IRS Policy May Impact Credit Delivery

During last week’s NCSHA conference in San Francisco, Grace Robertson and Paul Handleman of the IRS addressed the issue of residents moving around a development during its rehabilitation.  This resident relocation activity often occurs during the first year of the credit period, and we need to understand how that movement impacts credit delivery during that critical year.  How a resident’s relocation affects credit delivery depends on whether they move between two units included in the same project, or to a unit in a different project.  And remember that an owner defines their project when answering the question on Line 8b of a building’s 8609 form.

On Line 8b, the IRS asks if the owner is operating the building represented by the form as part of a multiple building project.  

• If the owner says no, the building is its own project, and any move a resident makes to a different building is also to a different project, and covered by the LIHTC vacant unit rule.
• If the owner answers yes, they attach a list of the other buildings and BIN numbers they are including in the same project.  If a resident moves to a building the owner included in the same project, it is a transfer and covered by the LIHTC transfer rule.

When a resident moves to a different project, even if that project is the building next door, they must qualify again for the LIHTC program.  They are considered to be a new resident in their new building/project, so before they occupy their new unit, the household must qualify again under the applicable income limit and demonstrate compliance with the student rule.  Because they are moving to a different project, their old unit maintains the status of its most recent resident, and continues to produce its credit under the vacant unit rule.

When a resident moves within the same project, they take their tenant income certification with them to their new unit.  They cannot produce a credit in two units at the same time within the same project, but as they stop producing a credit in their first unit, they start producing a credit in their second unit.    

Understandably, the IRS is concerned about owners manipulating the rules in order to use one resident to qualify more than one unit.  It is so important that the IRS has taken this stance.  Their efforts to maintain the integrity of the program have contributed to its strength and its success.  Paul and Grace said that as a matter of policy, the IRS takes a dim view of an owner moving a resident between buildings in the same development, but not in the same project per Line 8b of their 8609 forms, so that resident can qualify two units. 

I am very sensitive to IRS concerns, but I am confused as how to apply this policy.  As the rules are currently written, a move between two projects, whether they are located across the parking lot from each other or across town, is covered by the vacant unit rule.  It could be that the IRS will issue a revised vacant unit rule addressing their concern that an owner not include two buildings in different projects so they can use one resident to initiate the credit stream for two units located in different “projects” but in the same development.  In the interim, please consult your tax council on this very important issue. 

Note: IRS rules and policies regarding the impact of resident relocation on credit delivery affects projects being refinanced and brought into the LIHTC program for the first time, as well as those going through resyndication.

To sign up for our free list service, simply click on LIST SERVICE.

To view our current course calendar, go to http://stores.lbctrainingcenter.com/-strse-Current-Calendar/Categories.bok. 

Send an email to support@lbctrainingcenter.com to request a copy of our current Course Calendar.