Chapter 23 Category 11q Other Noncompliance Issues
This category should be used to report noncompliance only when the noncompliance cannot be associated with any other category. The discussion presented here is not intended to be all inclusive.
Nonreportable Compliance Issues
Nonperformance of Extended Use Agreements
Under IRC §42(h)(6), taxpayers receiving credits must execute an extended use agreement, which is recorded as a restrictive covenant against the property, as provided by state law. The extended use period ends on the later of the date specified
in the agreement or 15 years after the close of the compliance period. At a minimum, the property must be maintained as low-income housing property for 30 years beginning with the first day of the compliance period. The required content of the extended use agreement is outlined in IRC §42(h)(6)(B).
In addition, state agencies may add additional terms or restrictions to reflect the terms of the credit allocation. Under IRC §42(m), state agencies are required to develop qualified allocation plans with criteria for determining housing needs in their location and selecting appropriate projects. These terms and conditions will be reflected in the extended use agreement; e.g., the targeting of special needs groups, income restrictions, rent skewing, housing types, etc. State agencies are expected to enforce the agreement. Nonperformance of the terms of the extended use agreement should not be reported to the IRS. See chapter 16 for reportable noncompliance associated with extended use agreements.
Example 1: Special Set-Asides Not Reported
The owner elected the 40/60 minimum set-aside on Form 8609. The state agency required 20/50 targeting, as evidenced in the extended use agreement. The maximum 50% gross rent is $400, but the maximum 60% gross rent is $500. The owner charges $450 rent and a $50 utility allowance, for a total of $500. The rent charged is above the limit agreed upon in the extended use agreement, but equals the rent limit for the 60 percent minimum set aside election.
The owner has violated the state’s requirements. However, according to the imputed income limitation applicable to the unit, the rent is in compliance within federal regulation. The state agency should not file a Form 8823.
Example 2: Elected Minimum Set-Aside Inconsistent with Extended Use Agreement
An owner, at the time of application and subsequent submission of final cost certifications when the LIHC project was completed, represented to the state agency that the 20/50 minimum set-aside would be elected. The