How to Get an Extension to Correct State Agency Noncompliance Citations

Despite your efforts at good site management, your state housing agency may one day cite you for noncompliance with tax credit rules. As a tax credit manager, it’s your job to correct compliance violations, which means you must be familiar with how to request an extension of time to correct noncompliance if you need it and you must be familiar with the procedure that your state housing agency follows to report compliance violations it finds at your site.

When a state agency cites you for noncompliance, the agency will give you a set period of time—up to 90 days—to correct the noncompliance. But no matter how fast you work to fix the problem, you may need more time than the agency has given you.

Fortunately, tax credit rules permit state housing agencies to extend the period to correct noncompliance—if owners can show “good cause” for needing the extension. To help you apply for an extension if you ever need one, we’ll explain what “good cause” means. We’ll also give you a Model Letter: Ask State Housing Agency to Extend Correction Period, to show you how to apply for an extension.

Correction Period Basics

When state housing agencies send notices citing sites for noncompliance with the tax credit law, they must say how long the sites have to correct the violations. This is known as the “correction period.” As part of a state housing agency’s responsibility for monitoring compliance in its state, the agency must report to the IRS all instances of noncompliance with federal tax requirements—whether or not you’ve corrected them. State housing agencies must file Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance, with the IRS no more than 45 days after the deadline for correcting a violation. Agencies usually wait until sites have had a chance to correct the noncompliance before filing this form.

The law requires agencies to give sites a “reasonable period” of time to correct noncompliance. The tax credit regulations clarify this to say that correction period can be up to 90 days. But some state housing agencies, to encourage owners to respond quickly to correct the noncompliance, may give sites less than 90 days. So, for example, your agency may give you only 45 days.

If you need more time to fix the violation, the regulations allow you to ask for an extension of up to six months. But it’s not clear whether the six months runs from the date you got the notice or from the end of the original correction period. State housing agencies vary in how they interpret the starting date for the extension. So check with your state housing agency before you apply. And state housing agencies may allow you even more time, if they decide it’s reasonable and necessary.

What’s Good Cause?

If your state housing agency has given you less than the full 90 days the regulations permit to correct noncompliance, you may need to ask for an extension just to reach the full 90 days. In this case, it’s easier to show good cause. State housing agencies understand that, even if you begin at once to fix the noncompliance, it may be impossible to comply in such a short time frame.

The best example of this is when you need to evict a resident. Since an eviction involves bringing your case through the court system, it can take months before you succeed in getting a resident out of your building. Even if the correction only requires you to get a few missing documents, such as employment verifications, it can easily take a few weeks or more. In this situation, the state housing agency is likely to find good cause and allow the extension to the full 90 days.

It’s important to note that even though state housing agencies may be reasonable in giving extensions, they won’t reward laziness. You must be able to show that you’ve been diligent about trying to correct the noncompliance. Explaining that you’re too busy with other work won’t get you an extension.

If you get a notice that gives you the full 90 days to correct the noncompliance, it’s harder to show good cause for needing more time. This is also true if the state housing agency gave you less than 90 days, but you need an extension that goes beyond the 90 days. With rare exceptions, a state housing agency will refuse to give you an extension beyond 90 days unless there’s a judicially imposed delay.

For example, even if you move immediately to evict an over-income resident, the court may not schedule your case for a couple of months. So, if you’re waiting for a court to act before you can finish correcting the noncompliance, you should get an extension. As long as you’ve acted diligently, you shouldn’t be denied an extension if a court is causing the delay.

Send Letter to Request Extension

To request an extension, send a letter to your state housing agency. Like our model letter, your letter should reference the notice of noncompliance by its number.

Start by saying that you’re writing to apply for an extension to the correction period. Then, refer to the due date for correction as well as the date you got the notice. Say that you’ve been working to correct the noncompliance since you got the notice, but you can’t finish by the deadline.

Describe what you’ve done, showing how and when you took steps to respond to the notice. Give exact dates where possible. Refer to documents that help your case and attach them to the letter. These may include a court order or ruling, or a letter to a resident. Briefly outline what remains to be done to correct the noncompliance. For example, let the agency know if you’re waiting for a court to take action.

Finally, tell the state housing agency the date by which you reasonably expect to correct the problem, and request an extension to this date. Tell the agency how to contact you to discuss the extension, and end your letter by reminding the agency that you’re continuing your work to correct the noncompliance.

What Happens Next?

After the state housing agency gets your application for an extension, it will contact the owner to discuss exactly what remains to be done to correct the violation and how long this reasonably should take. The discussion usually isn’t a heated negotiation. It’s an exploration to determine whether you really need the time you asked for. Even if the agency decides to give you an extension, it may give you less time than you asked for. However, if the state agency believes you need an extension because you waited too long to read the notice, you probably won’t get one.