Inspect Interior Common Areas Periodically for Potential Hazards

As a site owner or manager, it’s a good idea to check the interior common areas of your tax credit site regularly for safety hazards. If you find problems, you must immediately correct them, or risk legal liability for any potential injuries to residents, their guests, or visitors to the site. In addition, violations of health, safety, or building codes in common areas can jeopardize valuable tax credits.

According to a memorandum issued by the IRS Chief Counsel in 2019 [IRS PMTA-2019-04], noncompliance of a common area in a qualified low-income building based on a failure of inspection standards are treated as a reduction in the eligible basis of the building in the taxable year in which the noncompliance occurs. The memo indicates that the reduction in the eligible basis consists of the costs attributable to the entire common area, not just the costs attributable to the portion of the noncompliant common area.

One way to ensure that your tax credit site stays in shape for inspections by the state housing agency or local authorities is to periodically conduct your own routine. These inspections can also help you correct hazards that could injure residents or visitors, and can limit your liability if an injury does occur. We’ve included a Model Checklist: Interior Common Area Inspection Checklist to help you guide your inspections and give you a record of the repairs you make.

Common Area Standards

According to the IRS guide for Completing Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition, common areas must be “structurally sound, secure, and functionally adequate for the purposes intended.”

Common areas include the basement, garage/carport, restrooms, closets, utility rooms, mechanical rooms, community rooms, day care rooms, halls/corridors, stairs, kitchens, laundry rooms, office, porch, patio, balcony, and trash collection areas. And they must be free of health and safety hazards, operable, and in good repair.

In addition, all common area ceilings, doors, floors, HVAC, lighting, outlets/switches, smoke detectors, stairs, walls, and windows, to the extent applicable, must be free of health and safety hazards, operable, and in good repair. Parking lots and driveways, lobby areas, pools, play areas and equipment, roads, and walkways must be free of health and safety hazards and in good repair.

It’s important to your site’s long-term viability to catch and fix problems before a government or state housing inspector finds them. Each year, you certify that your site is suitable for occupancy under local health, safety, and building codes, and that you have received no reports of violations. If local inspectors find any violations, you must report these to your state housing agency and keep the violation reports on file. Failing to correct a major violation or a pattern of minor violations may lead the IRS to recapture tax credits on the site.

Also, inspecting common areas and keeping records of repairs can be important in helping you prevent or fight off lawsuits from people who are injured because of unsafe conditions in your site’s common areas.

What to Look for

Look for hazards or defects that could lower your inspection score or injure residents or visitors, leading to liability. Your checklist, like ours, should cover items that the IRS considers to be major violations of health, safety, or building codes, including:

• Blockage of fire exits;
• Smoke detectors or sprinklers not functioning;
• Elevators functioning improperly; and
• Common area safety lighting problems.

These conditions are listed in Form 8823 and are a major source of liability. Use our Model Checklist to help you spot these and other problems such as broken railings or slippery and/or defective flooring that could cause injury in common areas. The checklist can also help stay on top of households storing items in common areas, obstructing fire exits and creating trip hazards.

Be sure to include space after each checklist question for additional comments. For example, maintenance staffers might use the space to note that a hazardous situation is the result of vandalism.

Also, give your staff members a place to note any other hazards they find and repair—for example, removal of an item near an exit door, which residents were using as a door stop.

How Records Help

No matter how often you check for hazards and repair them, an accident is bound to occur sooner or later. When it does, you may get sued and need to prove, for example, that you inspected stairs and replaced several worn treads the week before a resident slipped on them. That could give you a better chance of a court’s finding in your favor, on the basis that you exercised reasonable care and were not responsible for the injury.

Keeping inspection forms on file can also help you keep track of how often hazardous situations arise. If hazards result from repeated vandalism of lights or other fixtures, you can take steps to find tamper-proof replacements. And you can judge the quality of lights or other fixtures you buy by tracking how well various kinds stand up to ordinary wear and tear.

Although it’s not clear that a record of self-inspection will keep your site from getting reported to the IRS for a violation, at least you can show inspectors that you’re doing all you can to prevent hazards at your site. For example, your records may show that you’ve inspected common area lighting problems as soon as you become aware of them, showing inspectors that the dark stairwell found by inspectors was an anomaly at your site.