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Guide for Completing Form 8823 - page 161 / 197





161 / 197

Utility Company Estimates

  • 1.

    The utility rates charged to tenants in each sub-metered rent-restricted unit must be limited to the utility company rates incurred by the building owners (or their agents);

  • 2.

    If building owners (or their agents) charge tenants a reasonable fee for the administrative costs of sub-metering, then the fee will not be considered gross rent under IRC §42(g)(2). The fee must not exceed an aggregate amount per unit of 5 dollars per month unless State law provides otherwise; and

3. If the costs for sewerage are based on the tenants’ actual water consumption determined with a sub-metering system and the sewerage costs are on a combined water and sewerage bill, then the tenants’ sewerage costs are treated as paid directly by the tenants for purposes of the utility allowances regulations.

Notice 2009-44 is effective for utility allowances subject to the effective date in Treas. Reg. §1.42-12(a)(4). Consistent with Treas. Reg. §1.42-12(a)(4), building owners (or their agents) may rely on Notice 2009-44 for any utility allowances effective no earlier than the first day of the building owner’s taxable year beginning on or after July 29, 2008.*

Under Treas. Reg. §1.42-10(b)(4)(ii)(B), any interested party (tenant, owner, or state agency) may request a written estimated cost of that utility for a unit of similar size and construction for the geographic area in which the building is located. This estimate becomes the appropriate utility allowance for all rent-restricted units of similar size and construction in the building. The local utility estimate is not available to buildings/tenants subject to Rural Housing Service or HUD jurisdiction.

*Taxable Years Beginning Before July 29, 2008

Before Treas. Reg. §1.42-10 was revised, the election to use a local utility company estimate was permanent; i.e., the taxpayer could not switch back and forth between the local PHA and utility company estimates. State agencies reported that although utility companies may have been willing to provide interested parties (owner, tenant, state agency) with an initial estimate, utility companies were increasingly unwilling to provide estimates on an on-going basis. Accordingly, until the regulation was revised, the IRS did not challenge the owner’s return to using the applicable PHA utility allowance, provided that:

  • 1.

    The taxpayer has demonstrated to the state agency that the local utility company was unwilling to provide an updated estimate, and

  • 2.

    The owner had written approval from the state agency to use a mutually agreed upon utility allowance.

Taxable Years Beginning After July 28, 2008*

If neither the building nor tenants are subject to the rules described in 1-4 above, then the local public housing authority (PHA) allowance is used. However, if an estimate is obtained for any unit in the building, that estimate is used as the utility allowance for all similar units in the building. *Estimates may be obtained from a local utility


Revised October 2009

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