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Guide for Completing Form 8823 - page 124 / 197





124 / 197

  • 1.

    If the noncompliance is the result of noncompliance with the utility allowance requirements, the error should be noted under category 11m, Owner did not properly calculate utility allowance.

  • 2.

    If the noncompliance is the result of a systemic error, also evaluate whether the minimum set-aside under IRC §42(g)(1) was met. See chapter 9.

Example 4: Tenant Income Rises Above Limit

A household was initially income qualified and moved into a unit on 1/1/2000. The maximum LIHC gross rent is $500. At recertification, the owner increased the rent to the market rate of $1,000.

The unit is out of compliance, beginning on the date the rent was increased above the maximum of $500.*

Back in Compliance

*Once a unit is determined to be out of compliance with the rent limits, the unit ceases to be a low-income unit for the remainder of the owner’s tax year. A unit is back in compliance *on the first day of the owner’s next tax year if the rent charged on a monthly basis does not exceed the limit.* An owner cannot avoid the disallowance of the LIHC by rebating excess rent *or fees* to the affected tenants.

Example 1: Overcharged Rent

The owner *of a 100% LIHC building* leased all the units to IRC §42 eligible tenants during *2007,* the third year of the credit period. However, the owner inadvertently overcharged rent to tenants occupying 3 bedroom apartments. The error impacted 15 out of 75 units. *The owner is a calendar year taxpayer.* *The Applicable Fraction for 2007 is 60/75, which equals 80 percent.* The unit is back in compliance *on January 1, 2008 if* the owner correctly limits the rent for all units.

Example 2: Overcharged Rent Impacted Minimum Set-Aside

The owner leased the rental units in a 100% LIHC building to IRC §42 eligible tenants by the end of the first year of the credit period. However, the owner overcharged rent for all the units and, as a result, failed to meet the minimum set-aside for the first year of the credit period.

The building does not qualify for LIHC.


  • 1.

    Rev. Rul. 91-38, 1991-2 C.B. 3.

  • 2.

    Rev. Rul. 98-47, 1998-2 C.B. 399.

  • 3.

    Rev. Rul. 2004-82, 2004-35 I.R.B 350.


Revised October 2009

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