2013 LIHTC Compliance Recap

As we wind down 2013 and prepare for a new year, the Insider looks back and reviews the major events and changes that affected the low-income housing tax credit (LIHTC) industry:

Congress’ “Fiscal Cliff” Package

The year began with a major victory for the LIHTC industry. Congress’ fiscal cliff package, agreed upon late on Jan. 1, included an extension of the 9 percent floor for the LIHTC. Originally set in 2008 by the Housing and Economic Recovery Act, the 9 percent floor had effectively expired. But due to the agreement, any projects receiving allocations by the end of 2013 were allowed to use the minimum 9 percent credit rate instead of the monthly floating rate, which was closer to 7.36 percent. This extension ensured that more equity could go into any one given project and increase the financial viability of LIHTC deals. Aside from the 9 percent floor, the extenders package included the continued exclusion of military basic housing allowances from income qualification calculations from Jan. 1, 2012, to Jan. 1, 2014.

Violence Against Women Act

In March, President Obama signed the reauthorization of the federal Violence Against Women Act (VAWA). Reauthorization expanded its coverage to include more federal housing programs such as LIHTC and HOME. VAWA protects both child and adult victims of domestic violence, dating violence, sexual assault, and stalking.

The conforming amendments to the act state that nothing in the act shall be construed to disqualify an owner, manager, or other individual from participating in or receiving the benefits of the LIHTC program because of noncompliance with the provisions of the act. Therefore, the practical implementation of VAWA is dependent on individual state housing agency policies.

HOME Final Rule

On July 24, HUD published a final rule in the Federal Register to amend the HOME Investment Partnerships (HOME) program regulations. These amendments to the HOME regulations represent the most significant changes to the HOME program in 17 years. The regs affect only those tax credit sites that have incorporated HOME funds to finance the development of the site.

In general, the provisions of the 2013 rule are applicable to projects for which HOME funds are committed on or after Aug. 23, 2013, which was 30 days following the publication date of the final rule. If this is true in your case, new inspection rules, HOME student definitions, and a compliance monitoring fee apply to your HOME-assisted site.

Change 4 to HUD Handbook 4350.3 REV-1

On Aug. 7, HUD released Change 4 to Handbook 4350.3 REV-1, Occupancy Requirements of Subsidized Multifamily Housing Programs. Change 4 is the first formal change to the Handbook since 2009. Every chapter of the HUD Handbook 4350.3 other than Chapter 2 has been affected by Change 4. However, only a portion of the changes apply to the compliance requirements of the LIHTC program.

In Change 4, HUD clarified that IRA, Keogh, and similar retirement savings accounts are counted as assets, even though withdrawal would result in a penalty, unless benefits are being received through periodic payments [HUD Handbook 4350.3, par. 5-7 (G)(4)(b)]. In addition, you are to include in annual income any retirement benefits received through periodic payments. And you are not to count any remaining amounts in the account as an asset [HUD Handbook 4350.3, par. 5-7 (4)(d)].

Also, HUD added details for the types of third-party verification in the order of their acceptability. For example, under third-party written verification from a source, the Handbook requires an original or authentic document generated by a third-party source that’s dated within 120 days from the date of receipt by the owner. And examples of such tenant-provided documentation that may be used includes, but is not limited to: pay stubs, payroll summary report, employer notice/letter of hire/termination, SSA benefit letter, bank statements, child support payment stubs, welfare benefit letters and/or printouts, and unemployment monetary benefit notices [HUD Handbook 4350.3, par. 5-13 (B)(1)(b)(1)].

IRS Revenue Ruling 2013-17

On Aug. 29, the IRS and Treasury released Revenue Ruling 2013-17, providing guidance for the treatment of same-sex marriages. To summarize, for federal tax purposes the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex.

The IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

Specific to IRC Section 42 and 100 percent full-time student households, the exception under IRC Section 42(i)(3)(D)(ii)(II) for students who are married and can file a joint return applies to married same-sex couples  described above. Further, the exception can be applied retroactively to same-sex couples currently occupying low-income units. For example, if a same-sex married couple is in the process of being evicted because they are both full-time students and were determined to be ineligible for the exception, then the exception is applied retroactively and the couple does not violate the requirement that a unit not be occupied entirely by full-time students.