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Guide for Completing Form 8823 - page 127 / 197





127 / 197

nonqualified tenant moved into a unit in the third year of the credit period *and each unit is in violation when that unit was rented to a member of the organization.*

*Example 2: LIHC Units Rented Exclusively to Student Households

The owner of an LIHC building starts rent low-income units only to households where at least one adult member of the household is a student attending a nearby university. If all the household members were full-time students, the household met one of the exceptions under IRC §42(i)(3)(D). The student households are not a qualified group under IRC §42(g)(9).

Although the units are in compliance with the rules for full-time student households, the owner has violated the General Public Use Rule by renting units exclusively to student households. The date of noncompliance for each unit is the date that unit is rented to a household with at least one member attending the university.*

Back in Compliance

*Generally, an* owner is back in compliance with the general public use requirements when two conditions are met:

1. The owner demonstrates that marketing and rental practices are no longer in violation of the general public use rules.

2. All the units are made available to the general public.

*Example 1: Units Rented to Members of an Occupational Group

An owner placed a 100% LIHC building in service, began claiming the credit in 2000, and elected the 40/60 minimum set-aside. In 2002, when all 25 units were in compliance with qualifying households, the owner decided to rent units solely to teachers. Assume the teachers are not part of a qualifying group under IRC §42(g)(9). The first unit was rented to a teacher on January 21, 2002 and by December 31, 2002, five vacated units were rented to teachers. During 2003, the owner rented an additional 6 units to teachers. The last of the 6 units was rented on November 1, 2003, and the character of all the units remained unchanged through the close of 2003. The issue was identified during the state agency’s inspection in 2004.

Although each building fell out of compliance on the date it was rented to a teacher, the building is as out of compliance as of January 21, 2002, when the first unit is rented to a teacher. The applicable fraction for 2002 is 20/25 or 80%. The applicable fraction for 2003 is 9/25 or 36%. Since the minimum set-aside was violated at that time and continued to be so as of the close of 2003, no credit is allowable for 2003.


Revised October 2009

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