Ask Your State Housing Agency Three Questions About Its Compliance Monitoring Fees
State housing agencies incur expenses to monitor your site throughout the 15 years of the compliance period. The IRS allows the agencies to pass some of these expenses on to owners as “compliance monitoring fees.” As the manager of a tax credit site, you’re responsible for making sure the site’s compliance monitoring fees are paid on time. Although the fees may not be very high, the penalty for paying them late can be costly. And by paying late, you may also damage your relationship with your state housing agency.
Compliance monitoring fees vary from state to state. That’s why it’s a good idea to ask your state housing agency questions about its fees so you can anticipate how much the owner will owe and avoid paying them late.
Here are three questions you should ask your state housing agency about compliance monitoring fees. Once you get the answers to these questions, discuss them with the owner.
1. When Are Compliance Monitoring Fees Due?
Ask your state housing agency to give you the deadline for paying your site’s compliance monitoring fees. Your agency will probably expect you to pay fees in one of two ways:
Annually. Some states require owners to pay fees annually during each year of the compliance period. If you manage a site in such a state, tell the owner when it should expect the agency’s request for payment. Collecting fees on an annual basis, rather than up front, gives agencies leeway to increase their fees after the compliance period has begun.
Check with your state housing agency each year to see if the deadline has changed. Some owners and managers mistakenly assume that the deadline stays the same from year to year. But this assumption can get you into trouble if your state agency moved its deadline. Your state housing agency may have sent a notice indicating the change, but owners may not look at it carefully until after the revised deadline, assuming that payment wasn’t due until the previous deadline. As a result, these owners would be charged a late fee.
Fees due up front. Other state housing agencies may require owners to pay compliance monitoring fees up front, for the entire 15-year compliance period, once the project is awarded tax credit funding. Agencies that charge fees only at the beginning of the compliance period do so to avoid collection costs and to earn interest on the up-front fees. And, of course, these agencies aren’t likely to give you a prorated refund if your site falls into permanent noncompliance before the compliance period is over.
Some agencies may utilize a combination of annual and up-front fees. A state agency may collect an up-front fee to cover the first 15 years of the compliance period, payable at the time of the application for final allocation of credits. And when this same site enters into its extended use period, after year 15, the state agency may require annual monitoring fees.
2. How Are Your Compliance Monitoring Fees Calculated?
Ask your state housing agency about the way its compliance monitoring fees are calculated. Each state has leeway in developing a reasonable monitoring fee structure taking into account the cost of monitoring to the agency. Fee structures vary among states and can change each year.
It’s important to stay current on how much the owner should expect to pay and understand what your state’s compliance monitoring fees are based on. This way, you can explain the bill to the owner.
States typically assess compliance monitoring fees on a per-unit basis. However, your site’s fee may also depend on:
Whether you have market-rate units. Some states charge a fee only for the units that were allocated tax credits. Other states may charge a fee for all the units at a tax credit site even if some of the units are market rate.
Whether your site gets assistance. Some state housing agencies lower or raise their fees depending on whether a site has a loan with the agency or gets other assistance through another housing program.
For instance, some states may lower their fee for units that get assistance under the USDA’s Rural Housing program. Since the Rural Housing Service must also monitor the site, a state housing agency could conclude that expenses for monitoring RD Section 515 units aren’t as high.
On the other hand, some forms of assistance may increase compliance monitoring fees. A site that uses a state agency loan and/or state-level tax credits may have associated fees that could raise the total amount an owner is responsible for to the state housing agency for monitoring.
3. What’s the Penalty for Late Payment?
Ask your state housing agency what the penalty is for not paying your compliance monitoring fees on time. States that charge fees annually often fine owners for late payment. And they may report your site to the IRS for noncompliance. Because nonpayment of fees by owners may cause an agency to fail to meet its federal obligations, the agency may treat the nonpayment of compliance monitoring fees as the owner’s decision to withdraw the project from the LIHTC program. And withdrawal from the tax credit program is reportable to the IRS with IRS Form 8823.
When compliance monitoring fees are all due up front, the penalty is often more severe. State housing agencies that take this approach normally won’t issue the site’s IRS Form 8609 to the owner until they get the payment. Since owners can’t begin claiming credits for their site until the Form 8609 is issued, paying compliance monitoring fees late could cost the owner its tax credits.