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Guide for Completing Form 8823 - page 174 / 197

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174 / 197

Chapter 21 Category 11p Project is No Longer in Compliance Nor Participating in the Program

Definition

This category should be used to notify the Internal Revenue Service that a building is entirely out of compliance and is no longer participating in the program.

1. The determination that an LIHC building is entirely out of compliance and will not be in compliance at any time in the future is a recapture event under IRC §42(j).

2. The filing of a Form 8823 for this category also puts the IRS on notice that the state agency is no longer performing monitoring activities with respect to the property. 1

3. The building is no longer considered a qualified low-income building under IRC §42(c)(2)(A).2 No credit is allowable in the remaining years of the credit period, even if the building complies with all the requirements of IRC §42.

Out of Compliance

A state agency may find that a building is no longer in compliance with the LIHC program requirements, and thus, is no longer participating in the program. The following discussion provides a broad overview of issues that may justify terminating an owner’s participation in the program. It is not an exhaustive list; state agencies should consider each case individually based on the specific facts and circumstances.

Return of Credits to State Agency

Under certain circumstances, a state agency may obtain return of previously allocated low-income housing credits. In accordance with Treas. Reg. 1.42- 14(d)(2)(ii), these credits may be returned up to 180 days following the close of the first tax year of the credit period for the building that received the allocation. If a credit is returned within 180 days following the close of the first taxable year of a building’s credit period as provided in Treas. Reg. §1.42-14(d)(2)(ii), and a Form 8609, Low-Income Housing Credit Allocation and Certification, has been issued for the building, the state agency must notify the Internal Revenue Service that the credit has been returned.

If only part of the credit has been returned, this notification requirement is satisfied when the state agency attaches to an amended Form 8610, Annual Low-Income Housing Credit Agencies Report, the original of an amended Form 8609 reflecting

1 2 Treas. Reg. §1.42-5(e)(3). IRC §42(c)(2) states that the term “qualified low-income building” means any building which is part of a qualified low-income housing project at all times during the period beginning on the 1st day in the compliance period on which such building part of such a project, and ending on the last day of the compliance period with respect to such building.

21-1

Revised October 2009

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