How to Prepare for the Expiration of Temporary COVID-19 Compliance Relief

How to Prepare for the Expiration of Temporary COVID-19 Compliance Relief

Pre-pandemic rules go back into effect Oct. 1.


In January, the IRS issued Notice 2021-12, which temporarily postponed a number of compliance deadlines for LIHTC sites. The extension deadline is coming up and owners and managers need to be mindful of how this will affect site operations as sites transition to pre-pandemic compliance requirements.

Pre-pandemic rules go back into effect Oct. 1.


In January, the IRS issued Notice 2021-12, which temporarily postponed a number of compliance deadlines for LIHTC sites. The extension deadline is coming up and owners and managers need to be mindful of how this will affect site operations as sites transition to pre-pandemic compliance requirements.

For 18 months, from April 1, 2020, to Sept. 30, 2021, the IRS granted some operational relief to owners and managers due to the COVID-19 pandemic. Specifically, until Sept. 30, owners are not required to perform income recertifications; state housing credit agencies are not required to conduct compliance monitoring inspections or reviews; site amenities and common space facilities can be temporarily closed in response to the COVID-19 pandemic; and sites may be used temporarily to provide emergency housing for medical personnel and other essential workers providing services during the COVID-19 pandemic regardless of income eligibility.

We’ll go over the two compliance monitoring waivers and what considerations you may need to make when planning to reopen amenities and common areas that may have been closed to residents due to the pandemic.

Annual Income Recertifications

In a typical year, if you manage a mixed-income site, you have the time-consuming job of recertifying tax credit households. Annual certifications ensure affordable housing units are occupied by income-eligible households, and provide a means to ensure compliance with the Next Available Unit Rule and student status.

While the IRS temporarily halted annual income recertifications, owners and managers were still required to initially qualify households for low-income units. Once you’ve established a recertification anniversary date for each household, you must notify households of their annual recertification responsibilities.

It’s important to note that recertifications apply only to mixed-income sites. The Housing and Economic Recovery Act of 2008 (HERA) eliminated the annual income recertification requirement for projects with 100 percent buildings or buildings with low-income housing tax credit units and no market-rate units.

Recertifications resume. With the impending expiration of IRS Notice 2021-12, owners will need to start performing annual income recertifications on Oct. 1. This means that if you have a household with a recertification date due on Sept. 25, you are not required to perform the annual recertification for this household this year. However, if the due date falls on or after Oct. 1, you are required to perform the recertification.

Identify households. In anticipation of the relief period expiring, you should identify those households at your mixed-income site that have an annual recertification due date after Sept. 30, 2021. For these households, you should start communicating to them that annual recertifications will start up again.

Send notices. As the date for annual recertification approaches, you need to remind households to report to you to complete the paperwork. Verification documents may not be older than 120 days prior to the certification effective date. If verification has aged past 120 days, new documents must be obtained. In a typical year, you would have sent reminder notices to the household 120 days, 90 days, and 60 days before the recertification deadline. If you haven’t done so for households with recertifications due anytime from October to December 2021, start identifying those households and communicate with them so that you can get their cooperation and complete the paperwork before the recertification deadlines.

Physical Inspections and Tenant File Reviews

The notice suspended the requirement for state housing agencies to conduct compliance monitoring inspection or reviews during the extension period. Typically, physical inspections ensure that LIHTC sites are in a safe, decent, sanitary condition and in good repair. Section 42 of the Internal Revenue Code requires state housing agencies to conduct on-site inspections of all buildings by the end of the second calendar year following the year the last building in the project is placed in service. Placing a building in service means that you have made it functional within the tax credit program and the building’s inner construction phase is completed.

In addition, the code says that the agency must also conduct on-site inspections and low-income certification review at least once every three years after the initial on-site inspection. With IRS Notice 2021-12, the state housing agencies must resume compliance-monitoring inspections or reviews as due after the deadline expires on Sept. 30.

Timing of next inspection. Considering the timing of the inspection requirements, if your site was last inspected in the last quarter of 2018, you can expect one to be performed by the end of this year. And if your site’s last building was placed in service in 2019, you can expect your housing agency to perform a physical inspection of your site by the end of this year.

15-day notice period. Depending on when your site had its last inspection, the upcoming inspection may have different protocols in place. In February 2019, the IRS issued final regulations for LIHTC compliance monitoring. A state housing agency is allowed to give an owner reasonable notice that an inspection of the building and low-income units or tenant record review will occur so that the owner may notify tenants of the inspection or assemble tenant records for review. The final regulations, however, shortened the reasonable notice requirement to 15 days in advance of when a site will experience a physical inspection or tenant file review, down from a 30-day notice requirement.

The notice period begins on the date the housing agency informs the owner that a site inspection of a project and low-income units or tenant file review will occur. The 15-day notice is given to accommodate schedules and allow on-site managers sufficient time to provide the required notification to the residents that their unit may be selected for inspection. Only a sample of the units will be inspected. The units to be inspected will be selected randomly and the purpose of the inspection is to assess and record the physical condition of the property and units, not to evaluate housekeeping or to discuss other resident issues.

Plan for pre-inspections. If you know that your site is up for inspection by the end of this year, have a plan in place to be able to conduct a pre-inspection of tenant units safely so that there’ll be no surprises when you get 15 days of advance notification. While the advance notification allows management staff to perform any necessary repairs, some repairs or deferred maintenance might take longer than expected. Be sure to consult local health department and CDC guidelines when entering units for a pre-inspection in anticipation of a physical inspection by the end of the year.

Amenities and Common Spaces

IRC Section 42(d)(4)(B) indicates that common areas may be included in eligible basis, or credits may be claimed on the cost of the common areas, as long as the common area is provided as “comparable amenities to all residential rental units.” Also, Treasury Regulation 1.42-5(c)(VII) requires that owners certify annually that “there was no change in the eligible basis (as defined in Section 42(d)) of any building in the project, or if there was a change.”

With the current notice, an amenity or common area being temporarily unavailable or closed due to the pandemic and not for other noncompliance reasons during the extension period does not result in a reduction of eligible basis. However, any common spaces or amenities that have been closed at your site due to pandemic restrictions will have to be opened again by Oct. 1.

Perform needed maintenance. In anticipation of the re-opening of the common space, you should conduct any maintenance activities and repairs that were postponed during the temporary relief period. If your site will have an inspection by the end of the year, it’s even more important to make sure there will be no eligible basis reductions due to common area noncompliance.

In 2019, the IRS Office of Chief Counsel issued a memorandum addressing noncompliance of common areas in LIHTC sites. The memo made clear that noncompliance of the common area reduces the eligible basis for the property for the year the noncompliance takes place. It states that if a common area of a LIHTC building is noncompliant under the inspection standards or any other requirements under IRC Section 42 during the compliance period, and if the noncompliance is uncorrected as of the close of the taxable year in which the noncompliance occurs, the noncompliance should be treated, in the taxable year in which the noncompliance occurs, as a change and reduction in the eligible basis of the building. Also, the memo says that the recapture amount is based on the amount of costs attributable to the entire common area, not just the noncompliant section.

Establish COVID protocols. Owners and managers should follow local health and CDC guidelines when contemplating how residents may use common areas and amenities safely while the delta variant is still driving up cases in many areas of the country.

You may want to take steps to ensure adequate ventilation and adopt a frequent cleaning schedule. You may establish rules to encourage mask wearing and social distancing. And you could ensure adequate supplies in common areas that support healthy hygiene behaviors. These include soap, hand sanitizer containing at least 60 percent alcohol, a way to dry hands, tissues, disinfectant wipes, masks (as feasible), and no-touch/foot pedal trash cans.

Be sure to communicate any rules or procedures your site adopts with regard to common areas and amenities in advance of the re-opening date. Doing so early may highlight additional logistical and tenant concerns that you could incorporate and implement before Oct. 1.