90-89, 1990-2 C.B. 8.
Rev. Rul. 2004-82, 2004-35 I.R.B. 350.