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Guide for Completing Form 8823 - page 168 / 197

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168 / 197

4. the owner did not review the basis on which the utility allowance is established at least once during the calendar year, 5. The owner failed to update rents for a revised utility allowance after the 90-day period. 6. The owner failed to maintain adequate documentation regarding the computation of utility allowances;* without proof of the amount of the allowance *and how it was estimated,* there is no way to correctly compute the rent. 15 16

Back in Compliance

A unit is considered back in compliance when the rent charged is reduced and correctly reflects the utility allowance. The date of correction is date that the rents correctly reflect the utility allowance.

Example 1: The maximum gross rent is $500. Beginning on March 1, 2003, the owner charged $450 rent and a $75 utility allowance; the total rent is $525. The rent is $25 over the ceiling. The error was discovered during a state agency’s review on April 13, 2004.

The owner immediately reduces the rent charged to $425 for rents due beginning on May 1, 2004. The effective date of the new rent, or May 1, 2004, is the date the units are back in compliance.

References

  • 1.

    Notice 89-6, 1989-1 C.B. 625.

  • 2.

    Treas. Reg. 1.42-10.

  • 3.

    *TD 9420. Treas. Reg. § 1.42-12(a) provides the following effective dates and transitional rules under TD 9420: The first sentence in §1.42-10(a), §1.42- 10(b)(1), (2), (3), and (4), the last two sentences in §1.42-10(b)(4)(ii)(A), the third, fourth, and fifth sentences in §1.42-10(b)(4)(ii)(B), §1.42-10(b)(4)(ii)(C), (D), and

    • (E)

      , and §1.42-10(c) and (d) are applicable to a building owner’s taxable years beginning on or after July 29, 2008. Taxpayers may rely on these provisions before the beginning of the building owner’s taxable year beginning on or after July 29, 2008, provided that any utility allowances calculated under these provisions are effective no earlier than the first day of the building owner’s taxable year beginning on or after July 29, 2008. The utility allowances provisions that apply to taxable years beginning before July 29, 2008 are contained in §1.42-10 (see 26 CFR part 1 revised as of April 1, 2008).*

Notes

  • 1.

    *IRC §267(b), Relationships. …..

  • (1)

    Members of a family, as defined in subsection (c)(4)17;

15 16 17 *Applies to taxable years beginning after July 28, 2008 utility allowances.* *Applies to taxable years beginning after July 28, 2008 utility allowances.* *The family of an individual shall include only his brothers and sisters (whether by the whole or half blood) spouse, ancestors, and lineal descendants.*

18-10

Revised October 2009

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