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Guide for Completing Form 8823 - page 145 / 197

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145 / 197

Other Non- Compliance Issues

provide sufficient oversight or due diligence.

Failure to provide sufficient due diligence results in disregard of the Available Unit Rule. (See Chapter 21.) The noncompliance date is the date of the earliest unacceptable initial income certification.

Violations of the Available Unit Rule can also result in noncompliance with other IRC §42 requirements. Specifically, consideration should be given to the following:

  • 1.

    Minimum Set-Aside Requirement – *as* a violation of the *Available Unit Rule* may result in multiple over-income units losing the low-income status, the minimum set- aside requirement may not be met; i.e., the number of qualifying units falls below the minimum requirement. See chapter 10.

  • 2.

    Annual Income Recertifications *after July 30, 2008 - if the building is part of a 100% qualified low-income project, where the owner is not completing annual tenant income certifications under IRC §142(d)(3)(A),5 the IRS accepts, for purposes of the Available Unit Rule only, that households documented as initially income-qualified households are income-qualified. Failure to rent the next available unit as a rent- restricted unit reduces the low-income building’s qualified basis to zero unless the owner can document which units are not over-income units. If the owner intends to convert from a 100% low-income project to a mixed-use project, the owner must first determine which units are over-income units and apply the Available Unit Rule as needed. Reducing the number of low-income units in a building is a credit recapture event under IRC §42(j).*

  • 3.

    Annual Income Recertification Waivers *before July 31, 2008* - if the *building was a100% low-income building* and the owner has a waiver of the annual income recertification under IRC §42(g)(8)(B), qualified low-income units in the building continued to be treated as qualified low-income units even if the owner was not completing annual tenant income certification or otherwise documenting that the units are not over-income. However if the building owner rented an available unit in the building to a nonqualified household, the owner was required to determine if any of the units in the building were over-income, despite having a recertification waiver in effect. Further, under Rev. Proc. 94-64 or Rev. Proc. 2004-38, renting a unit to a nonqualified household in a 100% LIHC building resulted in the revocation of the waiver. *The Annual Income Recertification Waiver was subsumed by the new exception under IRC §142(d)(3)(A) for 100% qualified low-income projects and are, therefore, no longer enforced.*

  • 4.

    Annual Certification – the owner may have incorrectly reported compliance with the *Available Unit Rule* as part of the annual certification as described in Treas. Reg. §1.42-5(c). See chapter 7.

5 IRC §142(d)(3)(A) was amended by section 3010 of the Housing Assistance Act of 2008 and is effective for taxable years ending after July 30, 2008. IRC §142(d)(3)(A) is made applicable to IRC §42 low-income projects in IRC §42(g)(4).

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Revised October 2009

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