The Internal Revenue Service (IRS) published a final rule on February 26 amending the Low Income Housing Tax Credit (LIHTC) compliance monitoring regulation. The regulation pertains to two provisions of the Internal Revenue Code. One is the obligation of housing finance agencies (HFAs) to conduct physical inspections of LIHTC properties. The other is the obligation of HFAs to review a property’s certification that occupants of LIHTC-assisted units have incomes at or less than 60% or 50% of the area median (AMI), and that those residents pay rents no greater than 30% of 60% of AMI or 30% of 50% AMI – depending on the designation selected by the owner.
Key provisions of the final rule include:
- HFAs administering their state’s LIHTC program must now randomly inspect no fewer LIHTC-assisted units than the number specified for projects of the various sizes in the LIHTC Minimum Unit Sample Size Reference Chart, which has been in use by HUD’s Real Estate Assessment Center (REAC).
- Prior to the final rule, temporary regulations and Internal Revenue Bulletin, Rev. Proc. 2016-15 required a minimum sample size of the lesser of 20% of the total number of LIHTC-assisted units or the minimum sample size in the Chart. IRS made the switch because the previous 20% option may have been unnecessarily burdensome for large projects and may have failed to adequately assess the habitability of smaller projects.
- The final regulation reduces from 30 days to 15 days, the advance notice an HFA may provide an owner that a project will be physically inspected or be reviewed to ensure compliance with the maximum resident income and rent requirements. The reduced notice provision is intended to prevent owners from preparing units for inspection. The final rule also clarifies that an HFA may identify to an owner the specific units that have been randomly selected only on the day of inspection.
- The final rule continues the temporary rule requirement that an HFA must inspect all buildings in a project and review a project’s maximum resident income and rent certifications at least once every three years.
- The final rule retains the “all-buildings” rule. If the randomly selected minimum number of LIHTC units to be inspected does not include at least one unit in one or more buildings in a project, the “all-buildings” rule requires an HFA to inspect “some aspect” of each omitted building. “Some aspects” could include a building exterior, common area, HVAC, etc.
- In general, an HFA may not select the same LIHTC units for physical inspection and for the review of maximum resident income and rent certifications, unless they are done on the same day. An HFA may choose to conduct the physical inspection and the maximum income and rent certification review at different times.
- An HFA may choose to use the REAC protocol to meet its physical inspection obligation if the inspection is conducted by HUD or a HUD-certified REAC inspector. The HFA must still review a project’s compliance with the LIHTC maximum income and rent requirements.
Rev. Proc. 2016-15 is now obsolete.
The final rule is at: https://bit.ly/2IGpFxs
More information about the LIHTC program is on page 5-30 of NLIHC’s 2018 Advocates’ Guide