13. All low-income units in the project were used on a non-transient basis, except for transitional housing for the homeless7 or single-room occupancy units rented on a month-by-month basis8.
The state agency may also require additional reporting items. However, unless noncompliance with these reporting requirements constitutes noncompliance with IRC §42, noncompliance with these state agency reporting requirements should not be reported to the IRS.
Owners are in compliance, for federal tax purposes, when annual certifications have been submitted timely9, accurately, and completely.
Disclosure of Noncompliance
If the owner’s certification discloses noncompliance with the requirements under IRC §42, the noncompliance must be reported to the IRS using Form 8823 and identifying the appropriate category of noncompliance.
Example 1: Owner Discloses Decrease in Eligible Basis
The owner of an LIHC building correctly submitted the annual certification and reported that the swimming pool had been closed and would no longer be available for use by the tenants. The owner is in compliance with the annual certification requirements, but the reduction in eligible basis should be reported to the IRS on Form 8823, line 11e, Changes in Eligible Basis or the Applicable Percentage.
Example 2: Compliance With Extended Use Agreement Requirements
As documented in the extended use agreement, the owner of an LIHC building agreed to dedicate 25 percent of the units in a 100 unit building to households with incomes less the 30 percent of the Area Median Gross Income. For purposes of IRC §42, the owner elected the 40/60 minimum set-aside on Form 8609. On the 2006 annual certification, the owner noted that the minimum set-aside had been met, but that only 20 of the units were occupied by households with incomes less than 30% of AMGI.
The nonperformance of the terms of the extended use agreement should not be reported to the IRS.
7 8 9
See IRC 42(i)(3)(B)(iii). See IRC §42(i)(3)(B)(iv). The state agencies should establish timeframes for submission of annual certifications.
Revised October 2009