Two Key Revisions to 8823 Guide Every Site Manager Should Know
The revised 8823 Guide, released by the IRS on Sept. 25, 2009, addresses issues brought about by the Housing and Economic Recovery Act of 2008 (HERA), amendments to the HUD Handbook 4350.3, and the revised utility allowance regulation. Last month, we looked at significant changes related to household income. In this article, we'll review two key updates that you need to be aware of to ensure that your tax credit units stay in compliance.
Gross Rents Not to Exceed Tax Credit Limits Monthly or Annually
One of the most notable changes to the Guide concerns gross rent limits. Tax credit owners are now required to assure that rent calculations—on both a monthly and an annual basis—do not exceed maximum tax credit rents for the month or year.
This change could affect free-rent promotions on tax credit units, says tax credit consultant Ruth Theobald Probst. Management companies that run leasing specials offering one month's free rent, but then “make up for it” in subsequent months by exceeding the maximum monthly rents, can no longer do so.
The penalty for overcharging monthly or annually is significant.
“If an owner is caught by a state charging excess rent at any time in the year, that unit will be considered out of compliance for the entire year. It will not be entitled to tax credits for that year, and it cannot be brought back into compliance until the following year,” explains housing expert A.J. Johnson. So if a state agency were to find during a February review that the owner was charging too much rent for a unit, all units with excess rent would lose tax credits for the entire year and would not be eligible again until the next year.
If an owner or site manager finds that he has made a mistake and corrects the rent prior to notification of a state review by lowering the rent and refunding the residents for the difference, the penalty would not apply, he says. However, if a state agency determines that excess rent was charged, and that the owner had not made a correction on his own, the owner cannot correct it and will lose the tax credits.
“Because of the consequences of being out of compliance on rent, for even one month of the year, site management needs to be very savvy about issues such as charging mandatory fees that may take a household over the maximum and keeping track of utility allowance increases,” says Theobald Probst.
Failure to Complete Annual Income Recertifications
One of the biggest changes that HERA brought about for tax credit managers is doing away with the requirement for annual recertifications of household income for 100 percent tax credit projects. However, while the IRS no longer requires recertification, some state agencies have been reluctant to follow suit. “They're not comfortable with eliminating it because of the flaws in the household eligibility files that we sometimes discover with that first annual recertification,” says Theobald Probst.
But according to the revised Guide, “failure to comply with a state agency's requirement for income recertifications is not a reportable noncompliance event.”
“That's a strong statement from the IRS to the state agencies that, if they decide that they want to continue to require annual recertifications, then it is a state issue and it should be handled within the state—don't submit it to the IRS as a noncompliance violation,” she says.
The IRS does stress, however, that if a site is no longer conducting recertifications, the state agency must review the move-in certifications for quality and completeness, says Johnson. “Properties that don't recertify have an extra burden on them to prove eligibility at move-in. If you're not going to do recertifications, make sure that your files are well documented at move-in, that verifications are strong and complete, and that the calculations have been done properly, because this is what the state is going to rely on,” he stresses. “If your certifications are weak or missing information, the household will be considered ineligible—and if you haven't conducted recertifications that prove eligibility in a subsequent year, you're going to lose credits on that unit.”
Insider Sources
A.J. Johnson: President, A.J. Johnson Consulting Services, Inc.; (757)259-9920; http://www.ajjcs.net.
Ruth L. Theobald Probst, CPM, HCCP, SHCM: President, TheoPRO Compliance and Consulting, Inc., 21150 W. Capitol Dr., Ste. 3, Pewaukee, WI 53072; (877) 783-1133; ruth@icomply42.com.
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