How Form 8823 Guide Redefines Recertification
Just over one year ago the industry received the long-awaited 8823 Guide. It was greeted with a standing ovation when it was first delivered to the state housing finance agencies. Six months after its release, the cheering stopped.
Since the Guide's release, the industry has been mulling over, grappling with, and generally setting up camps outside the Guide's boundaries on the issue of the recertification of households for Section 42. States have created different interpretations, and owners and managers are once again stuck trying to keep up with and follow state-by-state guidance—the very matter the Guide was intended to resolve.
At the HFA Institute in Washington, D.C., in January 2008, the IRS weighed in on this subject. As a result, we better understand why the IRS has limited the timing of recertification to occur within 120 days of the end of the effective year, says tax credit consultant Ruth Theobald Probst. With Probst's help, we will explain how recertification works according to the 8823 Guide.
Effective Dates of Recertification
The effective year for a household is now “locked—that is, essentially nothing changes the definition of that “year,” says Probst.
For example, if a family moves in on Jan. 1 of a given year, its effective year is Jan. 1 to Dec. 31. It does not matter if the family subsequently moves into a different unit in the same building or into a different unit in a different building, or if it adds a family member, or if any other event happens during the year: The date range of the effective year does not change. And that means the effective date will not change. Recertification for this family is due by Dec. 31, and the manager has the preceding 120 days to complete the recertification. The effective year for this family begins again every Jan. 1, says Probst.
What If Recertification Is Late?
If recertification is past due, the effective year remains unchanged. Owners may choose to cure the recertification violation by conducting verifications back to the effective date, or they may conduct the recertification as of the current date. However, neither action affects the effective date, and neither action puts the household back in compliance as of the effective date either. The benefit of conducting verifications back to the effective date is to comply with the Available Unit Rule for the unit.
Reconciling Multiple Program Recertification Dates
What if you administer another affordable housing program, like Section 8, at your tax credit site? Can you reconcile another program's recertification requirements with those of the tax credit program? After all, no manager wants to conduct two annual recertifications, and no household will appreciate going through a process twice a year that it resists doing even once a year.
The IRS is studying the issue of multiple program recertification dates at this time, says Probst. According to IRS official Grace Robertson, who discussed this topic for industry professionals at the HFA Institute, there will be some additional guidance on this issue coming from the IRS. Other programs are being brought into Section 42 at a rapid rate under affordable housing preservation initiatives, and resolution of this matter will greatly relieve the program participants who are currently grappling with this issue. While the industry waits for IRS guidance, some states have created temporary guidance, which will be helpful.
Why the ‘Lockdown’?
The major reason for this annual recertification date lockdown is the ability to track each household's compliance with the Available Unit Rule. This must be checked once each year, and if recertification dates do not have a definitive boundary, issues can arise. What is the family's income 365 days after the date of move-in? This is the question that the IRS expects owners to answer, and giving them 120 days prior to the end of the effective year to do so is as flexible as the IRS is going to be.
The silver lining to this rigidity is its simplicity: There is a sense of security in knowing that a) the effective year does not change, and b) the effective date of the recertification does not change even if the household composition or its location within the project changes.
Most managers already use this method of recertification, so the impact of the Guide is likely to be felt in only two situations:
1. Where a manager must recertify households for additional affordable housing programs—an issue that the IRS is seeking to resolve; and
2. Where a smaller project is used to completing all household recertifications in just one month of the year. This will no longer work under the 8823 Guide.
Should We Follow the Guide?
The Guide is not a regulatory provision, says Probst. However, the Guide is the basis for IRS compliance monitoring, and therefore, it should be followed. Also, the IRS encourages states to follow the Guide so that owners will get the long-desired consistency needed for uniform IRS determinations.
When the IRS was asked what to do if the state housing finance agency takes a position that is contrary to the Guide, the IRS provided a clear response: “Follow the Guide.”
If you want to stay in compliance with the federal rules of this program, that is what you should do, says Probst. In the months ahead, more states may follow the lead of Texas, which has adopted the Guide as its state compliance manual.
Ruth L. Theobald Probst, CPM, HCCP, SHCM: President, TheoPRO Compliance & Consulting, Inc., 21150 W. Capitol Dr., Ste. 3, Pewaukee, WI 53072; 1-877-783-1133; firstname.lastname@example.org.
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