Getting Back Unit Occupied by Ex-Employee

Q As the owner of a tax credit site, I recently terminated the employment of a manager who was living at the site. Even though she has been terminated, she's still living on-site. The unit no longer qualifies for tax credits, because it is being occupied by someone who is neither an employee nor a low-income resident, so I am seeking her eviction. Meanwhile, I have hired a new manager and would like to move him into the site manager's unit as soon as possible. However, it is not clear how long it will take to evict the ex-manager.

If I move the new manager into a different unit, the site will then have another resident who does not qualify under the tax credit program. Can I allow a new manager to live on-site without jeopardizing my tax credits, as long as I provide legal documentation indicating where we are in the eviction process?

A The Internal Revenue Code (IRC) does not provide specific guidance on this issue, says affordable housing consultant Elizabeth Moreland, an expert in the low-income housing tax credit program.

You can't collect tax credits on the unit where the ex-manager lives, because the ex-manager does not qualify under program eligibility rules. The IRC assumes, but does not clearly state, that the site manager's unit went into noncompliance the day the prior manager became an ex-employee.

The site needs a manager and must move beyond the problem being caused by an ex-manager continuing to occupy a unit after termination of employment. It is unreasonable to prevent the site from having a new site manager occupy a unit as a result of an ongoing problem with an ex-employee. Documenting the problem will make the site's position strong if the local state housing agency monitoring the site “flags” it for continuing to collect tax credits on the unit the ex-manager is living in.

But even if the site is flagged, it may not automatically receive a finding of noncompliance. If, as the site owner, you document every action you took—all of which were reasonable and legal—in removing the ex-employee from the manager's unit, and did not put the site at risk in hiring a new manager, there's a good chance that the IRS will waive the noncompliance, Moreland says.

Insider Source

Elizabeth Moreland: President, Housing Credit College, 69-07 University Ave., Ste. 196, Middleton, WI 53562; 1-800- 644-0390 ext. 112; elizabeth@taxcredit.com; http://www.housingcreditcollege.com.