Take Eight Steps When Managing Tax Credit Site in New State
An owner may hire you to manage tax credit sites in a different state from the one where your current tax credit sites are located. You may think that because the tax credit program is a federal program, you can simply apply the same rules you’re currently complying with to the site in the new state. But that would be a mistake.
Each state has its own agency responsible for monitoring tax credit compliance at sites within that state. This agency is also charged with reporting noncompliance to the IRS. To help them fulfill their role effectively, state housing agencies have created their own rules (complementing the federal rules), which owners and managers of sites in their state must follow.
To properly prepare yourself for managing a site in a new state, you must take certain steps. Here are eight key steps you should take.
Step #1: Research State’s Rules and Develop Relationship with State Housing Agency
If you manage a tax credit site in a new state, you’ll be working with a new state housing agency. You should start developing a good working relationship with the new agency immediately, to help manage your site effectively in the new state.
State housing agencies review income verifications, certifications, and other paperwork to make sure you’re renting your low-income units to qualified households. They also perform physical inspections of your site and make sure you’re charging households the correct rents. Specifically, the compliance-monitoring regulations specifically provide that, for each low-income housing project, an agency must conduct on-site inspections of all buildings by the end of the second calendar year following the year the last building in the project is placed in service. In addition, the regulations provide that the agency must also conduct on-site inspections and low-income certification review at least once every three years after the initial on-site inspection.
Because state housing agencies play such a large role in the tax credit program, you’ll be in frequent contact with the new agency once you start managing the site in the new state. Having a good working relationship with that agency is important.
State housing agencies make their own rules to carry out their role in compliance monitoring and reporting. When you manage a tax credit site in a new state, get familiar with these rules immediately. The new agency may want things done differently—and possibly interpret the law more restrictively—than what you’re used to.
You should get copies of the new state housing agency’s rules and guidelines so you can become familiar with how the agency has adapted the tax credit program to fit its needs. Most agencies offer their compliance manual and other documents as free downloads on their website. Before downloading, however, it’s best to check with someone at the new agency to make sure you know which documents you need.
Step #2: Get Required Certification Forms
When you manage a tax credit site in a different state, ask the agency what forms you must use to certify and recertify your low-income households. The agency may require you to use its own version of common forms—such as the “certification of zero income” or “disability income verification” forms.
Step #3: Ask About Compliance Monitoring Fees
When you manage a tax credit site in a new state, ask the agency about its compliance monitoring fees. The IRS lets state housing agencies pass on some of their monitoring expenses to tax credit owners by charging these fees. For example, ask:
When are fees due? You may find, for instance, that the new state’s agency requires you to pay the fees for the entire compliance period up front, rather than annually.
How are fees calculated? For example, in calculating the fees, does the new state take into account whether you have market-rate units at your site and whether your site gets assistance?
What’s the late-payment penalty? Although owners are responsible for paying these fees, it’s your responsibility as manager to make sure the owners of your sites pay the fees on time. The penalty for paying fees late can be costly, and a late payment can harm the good relationship you’re trying to build with your new state housing agency.
Step #4: Learn Deadline for Correcting Noncompliance
The amount of time you’ll get to correct noncompliance will differ from state to state. If you get cited for noncompliance by the new agency, make sure you know how much time that state gives you to fix the violation. The tax credit law requires agencies to give sites a “reasonable period” of time to fix violations, and the rules clarify that the correction period can be up to 90 days. So your new state housing agency may give you less—or more—time to correct noncompliance than you’re used to.
Step #5: Find Out Length of Extended Use Period
Owners of sites allocated credits in 1990 or later must agree—in return for their allocation of credits—to provide affordable housing at their sites for an “extended use period.” Each state determines the length of its extended use period, which normally lasts 15 years or more after the federal 15-year compliance period.
So when you manage a tax credit site in a new state, you must find out how long the extended use period lasts. To do this, check the extended use agreement that the owner signed with the new state housing agency.
Step #6: Use New Income Limits
The income limits you must use at your tax credit site are set at a certain percentage of area media gross income (AMGI). So if you manage a tax credit site in a new state, you’ll need to use different income limits. When HUD releases new income limits during the early part of each year, you must begin using the new limits 45 days after they’re issued or by the HUD effective date, whichever is later. When you manage a tax credit site in a new state, make sure you get the current limits for your site’s area.
Step #7: Use Right Utility Allowances
Make sure you use the right utility allowances when you manage a site in a new state. Because the utility allowances are based on local usage, you should expect the allowances in the new state to be different from the allowances at your other sites.
Using the correct utility allowances is important because it’s closely tied to charging the correct rent. To determine the rent you can charge a household, you must subtract the household’s utility allowance from the maximum allowable rent you calculate. If you use the wrong utility allowance and charge the household too much rent, the unit will fall out of compliance. If you charge too little rent, your mistake will cause your site to lose rent revenue.
According to amended regulations for utility allowances at LIHTC sites published by the IRS and the Treasury Department earlier this year, the final regulation retains the requirement that if a PHA utility allowance changes, the building owner must use the new utility allowance to compute gross rents of the units due 90 days after the change. In other words, the 90-day period ends 90 days after the effective date of the revised PHA allowance. In the regulation, the IRS states that, “A building owner that checks the PHA utility allowance every 60 days would have at least 30 days in which to adjust rents.”
Step #8: Learn Which Groups State and Local Fair Housing Laws Protect
Many states—and many localities—have housing discrimination laws that go beyond the Fair Housing Act’s ban on discrimination based on race, color, religion, national origin, sex, disability, and familial status. When you manage a tax credit site in a new state, you should find out whether that state protects any additional groups of people. You should also check whether your new site’s city, town, or county bans discrimination based on additional characteristics.
Finding out about your new state and local fair housing law will help you treat prospects and residents fairly and stave off complaints. It will also help with tax credit compliance because if you violate state or local fair housing law, your state housing agency must report it to the IRS for noncompliance.
States and localities most commonly ban housing discrimination based on age, source of income, creed, ancestry, sexual orientation, and marital status. If you need help finding out which types of discrimination your new state’s fair housing law bans, ask your attorney or fair housing consultant.