5/16/2018 Tax Credit Compliance 101 Monday, May 21 st, 2018 Denver 11:00 am 12:15 pm What is the LIHTC Program? Tax Credit 101 The LIHTC was created as a part of the Tax Reform Act of 1986, is found in Internal Revenue Code 42, and was designed to incent developers and investors to create and operate affordable housing. Under the program a developer receives federal income tax credits over a 10-year period in exchange for (i) acquiring, rehabbing or newly constructing rental housing for low-income households, and then (ii) operating the project under LIHTC guidelines for a certain compliance period. Unlike a tax deduction, which only reduces taxable income, the LIHTC credits offset dollar-for-dollar a party s tax liability. Housing finance authority (HFA) that allocates credits to developers, administers the state s criteria and bidding process for projects, and monitors developer compliance with program regulations. Management Company Third party compliance auditors Developers Owners Investors 1
5/16/2018 You re the MVP! Most Valuable Player in this game! You may not call the shots but you truly are the MVP! Why? You are the person responsible for adhering to the regulatory agreement, compliance monitoring and maintaining the physical asset for all of the other players involved. Without you, the partnership would not be able to capture their credits. The playing field 2
5/16/2018 Be Proactive! Find it before they do! When it comes to compliance, there are six basic requirements: The Basic 6 #1 Income LIHTC units may only be rented to households with incomes at or below certain limits. The limits are based upon the Area Median Income as defined by HUD and vary from county to county throughout the United States. The permissible limits are usually referred to as a percentage of area median income. Most properties are either 50% or 60% properties, meaning that the allowable income is either 50% or 60% of the median income. Allowable income in any particular locale also varies depending upon the size of the household. 3
5/16/2018 #2 Rent LIHTC units may only be leased at or below Program defined maximum rents. The rent limits are also based upon the median income for the area and will vary based upon the size of the apartment (number of bedrooms) and the specific utilities included in the base rent. Properties which were allocated credits before 1990 are subject to a different formula for determining maximum rents based upon the number of members of the household. #3 Students With some exceptions, LIHTC units may not be rented to households comprised entirely of fulltime students. #4 Units in Program Once established, the number of units (and square footage) reserved for LIHTC households must be maintained. Special rules exist for transfers and for households which recertify at incomes above the initial allowable limits. Some of these restrictions must be met on a property basis; others must be met on a building by building basis. The property must be able to track at all times which units in the property are Program units. 4
5/16/2018 #5 Prove it!! My favorite Each LIHTC file must contain adequate documentation to support the conclusion that the household is qualified. Although all the first four requirements may be met, if the documentation is not adequate, the household can be determined to be nonqualified. **This is one of the most common non compliance issues that result in an 8823 A second set of eyes always helps! Explain and retain! #6 Be PROMPT Dates are very important in the Program. Some events must occur before others (but not too far in advance!); others must occur after. Whether dealing with tenant recertifications, other file related procedures, or the periodic reports which must be submitted to the State agency, timeliness is extremely important. Tardy paperwork can ruin an otherwise perfect file. What can possibly go wrong? Compliance Period, Credit Period, & Accelerated Credits The IRS defines the credit period for a building as the period of 10 taxable years beginning with either the year the building is placed in service or the succeeding taxable year (owners make this election on the IRS 8609 form). The IRS defines the compliance period as the period of 15 taxable years beginning with the 1st taxable year of the credit period. A property must maintain compliance requirements during years 11 15 even though no credits are being claimed. One third of the credits that were claimed in years 1 10 are referred to as the accelerated portion inasmuch as they are generally claimed prior to the compliance requirement ending. Therefore, it is important to think of credits in terms of thirds. 5
5/16/2018 Non Compliance in Year 1 ABC Apartments (40 units; $600k annual credit) is constructed during 2007; the owner chooses 2008 as the first credit year. Due to an error in processing the move in file, this household is over the income limit. They occupy the unit from February 1, 2008 until February 1, 2009. The unit is re-rented to an eligible household on April 1, 2009. The potential credit loss is calculated as follows: a) All of year 1 ($15,000), and b) January March in year 2 ($1250 x 3 = $3,750), and c) The owner loses the accelerated portion of the credit attached to that unit. The owner may claim $0 in year 1; $7,500 in year 2; and $10,000 (2/3 full credit value) in years 3-15 for a total of $137,500 over 15 years. If the unit had been in compliance from the beginning the owner could have claimed $15,000 per year for 10 years equaling $150,000 over 10 years. In addition to the $12,500 in lost credit the owner must also consider the time value of money that has been lost (i.e. credits must be claimed in years 1-15 instead of 1-10). But wait there is more. Non Compliance in Year 5 If a non eligible household moves into the property during year 5 the owner loses credits starting the month of move in until the unit becomes occupied by a qualified household. In addition, the owner could lose the accelerated portion of the credit claimed in years 1 4 (the IRS may not recapture credits if the owner corrects a noncompliance event within a reasonable period after it is discovered or should have been discovered). Example 2: Unit 201 becomes occupied by an ineligible household on May 1, 2012. The owner offers and the family accepts an incentive to vacate the unit. On February 1, 2013 the units is re rented to an eligible household. The owner loses credit for 8 months in 2012 and 1 month in 2013 ($11,250). In addition to this, the owner could face recapture on the accelerated portion of credits claimed in years 1 4 (the maximum recapture exposure is $30,000 plus interest and possible penalties). Finally, the owner may lose the ability to claim the accelerated portion of the credit from 2012 forward. Anything else? Yup, it is not over yet Non Compliance in Year 12 Normally, all credits are claimed in years 1 10. However, the owner must maintain compliance for 15 years. What happens if an error is made after all credits have been claimed? Example 3. Unit 301 becomes occupied by an over income household from February 1, 2019 until February 1, 2020. In a scenario such as this the owner faces possible recapture of credits already claimed. After year 10 the maximum recapture exposure amount begins to decrease. In this example the recapture exposure is $30,000 plus interest and possible penalties. 6
5/16/2018 Take a moment to consider all of the parties involved in a typical tax credit property; the developer, engineer, architect, accountant, attorney, etc. There is no job with more credits at stake than with the on site leasing staff yet these are the positions most often filled with inexperienced, untrained, or unsupervised individuals. The Low Income Housing Tax Credit program provides the necessary capital for many affordable housing properties be be developed. As Steve Rosenblatt (owner & president of Spectrum Seminars, Inc.) teaches throughout the nation in his c3p courses, the price of credits is compliance. In other words, tax credits may be claimed as long as the property meets compliance requirements. A few changes have occurred that you should be aware of prior to your upcoming TCAC Audit 7
5/16/2018 Question #1 6. An applicant receives gift income from her father monthly. The notarized Certification of Contribution is completed by the applicant and signed by her father. Is this acceptable? Yes No ANSWER: NO All 3rd party verification forms must be completed by the person providing the income. Applicants may not fill out income verification data. Question #2 You fax an EV to Harry s Hot Dog Hut. When it is sent back, the only questions answered are the hourly wage and number of hours per week. When you call to follow up with Harry regarding the fields left blank you should: #1 Fill in the blanks on the EV with the info he provides #2 Say, I assume the types of compensation you left blank do not apply to this employee, correct? #3 Record Harry s answers on a separate page and attach it to the EV #4 You don t need to call Harry 8
5/16/2018 ANSWER: #3 Never write on a verification form after it was signed by the 3rd party. Always re ask the questions when following up with a source via telephone. Be sure to keep the documented answers filed with the original (incomplete/unclear) verification so an auditor can easily review the file. Use a form specifically designed to document phone calls (record the date & time of call, who was contacted, etc). Last one..question #3 A divorced man applies to live at your property. He has a job which pays him $25,000 per year. The one person income limit is $22,250. According to his divorce arrangement, he must pay his ex wife $1,000 per month for child support. Is this a qualified household? Yes No ANSWER: 2 You cannot deduct child support payments from an individual s income. If this was not calculated correctly, could this cause an owner to pay back credits? 9
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CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE 915 Capitol Mall, Suite 485 Sacramento, CA 95814 p (916) 654-6340 f (916) 654-6033 ctcac@treasurer.ca.gov www.treasurer.ca.gov/ctcac MEMBERS JOHN CHIANG, CHAIRMAN State Treasurer BETTY T. YEE State Controller MICHAEL COHEN Director of Finance EXECUTIVE DIRECTOR Mark Stivers DATE: April 16, 2018 TO: FROM: RE: Low Income Housing Tax Credit Project Owners and Applicants California Tax Credit Allocation Committee (TCAC) 2018 Income Limits and Maximum Rents (updated) On March 30, 2018, the U.S. Department of Housing and Urban Development (HUD) published the 2018 Income Limits applicable to low income housing funded with Low Income Housing Tax Credits (LIHTC) and projects financed with tax-exempt housing bonds, both are referred to by HUD as Multifamily Tax Subsidy Projects (MTSPs). TCAC utilizes the information published by HUD to calculate maximum rents and income limits for California LIHTC projects. The 2018 limits go into effect on April 1, 2018. Please read this memo carefully to determine which set of income limits and maximum rents are applicable to your project(s). Changes to Income Limits for Multifamily Tax Subsidy Projects (MTSPs) under HERA: The Housing and Economic Recovery Act (HERA) of 2008 made statutory changes to how income limits are calculated for MTSPs (LIHTC and bond-financed properties). The new subpart (E) of Section 142(d)(2), as added by Section 3009(a) of HERA provides for immediate holding harmless of area median gross income for MTSP income limits. As a consequence of this legislation, beginning with FY 2010, HUD will no longer hold its Section 8 income limits harmless. Impacted and Non-Impacted MTSP projects: Impacted Project An Impacted Project is any project which had area median gross income determined in 2007 or 2008 under the HUD Hold Harmless policy, for which HUD has published a HERA Special limit and meets the following requirements: 1. Any single building project that Placed in Service on or before 12/31/2008. 2. Any Multi-building project that had at least one building Place in Service on or before 12/31/2008. 3. Any acquisition/rehab project that has the date of acquisition on or before 12/31/2008. 4. Any rehab only project that had at least one building Place in Service on or before 12/31/2008. Page 1
Some HUD Impacted projects are located in counties that are designated HERA Special Counties. A project uses HERA Special limits if it is an Impacted Project (see above for definition) and the project is in a HERA Special County. Please see IRS LIHC Newsletter #35 for more information about what constitutes determined and projects that were placed in service before or after the HUD income limit effective dates at the following link: http://treasurer.ca.gov/ctcac/rentincome/09/irs_lowincome.pdf In California, there were seven designated HERA Special counties: Marin (no longer HERA special as of 2018) Nevada San Francisco (no longer HERA special as of 2018) San Mateo (no longer HERA special as of 2018) Santa Clara Solano Ventura (no longer HERA special as of 2016) Note: In 2016 the applicable HERA Special rent and income limits for Ventura County were equal to the MTSP rent and income limits for the county and Ventura County was no longer considered HERA Special. In 2018 the applicable HERA Special rent and income limits for Marin, San Francisco, and San Mateo were equal to the MTSP rent and income limits for the counties and they are not considered HERA Special for 2018. Non-Impacted Non-Impacted MTSPs are projects that were not subject to the HUD Hold Harmless policy in 2007 or 2008, placed in service on or after January 1, 2009, or may not be affected by HERA Special Limits at this time. All Non-Impacted properties are still under the provisions of HERA Hold Harmless once they have placed in service and are subject to the 45 day rule. For existing non-impacted projects where the placed in service date is 1/1/2009 5/13/2010, you would use the greater of the previous year (2017) or the current (2018) income and rent limits. For existing non-impacted projects where the placed in service date is 5/14/10 5/30/2011: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent Limit is the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For existing non-impacted projects where the placed in service date is 5/31/11 11/30/11: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent Limit is the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. Page 2
For existing non-impacted projects where the placed in service date is 12/1/11 12/04/12: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent Limit is the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For existing non-impacted projects where the placed in service date is 12/4/12 12/17/13: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent Limit is the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For existing non-impacted projects where the placed in Service date is 12/18/13 3/5/2015: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent Limit is the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For existing non-impacted projects where the placed in Service date is 3/6/2015 3/27/16: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent limit will be the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For existing non-impacted projects where the placed in Service date is 3/28/2016 4/13/17: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent limit will be the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For existing non-impacted projects where the placed in Service date is 4/17/2017 3/31/18: o The Income Limit is the greater of the previous year (2017) or the current (2018) income limit. o The Rent limit will be the greater of the current year (2018) or the gross rent floor election. TCAC will determine the gross rent floor election to be at carryover Page 3
allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. For non-impacted projects which are placed in service on or after the effective date of 2018 MTSP income limits April 1, 2018: o The Income limits will be the MTSP/Section 8 limits as determined by HUD. o The Rent limit will be the greater of the current rent limits as published by HUD or the owner s gross rent floor election. TCAC will determine the gross rent floor election to be at carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond projects unless written notification is made by the owner to TCAC specifying the gross rent floor election is to be at placed in service. Changes to the Income Limits for Multifamily Tax Subsidy Projects MTSPs under HERA and subsequent legislation: Starting in 2010, HUD allowed the Section 8 income limits to fluctuate with the area median income for each county. At that time HUD also established a maximum and minimum amount that the AMI can change from year to year. The income limits issued for the Section 8 and MTSP program will not increase more than 5% or twice the change in the national non-metro AMI (whichever is greater), nor will the limits decrease more than 5%. Each non-impacted project will be subject to the current year s rent and income limits and will be held harmless at the highest income limit the property has achieved since it was placed in service should the income limits decrease in following years (HERA Hold Harmless). HUD will publish historical data on income limits, but each owner should retain a file evidencing their project s income limits and rents since placing the project into service. Counties that are designated HERA Special on the limits are counties with projects that Placed in Service on or before 12/31/2008 and were subject to HUD Hold Harmless in either 2007 or 2008. In California, the seven original HERA Special Counties were held harmless in both 2007 and 2008. They were subject to a boost in AMI in 2009 and continued to receive the benefit of HERA Hold Harmless. In 2013, three additional counties were designated HERA Special by HUD. These counties were originally subject to the HUD Hold Harmless in 2007, but AMI for those counties increased in 2008, and they were not originally given a boost the way the seven original HERA Special Counties were. The AMI continued to increase for those counties in 2009, 2010, 2011, and 2012. HUD did not publish a HERA Special limit for these counties from 2009 to 2012 since the HERA Special Limit was equal to the MTSP limit. In 2013, the AMI for these counties decreased which caused HUD to publish a HERA Special limit for these counties, since HUD does not allow HERA Special Income Limits to decrease. As of 2016, neither of those counties remain HERA special and one of the original seven HERA Special counties has also been removed from the HERA Special designation. In 2018, an additional three of the original seven HERA Special counties had limits that were equal to the MTSP and are no longer considered HERA Special. The IRS has stated that properties in a Lease-up phase during the 45-day grace period allowed for the implementation of the new Income Limits may elect to use either the 2017 or 2018 Income or Rent Limits, whichever is of greater benefit. However, the 2018 limits must be used for all buildings that place in service on or after May 15, 2018 or for properties that have elected or will Page 4
elect no on Line 8b of the 8609 Form (property not considered a multi-building project). The same rule applies to buildings that place in service between the effective date of April 1, 2018 and the implementation date of May 15, 2018. For 2018, the ACS data used by HUD to determine the 2018 Rent and Income Limits for each county included the information from years 2012-2016. On March 23, 2018, the omnibus appropriations bill was signed into law, which included a change to Section 42 of the Internal Revenue Code allowing income averaging, under which a project may include units targeted up to 80% of area median income (AMI) as long as the project s average targeting does not exceed 60% AMI. TCAC has proposed regulation changes that will go to vote at the May 16, 2018 Committee Meeting that will further define the requirements. However, as a response to the change in law, the rent and income limits for Projects Placing in Service on or After 4/1/18+ will include limits at the 70% and 80% level in addition to the normal deeper targeting of past years. 2018 Rent and Income Limits: Starting in 2010 and going forward, TCAC has revised the format of the published Income and Rent limits to reflect the hold harmless policy as enacted by the 2008 HERA legislation. Eleven (11) income limit tables and twelve (12) rent limit tables are posted on the TCAC website. 2018 Income Limits for Projects Placed in Service on or before 12/31/2008 (including HERA Special Projects) 2018 Income Limits for Projects Placed in Service from 1/1/09 5/13/2010 2018 Income Limits for Projects Placed in Service from 5/14/2010 5/30/2011 2018 Income Limits for Projects Placed in Service from 5/31/2011 11/30/11 2018 Income Limits for Projects Placed in Service from 12/1/11 12/3/12 2018 Income Limits for Projects Placed in Service from 12/4/12 12/17/13 2018 Income Limits for Projects Placed in Service from 12/18/13 3/5/15 2018 Income Limits for Projects Placed in Service from 3/6/15 3/27/16 2018 Income Limits for Projects Placed in Service from 3/28/16 4/13/17 2018 Income Limits for Projects Placed in Service from 4/14/17 3/31/18 2018 Income Limits for Projects Placing in Service on or after 4/1/18+ 2018 Rent Limits for Projects Placed in Service on or before 12/31/2008 (post 1989) 2018 Rent Limits for Projects Placed in Service on or before 12/31/2008 (prior to 1990) 2018 Rent Limits for Projects Placed in Service from 1/1/09 5/13/2010 2018 Rent Limits for Projects Placed in Service from 5/14/2010 5/30/2011 2018 Rent Limits for Projects Placed in Service from 5/31/2011 11/30/11 2018 Rent Limits for Projects Placed in Service from 12/1/11 12/3/12 2018 Rent Limits for Projects Placed in Service from 12/4/13 12/17/13 2018 Rent Limits for Projects Placed in Service from 12/8/13-3/5/15 2018 Rent Limits for Projects Placed in Service from 3/6/15 3/27/16 2018 Rent Limits for Projects Placed in Service from 3/28/16 4/13/17 2018 Rent Limits for Projects Placed in Service from 4/14/17 3/31/18 2018 Rent Limits for Projects Placing in Service on or after 4/1/18+ Page 5
All income limit tables reflect the current limits as determined by the HERA Special, HERA Hold Harmless, and MTSP guidance for 2009-2018. Please note this memo provides summary information of published HUD guidance. Please review the entire Federal Register notice [Docket No. FR-5323-N-03), dated May 17, 2010 prior to determining which income limits and maximum rents are applicable to your project(s). If you have any questions on the 2018 Rent & Income limit guidance, please contact Shannon Nardinelli, Compliance Program Manager at (916) 654-6340. Page 6
Compliance Violation Fines All payments due within 30 days of assessment or completion of appeal Compliance Violation (per unit unless otherwise noted) Life and Safety Violations Lifethreatening (post Y15) Life and Safety Violations Non- Life threatening and UPCS Violations Level 2 and 3 (post Y15) Corrective Time Period 24hr 1 week to correct 30 days to correct. Refer to NCL letter for specific violation Fines after Corrective Period $250 fine and $100 per month until corrected $250 fine and $50 per month until corrected Incorrect eligibility documentation or unable to determine eligibility 30 days to correct $250 fine and $100 per month until corrected (post Y15) Incorrect rent of $15 or less (post Y15 for all units; Initial credit period for all deeper targeted units) Incorrect Rent of more the $15 (post Y15 for all units; Initial credit period for all deeper targeted units) 30 days to correct and reimburse tenants the overage amount Immediate $250 fine or twice the financial gain, whichever is greater, and owner must correct the rents and reimburse tenants the overage amount The greater of $100 or twice the monthly financial gain per month until corrected After 30 days, an additional fine equal to the greater of $100 or twice the monthly financial gain per month until corrected Failure to submit reports AOC (post Y15) 30 days to correct $250 fine and $50 per month until corrected (per project) Failure to submit Reports AOE, Tenant Demographic Data 30 days to correct $250 fine and $50 per month until corrected (Initial credit period and post Y15) (Per project)
Vacant/off-line unit (post Y15) Failure to Provide Service Amenities (Initial credit period) (Per project) Immediate $250 fine if unit is vacant more than 60 days, not being advertised, and not ready to rent. TCAC may extend the 60-day period for situations beyond the owner s control or involving particularly lengthy rehabilitation, provided that the owner is diligently working to correct the situation. Immediate fine of twice the financial gain, based on the service costs presented in the application or, if none, an assumed cost of $20,000 per year, except that no immediate fine shall be imposed for a lapse of 30 days or less within a calendar year. After 30 days, an additional $250 fine per month After 30 days, an additional fine of twice the monthly financial gain. Lack of cooperation to monitor (post Y15) (Per project) RUBS (Ratio Utility Billing Service) and Mandatory Fees (examples but not inclusive Renter s Insurance, W/D hookups, cable, storage, parking) (Initial credit period and post Y15) Student Rule (post Y15) Change of Ownership or Management without TCAC Approval 90 days to correct from date of initial letter notifying of inspection Immediate fine of $100 or twice the financial gain, whichever is greater. If over maximum TCAC rent, owner must also reimburse tenants for overage. Immediate $250 fine Immediate $500 fine $500 per month After 30 days, an additional fine of $100 per month or twice the monthly financial gain, whichever is greater, until corrected After 30 days, an additional fine of $100 per month until corrected After 30 days, an additional fine of $500 per month until corrected
(Initial credit period and post Y15) (Per project) Transfer event without TCAC approval (Per project) (Initial credit period and post Y15) Change in Unit Mix without TCAC Approval (Initial credit period and post Y15) Not using TCAC required forms - TIC - TICQ - THIF (if applicable) - Under $5k Asset - Child/Spousal Support Verification - Zero Income Certification (if applicable) (Initial credit period and post Y15) (Per project) Immediate $500 fine or twice the financial gain, whichever is greater Immediate $500 fine Immediate $250 fine After 30 days, an additional $500 fine or twice the monthly financial gain, whichever is greater After 30 days, an additional $500 fine per month until corrected unless TCAC approves the change After 30 days, an additional fine of $100 per month until forms are in use Failure to maximize utilization of accessible units and give priority for accessible units to persons already residing in the complex or on the waiting list who need the accessibility features 30 days to correct $250 fine and $100 per month until corrected (Initial credit period and post Y15) (per project)
CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE 915 Capitol Mall, Suite 485 Sacramento, CA 95814 p (916) 654-6340 f (916) 654-6033 ctcac@treasurer.ca.gov www.treasurer.ca.gov/ctcac MEMBERS JOHN CHIANG State Treasurer BETTY T. YEE State Controller MICHAEL COHEN Director of Finance EXECUTIVE DIRECTOR Mark Stivers DATE: December 22, 2017 TO: FROM: RE: Property Owners and Management Agents of LIHTC Properties Rose Guerrero, Compliance Section Chief Low Income Housing Tax Credit ( LIHTC ) Violence Against Women Act ( VAWA ) and Manager s Unit Guidance This memorandum serves as guidance from the California Tax Credit Allocation Committee ( TCAC ) to owners and property management agents of LIHTC properties in California on the following two topics: 1. The Manager s Unit 2. LIHTC VAWA The Manager s Unit: Following recent discussions with the Internal Revenue Service ( IRS ), TCAC received clarification on the correct use of the manager s unit at LIHTC properties. Specifically, when the manager s unit is included in eligible basis, the IRS clarified the following: Per IRS Revenue Ruling 92-61, Manager/Exempt units are considered facilities reasonably required for the operation of the residential rental housing. The unit is required to be occupied by the actual on-site resident manager and/or maintenance personnel of that LIHTC property in order for that unit to qualify as residential rental property for purposes of Section 42 of the Code. Employees occupying the manager s unit in one LIHTC property but working at a different LIHTC property is not a qualified use of the manager unit. Such a unit is not considered a manager unit because the site personnel is/are not residing in the employee unit at the same LIHTC property they are employed at. To comply with federal regulations, an owner shall have the site personnel (on-site resident manager and/or maintenance personnel) reside in the same LIHTC property for which they are employed.
TCAC staff are verifying the resident who occupies the on-site manager unit at all LIHTC properties to assure they are employed at that LIHTC property. Any violation of the correct use of the manager s unit will be reported to the IRS via Form 8823. VAWA: VAWA protects victims of domestic violence, sexual assault, dating violence, and stalking ( VAWA Crimes ) from discrimination in accessing and maintaining federally assisted housing because of the violence committed against them. In 2013, Congress expanded the VAWA s housing protections by including additional federal housing programs such as the LIHTC program. While there has not been official guidance issued from the IRS to the state LIHTC allocating agencies regarding VAWA, TCAC will follow the provisions of the 2013 VAWA legislation in accordance with IRS regulations. Beginning January 1, 2018, TCAC will require all owners of LIHTC properties in California and their property management agents be in compliance with the VAWA LIHTC Information Checklist (see attached). Please note, this checklist is not all inclusive and owners along with their property management agents must be well familiar with all VAWA requirements. Additionally, TCAC Monitoring staff will now be looking for compliance with the HUD VAWA Lease Rider (HUD - 91067). A HUD VAWA Lease Rider must be included in each LIHTC property tenant file. Failure to comply will result in a finding of noncompliance for each file where the HUD VAWA Lease Rider is missing. If you have any questions on this memorandum, please contact Rose Guerrero, Compliance Section Chief at 916-654-6340.
Violence Against Women Reauthorization Act of 2013 LIHTC Information and Checklist Background The Violence Against Women Act ( VAWA ) protects victims of domestic violence, sexual assault, dating violence, and stalking ( VAWA Crimes ) from discrimination in accessing and maintaining federally assisted housing because of the violence committed against them. In 2013, Congress expanded VAWA s housing protections by covering additional federal housing programs, including the Low-Income Housing Tax Credit program ( LIHTC ). 1 This checklist outlines the obligations of LIHTC owners and their management agents under VAWA. Basic Obligations The list below outlines the existing protections under the 2013 VAWA that are applicable to all low-income housing tax credit properties. It is not an exhaustive list of an owner or management agent s responsibilities under VAWA. Additional obligations may apply to other programs such as the Section 8 Housing Choice Voucher Program and the HUD Multifamily rental programs 2 (collectively VAWA-covered HUD programs ). 3 Tenant s Status as a Victim of a VAWA Crime Owners and management agents may not deny admission or evict a tenant on the basis of, or as a direct result of, the fact that the tenant is or has been the victim or threatened victim of a VAWA Crime. Criminal Activity Related to VAWA Crimes Owners and management may not consider criminal activity directly relating to VAWA Crimes, engaged in by a member of a tenant s household or any guest or other person under the tenant s control, cause for termination of assistance, tenancy, or occupancy rights if the tenant or an affiliated individual of the tenant is the victim or threatened victim of the violence. Owners and management agents may evict or terminate the assistance of a victim if they can demonstrate an actual and imminent threat to other tenants or employees at the property in the event that the tenant is not evicted or terminated from assistance. Owners and management agents cannot subject victims of VAWA Crimes to a more demanding standard than other tenants when determining whether to evict. Notification Owners and management agents are required to notify all tenants of their VAWA rights by providing each tenant a Notice of Occupancy Rights Form HUD-5380 and VAWA Self-Certification Form HUD-5382 when the tenant has been admitted to the property and with any notification of eviction or notification of termination of assistance. These forms are available in multiple languages on HUD s website. Housing providers must customize Form HUD-5380 by providing information about the program and contact information. 1 34 U.S.C. 12491. 2 The HUD Multifamily programs that are covered by VAWA are Section 8 project-based housing; Section 202 housing for the elderly; Section 811 housing for people with disabilities; Section 236 multifamily rental housing; and Section 221(d)(3) Below Market Interest Rate (BMIR) housing. 3 In November 2016, HUD promulgated the agency s Final Rule implementing VAWA 2013 in the VAWA-covered housing programs. HUD s Office of Public and Indian Housing and Office of Housing have further issued extensive notices for housing providers implementing VAWA 2013 Notice PIH-2017-08 (HA) and H 2017-05.
o NOTE: Owners and management agents participating in VAWA-covered HUD Programs are required to distribute these forms to existing tenants by December 16, 2017. 4 Documentation Owners and management agents may request, in writing, that the tenant seeking VAWA protections certify that the individual is a victim of a VAWA Crime. To receive protections under VAWA, the tenant has the choice to submit either a VAWA Self-Certification Form HUD-5382, or other documentation as noted on the certification form, completed and submitted within 14 business days, or an agreed upon extension date. Failure to provide the certification or other supporting documentation within the specified timeframe may result in eviction or admission denial. If the Owner or management agent receives conflicting certifications, they can require an applicant or tenant to submit third-party documentation permitted under VAWA. Confidentiality Owner and management agents are required to keep strictly confidential all information submitted by the tenant related to their VAWA request or protected status, including the fact that an individual is a victim of a VAWA Crime. They may not enter any of this confidential information into any shared database or disclose this information to any other entity or individual, except to the extent that the disclosure is: requested or consented to by the individual seeking VAWA protections in writing, required for use in an eviction proceeding, otherwise required by applicable law, or for compliance with the Section 42 Tax Credit Program. Court Orders Owners and management agents must honor all court orders addressing rights of access or control of property, including protective orders issued to victims, and any orders addressing the distribution or possession of property. Remedies for VAWA Victims Owner and management agents have an obligation to qualified tenants and their affiliated individuals who are victims of VAWA crimes to assist them with an emergency transfer in accordance with a documented emergency transfer plan. This may include the option of lease bifurcation or other discretionary procedures such as a transfer to another unit. More information on these remedies can be found in the Notice of Occupancy Rights Form HUD-5380. o NOTE: Owner and management agents participating in VAWA-covered HUD Programs must have developed VAWA emergency transfer plans consistent with HUD regulations by June 14, 2017. IRS Section 42 LIHTC and CTCAC Guidance The CA Tax Credit Allocation Committee (CTCAC) will follow the provisions of the 2013 VAWA regulation in accordance with IRS guidance. CTCAC will allow the use of the HUD VAWA Lease Rider HUD-91067, which outlines the provision of the VAWA regulation, to be used at all tax credit properties, including those that do not have other HUD Multifamily funding. Transfers related to VAWA regulation remedies must continue to follow the existing transfer protocols in place. Projects that are not designated as a multi-building project (noted as a No Election on Line 8b on the IRS 8609 Form), may be subject to a loss of credits if a non-qualifying household is transferred into a unit in a different building. Projects that are not 100% tax credit and have market/conventional units as well as tax credit units, 4 24 C.F.R. 5.2005(a)(2)(iv) ( During the 12-month period following December 16, 2016, either during the annual recertification or lease renewal process, whichever is applicable, or, if there will be no recertification or lease renewal for a tenant during the first year after the rule takes effect, through other means. ).
must continue to follow the 140% Next Available Unit Rule in addition to the protocol for transferring in a multibuilding project. Failure to Meet Obligations Under the Memorandum of Understanding between the IRS, HUD, and the Dept of Justice, and in a cooperative effort to promote enhanced compliance with the Fair Housing Act for the benefit of residents of LIHTC properties, key points of the MOU include coordinated procedures for notifying the State Agencies and IRS of charges, lawsuits, or other actions under the Fair Housing Act involving a LIHTC property 5. If a probable cause discrimination charge or other violation of either VAWA or the Fair Housing Act is determined by HUD, DOJ, the Dept of Fair Employment and Housing, or any other substantially equivalent fair housing state or local agency, CTCAC will file Form 8823 to the IRS as a result of this MOU. Failure to follow the IRS Section 42 transfer protocols may result in the filing of Form 8823 to the IRS. 5 Per the IRS Guide for Completing Form 8823 Chapter 13 Category 11h Project not Available to the General Public (Notifications of Fair Housing Act Administrative and Legal Actions)