Special Issue: Test Your Compliance Knowledge
Whether you’re a long-time subscriber or a new one, you can test your knowledge—and that of your staff—on various compliance topics we’ve covered in the past year by taking the quiz in this Special Issue. The questions touch on topics ranging from income calculations and household composition to fair housing. The answers, along with explanations, follow the quiz.
Each answer will provide a reference to the Insider article where you can find more information on the topic online. You can search for the article by typing the title into the search field on our Web site, or by selecting the issue in our site's archive. You can view the articles online, print them out, or even download a PDF of an entire issue.
Each question has only one correct answer. Good luck!
QUESTION #1
If an individual within a household isn’t the head of household, the co-head, a spouse, a live-in aide, a foster child, or a foster adult, this individual may be considered a dependent for certification purposes. To be considered a dependent, the individual must also meet which of these additional criteria?
a. Be under age 18.
b. Be a full-time student.
c. Be disabled.
d. Any of the above.
QUESTION #2
When full-time students who are 18 years of age or older are dependents, you’re allowed to count a small amount of their earned income when you certify the household. You must count only earned income up to a maximum of $680 per year for full-time students, age 18 or older, who are not the head of the family or spouse or co-head. True or false?
a. True.
b. False.
QUESTION #3
Whenever a household member asks you to make an exception to your rules, you should treat it as a request for a reasonable accommodation for an individual with a disability—even if the member doesn’t have any apparent disability. True or false?
a. True.
b. False.
QUESTION #4
An applicant is a divorced mother who has joint custody of her two children. Under the joint custody agreement, her children would live with her for a certain amount of time. At what percentage of time must you count children who live in a low-income unit as part of the household?
a. 25 percent.
b. 35 percent.
c. 50 percent.
QUESTION #5
A trust is generally considered a legal arrangement regulated by state law in which one party holds property for the benefit of another. A trust can contain cash or other liquid assets or real or personal property that could be turned into cash. Trust assets are typically transferred to the beneficiary upon the death of the grantor. If an applicant has created a trust that doesn’t permanently transfer assets during her lifetime to someone else but rather she has created a trust that can be changed as often as she wishes, then this trust is not considered an asset. True or false?
a. True.
b. False.
QUESTION #6
Which of the following should you count in determining household size for income limits?
a. Cousins who visit the site.
b. Stepchildren who come to family functions.
c. Unborn children.
d. All of the above.
QUESTION #7
If a two-person household, with a pregnant household member, who currently lives in a one-bedroom unit, requests to be moved to a two-bedroom unit to accommodate the baby, you should grant the request. True or false?
a. True.
b. False.
QUESTION #8
You may not require a pregnant woman to:
a. Undergo medical testing to determine whether she is pregnant in order to assign a unit with the appropriate number of bedrooms.
b. Sign a form certifying that she is pregnant.
c. Disclose all her sources of income.
d. All of the above.
QUESTION #9
The “minimum set-aside” is a percentage that determines the minimum square footage at your site or building that the owner must rent to qualified low-income households. The minimum set-aside has nothing to do with units. It’s always based on floor space. And unlike the first-year fraction, the minimum set-aside applies to individual buildings, unless the owner elected otherwise on its IRS Form 8609. True or false?
a. True.
b. False.
QUESTION #10
To calculate household income at tax credit sites, you’re required to follow the rules set out in HUD Handbook 4350.3 (Occupancy Requirements of Subsidized Multifamily Housing Programs). But because the Handbook was written for assisted sites, not all chapters apply to a tax credit site. Which of the following chapters are applicable to tax credit sites?
a. Chapter 2 (Civil Rights and Nondiscrimination Requirements).
b. Chapter 3 (Eligibility for Assistance and Occupancy).
c. Chapter 5 (Determining Income and Calculating Rent).
d. All of the above.
QUESTION #11
Housing agencies monitor your compliance with tax credit housing rules by regularly auditing or inspecting a percentage of your tax credit household files. Agency auditors review rent rolls, income certifications, and the documents you collect each year to prove household income. For how many years at a minimum does the IRS mandate that first-year records must be maintained?
a. 11 years.
b. 15 years.
c. 21 years.
QUESTION #12
To avoid fair housing problems, always handle maintenance requests on a first-come, first-served basis. True or false?
a. True.
b. False.
QUESTION #13
Some female residents complain that employees of the landscaping company you hired often take their lunch break by the pool. They say that a couple of workers have tried to engage them in conversation, commented on how they look in their bathing suits, and repeatedly asked them for dates. Since the workers aren’t your employees, you don’t have to worry that their behavior could trigger a fair housing complaint against your site. True or false?
a. True.
b. False.
QUESTION #14
Consider the following scenario at a tax credit site: Each unit has a garage space, and a resident will lease a unit pursuant to a lease agreement that specifically excludes the garage. A resident wishing to lease a unit’s garage needs to sign a separate agreement. A resident isn’t required to lease a garage to lease a unit. And the owner won’t allow a resident access to or use of the garage associated with his unit if he chooses not to lease the garage. Alternative parking is available for all residents at the site.
Also, if a resident doesn’t lease a garage associated with his unit, then the owner may rent the garage to another lessee for storage purposes. The owner will provide access to the lessee through the main garage door and permanently close off any other point of access. The owner will separately meter the electricity attributable to the garage, and the resident won’t pay this associated cost, unless he also leases the garage.
May the garage be excluded from the eligible basis and will the fee for garage use be excluded from the computation for allowable rent as well?
a. The garage is excluded from the eligible basis; the garage use fee is excluded from the allowable rent computation.
b. The garage is included in the eligible basis; the garage use fee is included in allowable rent computation.
c. The garage is excluded from eligible basis; the garage use fee is included in allowable rent computation.
QUESTION #15
The Vacant Unit Rule allows low-income housing tax credits to continue to be claimed if an eligible household moves out and, with a reasonable attempt to rent the unit, it stays vacant. The vacant unit counts toward the set-aside and qualified basis. But when a tax credit site owner violates the Vacant Unit Rule, all vacant units previously occupied by qualified households lose their low-income status and stop generating tax credits for the owner.
Suppose a developer, during the second year after the completion of the project, discovered extensive damage to the buildings. But because of safety issues and due to engineering reasons, the units had to be vacated during the renovations. All the residents were notified of the damage, told why they had to vacate the units, and were given an estimated time period by which the repairs would be completed and they could return.
To enable residents to reoccupy their low-income units after the renovation was completed, the developer entered into replacement leases with them, and said it wouldn’t rent a low-income unit to any other resident unless it had been vacant prior to the renovation or the resident decided not to return to the unit. In addition, the developer agreed to compensate the residents for their estimated cost of temporary housing. Can the Vacant Unit Rule be waived under these circumstances related to a necessary renovation?
a. Yes.
b. No. You can never re-rent a vacant unit until all empty units are rented.
ANSWERS & EXPLANATIONS
QUESTION #1
Correct answer: d
Any one of these classifications must apply in addition to a household member not being the head of household, the co-head, a spouse, a live-in aide, a foster child, or a foster adult for the household member to be considered a dependent [HUD Handbook 4350.3, par. 5-6(A)(3)].
> See “How to Certify Income of Dependents in Tax Credit Households,” May 2013
QUESTION #2
Correct answer: b
If the student is age 18 or over, count only the first $480 of the dependent’s earned income. Don’t count earned income above the first $480 [HUD Handbook 4350.3, par. 5-6(a)(3)(d)]. Some of the most common sources of earned income you’re likely to encounter when certifying dependent applicants at your tax credit site are summer job income (such as camp counselor); part-time job income (such as newspaper delivery route); or on-campus job income (such as dining hall server). Examples of unearned income include Social Security disability payments, child support payments, and welfare program payments
> See “How to Certify Income of Dependents in Tax Credit Households,” May 2013
QUESTION #3
Correct answer: a
According to HUD, an applicant is making a request for a reasonable accommodation whenever he makes clear that he’s requesting an exception, change, or adjustment to a rule, policy, practice, or service because of a disability. Don’t ignore the request simply because an applicant or member doesn’t appear to have a disability. Treat the request seriously and ask for disability-related information, if necessary, to verify that the person meets the Fair Housing Act’s definition of having a disability—that is, he has a physical or mental impairment that substantially limits one or more major life activities.
> See “How to Prevent Fair Housing Claims from Individuals with Nonobvious Disabilities,” April 2013
QUESTION #4
Correct answer: c
In Revenue Ruling 90-89, the IRS instructs owners of tax credit sites to follow the rules for the project-based Section 8 program to determine the household size when selecting the appropriate income limit. According to paragraph 3-6(E)(4)(b) of HUD Handbook 4350.3, you must count children who live in a low-income unit as part of the household if they live there at least 50 percent of the time. When certifying an applicant in this scenario be sure to ask for a copy of the joint custody agreement to verify the arrangement. This way, you’ll be able to show your state housing agency why you counted the children as part of the household. Also remember that whenever you count children as part of a household, you must include their unearned income.
> See “Counting Children of Joint Custody Arrangements,” March 2013
QUESTION #5
Correct answer: b
The applicant has created a revocable trust and has access to the funds at any time. Therefore, this trust is counted as an asset. Trusts that are not revocable by or under the control of any member of the family are not considered assets. As long as the trust exists, the actual income distributed to the member from such a trust must be counted when determining annual income. As with all income, this is the gross amount received before taxes or other deductions. If there is no income distributed from the trust, then do not count any income from the trust (for example, income from the trust that’s reinvested into the trust).
> See “How to Treat Trusts When Calculating Household Income,” February 2013
QUESTION #6
Correct answer: c
According to the HUD Handbook, you must count unborn children as household members for occupancy and income purposes. You count a pregnant household member as two people, and use the income limits for a larger household size.
> See “How to Certify Applicants or Households with Pregnant Members,” October 2012
QUESTION #7
Correct answer: a
You should grant the request. For the purpose of calculating unit size, the household has three people.
> See “How to Certify Applicants or Households with Pregnant Members,” October 2012
QUESTION #8
Correct answer: a
Don’t require an expectant household member to verify pregnancy. HUD specifically bars you from verifying a household member’s pregnancy in any way other than through self-certification [Handbook 4350.3, App. 3]. This means you cannot ask a pregnant woman to get written verification from her doctor. Instead, ask the household member herself to certify that she’s pregnant.
> See “How to Certify Applicants or Households with Pregnant Members,” October 2012
QUESTION #9
Correct answer: b
The “minimum set-aside” is always based on the number of units—not the floor space. It’s a percentage that determines the minimum number of units at your site or building that the owner must rent to qualified low-income households. The minimum set-aside has nothing to do with square footage. And unlike the first-year fraction, the minimum set-aside applies to your site as a whole, unless the owner elected otherwise on its IRS Form 8609.
> See “First-Year Fraction vs. Minimum Set-Aside,” January 2013
QUESTION #10
Correct answer: d
The tax credit rules make clear that if any units at your site aren’t “for use by the general public,” those units aren’t eligible for tax credits. To comply, your units must be “rented in a manner consistent with housing policy governing non-discrimination, as evidenced by…the HUD Handbook.” You can find this policy in Chapter 2 of the Handbook.
In addition, you must follow Paragraph 3-6(E) (Income Limits and Family Size), which details who must be counted as members of your low-income households. You must also follow the requirement that all adult household members sign forms authorizing you to verify their incomes [Handbook 4350.3, par. 3-11(A)(2)].
And Sections 1 and 3 of Chapter 5 set out the rules you must follow for calculating and verifying income. You must also consult Appendix 3 (Acceptable Forms of Verification), and Exhibits 5-1 (Income Inclusions and Exclusions) and 5-2 (Assets).
> See “Know When and How to Use the HUD Handbook at a Tax Credit Site,” December 2012
QUESTION #11
Correct answer: c
The IRS mandates that first-year records must be maintained for 21 years. Certifications collected in the first year of the site’s tax credit period must be kept for at least six years after the owner’s tax return is due for the last year. This amounts to a minimum of 21 years. And certifications and annual certifications collected after the site’s first year must be kept for six years after the owner’s tax return is due for the year in which the certification or recertification was done.
> See “Document Efforts to Fix Three Common Household File Mistakes Before You’re Audited,” December 2012
QUESTION #12
Correct answer: b
In general, sites should adopt policies to handle maintenance and repair requests on a first-come, first-served basis—unless the request involves an emergency. Furthermore, a maintenance or repair request may require immediate attention in some cases if it qualifies as a reasonable accommodation for an individual with a disability.
The courts—and HUD—have interpreted the Fair Housing Act to ban housing practices, which though neutral on their face, have the effect of discriminating against protected classes. Legal experts refer to this type of claim as “disparate impact.” With respect to maintenance operations, a site could face a disparate impact claim based on a policy to focus maintenance efforts on certain areas or properties, to the exclusion of others, if it has a discriminatory effect based on the protected characteristics of the members living there. Such a claim could arise, for example, if the site devotes all its attention to maintaining luxury units or buildings—while ignoring basic maintenance chores in lower-rent tax credit units or buildings. If most of the residents of the luxury units are white—or childless—but most of the residents in the low-rent tax credit units are minorities or families with children, then it could lead to a disparate impact claim.
> See “Making Sure Maintenance Workers Don’t Trigger Fair Housing Claims,” October 2012
QUESTION #13
Correct answer: b
Even if the workers involved aren't your employees, site owners or managers may be held liable if they knew or should have known that a contractor was sexually harassing residents, but failed in their duty to stop it. Once you've received a complaint about the landscapers, you should report it to the company and follow up to ensure that the company is taking steps to get its employees to stop the offending conduct.
> See “Making Sure Maintenance Workers Don’t Trigger Fair Housing Claims,” October 2012
QUESTION #14
Correct answer: a
The “eligible basis” of a project is the cost of acquiring an existing building if there is one (but not the cost of the land), plus construction and other construction-related costs to complete the project. This number is then multiplied by the percentage of the units that are “low income” to determine the project’s “qualified basis” that actually qualifies for the credit.
In a private letter ruling, the IRS ruled that the eligible basis is determined without including the adjusted basis of the garages and, based on the facts, the fee for access to the garages is excluded from the gross rent calculations. The IRS stated that the garages are neither residential rental property for purposes of Section 41 of the Internal Revenue Code (IRC) nor are they considered as common areas or comparable amenities provided to all residential units in any of the project buildings. IRC Section 42(d)(4) excludes the adjusted basis of any property that is not residential rental property from eligible basis under Section 42(d)(1).
As for gross rent calculations, Section 1.42-11(a) provides that any charges to low-income tenants for services that are not optional generally must be included in gross rent. Based on the facts, the garage fees are optional and not required as a condition of occupancy. Therefore, the fees are not included in the allowable rent computations.
> See “Excluding Garages from Eligible Basis Calculations, Gross Rent,” June 2012
QUESTION #15
Correct answer: a
In this situation, the IRS ruled in a private letter ruling that the developer’s low-income units were continuously rented or available for rent, and continuously occupied, during the renovation. The IRS found that the developer was taking the proper steps to correct the damage to the project within a reasonable period and therefore found the low-income units to be rented or available for rental on a continuous basis. The IRS also reasoned that upon completion of the renovation work, any low-income resident who reoccupies a unit in the project can be treated as a continuing resident of the project for the purposes of the higher income limitation rules of Sections 142(d)(3) and (4) of the Code.
> See “Waiving the Vacant Unit Rule During Renovation,” June 2012