Example 1: Owner did not Execute and Record Extended Use Agreement
The owner of a LIHC project placed the buildings in service in February 1998 and submitted the documentation for final approval in June 1998. The state agency issued the Form 8609 in September 1998, prior to receiving the executed extended use agreement from the owner. The owner claimed the credit for the 1998 tax year. The state agency later determined that an extended use agreement was not in effect for the 1998 tax year (the first year of the credit period), issued a notice of noncompliance to the owner in February 1999, and submitted Form 8823 to the IRS in May 1999, reporting the absence of the extended use agreement *and attaching a copy of the notification letter to the owner.* In December 2000, the owner and state agency executed the extended use agreement, and recorded it.
The date of noncompliance is December 31, 1998, when the state agency determined that an extended use agreement was not in effect as of the end of the tax year. Since the owner failed to execute the extended use agreement within one year from the date of the notification, the owner will lose credits for 1998 and 1999, but can resume claiming the credits for 2000.
Back in Compliance
The owner is back in compliance when the extended use agreement is executed and recorded within one year of the determination of noncompliance. If the extended use agreement is not in effect within one year of the determination that an extended use agreement was not in effect, the taxpayer loses low-income housing credits for past taxable years and cannot claim credit with respect to any building for which an extended use agreement is not in affect by the end of the applicable taxable year.
IRC §42(h)(6)(A), (B) and (J).
Rev. Rul. 2004-82, 2004-35 I.R.B. 350.
Rev. Proc 2005-37, 2005-28 I.R.B. 79.