Topic: Feature

A private letter ruling (PLR) is a written response issued by the IRS to an owner or taxpayer when the owner asks a question about the tax effects of its acts or transactions. The questions posed by site owners usually entail uncertainty about how to handle a situation and the need for guidance on how to avoid the recapture of tax credits. The IRS-issued PLR interprets and applies the law to a specific set of facts, and the owner or manager who requested the PLR can rely on the conclusions expressed in it.

Like many tax credit managers, you may have considered setting house rules aimed specifically at children. Your motive may be concern for children’s safety around specific hazards like swimming pools. Or if you’ve been getting noise complaints from residents or have recently found excessive wear and tear due to children, you may want to impose house rules to rein in children and preserve peace and quiet.

As an owner or manager, it’s important to keep your designated low-income units qualified as such under tax credit rules. Unless a site is deep rent skewed, a LIHTC site must have either 20 percent of the units rent-restricted and occupied by a household with income at or below 50 percent of the area median income (AMI), or 40 percent of the units rent-restricted and occupied by a household with income at or below 60 percent of AMI.

When calculating household income at initial certifications and at annual recertifications, if you have a mixed-income site, you must properly count the household’s assets. But this can be tricky if you’re not familiar with HUD’s rules.If you’re not sure how to count assets correctly, you might reject an eligible household because you mistakenly believe that its members earn too much income. Or you may incorrectly determine that a household is over-income at its annual recertification, prompting you to follow the next available unit rule unnecessarily.

The applicable fraction is the percentage of rental units in a building that qualify as low-income units. Specifically, under Internal Revenue Code (IRC) §42(c)(1)(B), the applicable fraction is the smaller of the unit fraction or the floor space fraction. IRC §42(c)(1)(C) defines “unit fraction” as a fraction whose numerator is the number of low-income units in the building, and whose denominator is the number of residential rental units in such building.

As the holiday season approaches, we know that audit season isn’t far behind. Taking steps now to review management practices, household files, and preparing annual forms will help ensure a strong start to the upcoming year and an efficient audit process.The following is a list of year-end items that owners or managers may review now to ensure deadlines are met and to minimize disruptions to day-to-day operations.

When a qualified low-income household moves out of a unit at your tax credit site, you might not have another qualified household immediately available to move into the unit. And finding qualified households for your site can be difficult and take time. For these reasons, you may have units that have been vacant for a considerable amount of time. Fortunately, the tax credit law lets owners continue to claim credits for units that become vacant, as long as they comply with the vacant unit rule.

If you’re like many tax credit managers, you might want to set aside a model unit that you can show to prospects to help “sell” your site. But before you set aside any unit at your tax credit site for this purpose, you must consider what effect your action may have on your compliance efforts. Depending on the type of unit you choose to set aside, you could put the owner’s tax credits at risk.