Record Retention Requirements to Keep in Mind When Spring Cleaning
The spring season’s warm weather and rainy days may motivate you to conduct a thorough spring cleaning of your office files. But before you clean out your file cabinets or declutter your computer files, it’s important to review the LIHTC program’s recordkeeping and retention rules first.
Tax credit rules require you maintain site records and to provide annual reports to your state monitoring agency. These documents prove your compliance with the tax credit program’s requirements to the IRS and your state housing agency. Generally, you must keep documents relating to your building's compliance with the tax credit law during the 15-year compliance period. We’ll go over what documents of each type you must keep and how long to keep them.
Tax Credit Compliance Documents
The tax credit rules require that you keep documents to prove compliance during each year of each building’s 15-year compliance period. To comply with the rules, your documents must contain the following information:
- The total number of residential rental units in the building, including the number of bedrooms and square footage of each unit;
- The percentage of low-income units in the building;
- The rent charged for each unit, including resident portion of the rent, rental subsidy, and utility allowance;
- The number of residents in each low-income unit;
- The number of vacant units in the building at any point in time, and when and to whom next available units were rented;
- Records of the move-in and move-out dates of any market rate units to verify the available unit rule;
- Information about each household's annual recertification from third parties, unless your site consists of 100 percent LIHTC units;
- Documentation to support each household's eligibility to occupy a low-income unit;
- The building's eligible basis and qualified basis at the end of the first year of the compliance period; and
- The character and use of the nonresidential parts of your building. For example, tenant facilities that are available on a comparable basis to all tenants and for which no separate fee is charged for use of the facilities, or facilities reasonably required by the development.
Documents to Preserve
The rules don’t specify which documents you must keep or what format you must use to document the required information. But you should keep certain administrative documents and certain household documents that contain the required information. Be sure to check whether your state housing agency has its own procedures for complying with the tax credit record-keeping rules. Your agency may require you to keep additional documents to the ones below or to organize your documents in a certain way.
> Administrative documents. The administrative documents you should keep include:
· IRS Forms 8609;
· Certificates of occupancy;
· Tax credit allocation documents;
· Owner's partnership agreement;
· Financing agreements;
· Regulatory agreements (if your building is mixed-program); and
· Extended use agreement with your state housing agency.
> Household documents. The household documents you should keep include:
· Household application;
· Household initial certification form;
· Third-party and other verifications of household income (for certification and each recertification);
· Clarification records (if any);
· Household's annual recertification (if applicable);
· Household's initial lease and addenda, including all renewal leases;
· Rent card or receipts showing rent owed and paid;
· Utility allowance data; and
· Unit inspection forms.
How Long to Keep Documents
The length of time you're required to keep documents relating to tax credit compliance depends on whether they relate to the first year of your tax credit site's compliance period or a later year.
First-year documents. You must keep all documents related to the first year of your building's compliance period for at least six years after the due date for filing the owner's tax return for the 15th year of the site’s compliance period. This means that you must wait at least 21 years before discarding any first-year files.
Second- through 15th-year files. You must keep documents related to the remaining years of your building's compliance period for at least six years after the due date for filing the owner’s tax return for that year.
But before you start discarding any files, confirm with your state housing agency that it’s okay to do so. Because you probably need to keep your site in compliance during the extended use period (which may extend 15, 30, or more years beyond the compliance period), your state housing agency may require you to keep certain files longer than the IRS requires.