Three Compliance Issues Surrounding Form 8609’s Multiple Building Project Election
You might not realize that whether the tax credit site you manage is a single- or multi-building project site has a significant effect on what you and your staff must do to keep the site in compliance. Yet many tax credit rules and requirements apply differently to sites in which the owner groups buildings as a single project. For example, the owner of a multi-building tax credit site has more options when it comes to meeting the minimum set-aside.
We’ll go over how the single-building or multiple building project choice is made. And we’ll explain three areas of tax credit compliance in which it makes a difference whether the site you manage is designated a multi-building project or whether each building at the site is designated a separate project. Go over these differences with your staff to make sure they know what’s required to keep the owner’s tax credits safe.
Multiple Building Project Election Basics
Most often, a housing agency will allocate tax credits to a site that consists of more than one physical building. Each building will receive its own IRS Form 8609, Low-Income Housing Credit Allocation Certification. Unless the owner elects otherwise, each building at a site is treated separately as its own project.
On IRS Form 8609, an owner can choose to group buildings within the same tax credit allocation into one project or divide buildings into separate projects.
Choosing “No” on Question 8b. Answering no to this question on Form 8b means that even if two buildings have the same LIHTC allocation they are viewed by the IRS as being two separate projects.
Choosing “Yes” to Question 8b. Answering yes to this question on Form 8609 means that buildings in a project that are identified as a group in the statement attached to the form should be treated as one, multiple-building project for the purposes of compliance.
Certain information is required to be attached to IRS Form 8609 if “Yes” is selected on Question 8b. The following information must be attached to each Form 8609 where yes is selected for this question:
- The name and address of the project and each building in the project;
- The BIN of each building in the project;
- The aggregate credit dollar amount for the project; and
- The credit allocated to each building in the project.
Notwithstanding a checked “Yes” box on Line 8b, failure to attach a statement providing the above required information will result in each building being considered a separate project.
Placed-in-Service Dates and Meeting Minimum Set-Asides
For a site to qualify to claim credits, the minimum set-aside must be met. There is a deadline and if it’s not met, the site isn’t considered a low-income tax credit project and can’t qualify to claim credits. This means you must rent a certain number of units at the site to households earning no more than a certain percentage of area median gross income (AMGI). For instance, if your minimum set-aside is “20-50,” you must rent at least 20 percent of your units to households earning no more than 50 percent of AMGI. These units become the site’s low-income units.
For projects receiving an allocation between 1987 and 1990, the minimum set-aside must be met within 12 months of the date the building was placed in service. For projects receiving credits in 1991 and later, the minimum set-aside must be met by Dec. 31 of the year the project was placed in service, if credits are to be claimed for that year. If the start of the credit period is deferred until the following year, the minimum set-aside must be met by Dec. 31 of the following year.
If the minimum set-aside isn’t met by this date, no tax credits are allowed for the project. Once the minimum set-aside is met, it must be maintained for the entire compliance period. If the minimum set-aside is violated at a future date, all low-income units are subject to recapture.
Choosing “No” to Question 8b. If your site has multiple buildings and the owner answers Question 8b in this way, each building at the site must meet the minimum set-aside and each building may have different placed-in-service (PIS) dates. If your buildings’ PIS dates fall in different years, you may have to meet the tax credit program’s requirements on a different schedule for each building.
For instance, you have two buildings at your tax credit site and the owner elects to meet the minimum set-aside on a per-building basis. The tax credit law requires that you meet each building’s set-aside by the end of the first year the owner claims credits for the building. This year is either the year the building is placed in service or the following year. So if each building’s PIS date falls in a different year, the deadline for meeting each building’s set-aside may be different.
Choosing “Yes” to Question 8b. Here, the owner elects one set-aside for the entire site or group of buildings. This means some buildings can be below the minimums set-aside as long as the entire project meets the minimum set-aside. Also, in this situation, each building will use the same PIS date. It’s the date the last building at your site is placed in service.
Granting Households’ Unit Transfer Requests Between Buildings
It’s not uncommon for households to request transfers to a new unit at a tax credit site. But before you agree to grant a household’s transfer request, you and your staff members must understand how the transfer will affect the owner’s tax credits.
Choosing “No” to Question 8b. If a tenant transfers to a different building the tenant is treated as moving out of one project and moving into a new project and must be income qualified. If each building is a separate project, tenants over the income limit won’t be able to transfer between the buildings.
Choosing “Yes” to Question 8b. Tenants are allowed to transfer between buildings within the same LIHTC project if the tenants meet the income requirements. A new income certification isn’t required by the IRS for transfers between buildings.
When you transfer a household from one unit to another, in this scenario, the units simply swap status. For example, if a household’s income increases to more than 140 percent of AMGI (or 170 percent, in the case of deep rent-skewed units) by the time the household moves, the new unit will become over-income. And the old unit will take on the status that the new unit had—empty, vacant, low-income, or market-rate—before the household moved into it.
Because HUD has discontinued its hold-harmless policy, income limits for counties can decrease from year to year. However, for LIHTC projects, in 2008, the Housing and Economic Recovery Act (HERA) altered the system by which owners determine their project’s income limits in the LIHTC program. HERA protected owners from rent decreases each year and established a new system for owners to hold their income limits and rents harmless, which was put into effect in 2010. This means, for LIHTC projects, the income limit can never be less than it was for the project in the previous year. This is called the multifamily tax subsidy project (MTSP) hold-harmless policy.
Projects are considered “impacted” if the project was placed in service by Dec. 31, 2008. The owners of these projects may use HERA special income limits when issued for their county to qualify applicants for their affordable units and to calculate their maximum LIHTC rent. These special limits are generally higher than the regular LIHTC income limits.
A project placed in service after Dec. 31, 2008, is classified as “non-impacted” and therefore, the owner may not use the HERA-special income limits. If the owner’s project was placed in service on or after Jan. 1, 2009, and prior to March 6, 2015, the owner must use regular HUD income limits based on PIS dates to qualify households and calculate rents. And, this year, for projects placed in service on or after March 6, 2015, owners must use 2015 MTSP limits.
Choosing “No” to Question 8b. Each building is individually placed in service. The MTSP hold harmless limit for each building is determined by the date each building is placed in service.
Choosing “Yes” to Question 8b. The date the first building is placed in service determines the PIS date for that group of buildings. In other words, the MTSP hold harmless for the income limit is determined by the date the first building is placed in service.