Use Checklist to Prove Student Rule Compliance
With certain exceptions, households made up entirely of full-time students aren’t eligible to occupy low-income units at a tax credit site. So when you screen applicants, it’s essential to ask them questions to determine whether you can rent to them without violating this rule, known as the student rule. And you must also make sure throughout the compliance period that you continue renting to households only if they stay eligible under the rule.
In some cases you can rent a low-income unit to a household made up of students—either because not all the students attend school “full time” or because the household fits into an exception to the student rule. But you can’t just take the household’s word for it. Renting to households based only on their word can get you into trouble. In the six situations where a household made up of students is eligible, you should get documentation to prove its eligibility. This way, if a question arises during an audit, you’ll be able to show your state housing agency and the IRS how you’ve complied and you’ll keep the owner’s tax credits safe.
We’ll provide a Model Form: Student Rule Documentation Checklist. It tells you what documentation you need to show that you’ve complied with the student rule in each of the six situations. Here’s a rundown on what the checklist covers and how to use it.
Situations When Checklist Applies
Our checklist covers the six situations in which you’ll need to get documentation to prove that a household is eligible under the student rule. The situations are grouped into two sections:
Situations relating to household members’ full-time student status. The first two situations concern the full-time student status of household members [Checklist, #1(a)-(b)]. A household violates the student rule only if all its members are full-time students. You don’t need documentation to prove that a household member isn’t a student. But when a member who attends school doesn’t qualify as a “full-time student” under the tax credit law, you’ll need a way to prove it. Here are the two situations in which you must get documentation to prove that a household member isn’t a full-time student:
- At least one household member was or will be a full-time student for less than five months of the calendar year. A household made up of full-time students is still eligible if one or more of its members was or will be a full-time student for less than five months during the current calendar year. The five months need not be consecutive or complete. Just one day of the month equals the whole month for student status purposes. To prove compliance, get documentation from the school showing that the household member was or will be enrolled for less than five months [Checklist, #1(a)].
- At least one household member is only a part-time student. If a household member claims he’s only a part-time student, you’ll need to get proof from the school of the credit hours the member carries. The determination of student status as full or part time is based on the criteria used by the educational institution the student is attending. Although the tax credit law doesn’t require documentation, it’s wise to get proof from the school that it considers the member to be a part-time student [Checklist, #1(b)].
Situations relating to the student rule’s four exceptions. The remaining four situations correspond to each of the student rule’s four exceptions [Checklist, #2(a)-(d)]. If all the members of a low-income household are full-time students, the household is still eligible if an exception applies. But you must get documentation in each case to make sure you can prove eligibility. Here are the four situations in which a household can be eligible despite the full-time status of all its members.
- All household members are married and file joint tax returns. To prove that this student rule exception applies to a household, ask the members for a copy of the first page of their tax returns to show that they filed jointly. Note that a married couple who are entitled to file a joint tax return but haven't filed one still satisfy this exception under IRC §42(i)(3)(D)(ii)(II). In other words, if a recently married couple have not filed their first tax return, they still qualify because they are entitled to file a joint return [Checklist, #2(a)].
- Household consists of a single parent with dependent child (or children) and parent and child aren’t being claimed as dependents by another individual other than a parent of such children. Full-time students who are single parents and their children are allowed to live in tax credit units as long as their children are not dependents of another individual, other than a parent of such children. To prove that this exception applies, ask the single parent for a copy of the page of her tax return that shows that the household member is claiming her child as a dependent [Checklist, #2(b)].
- At least one member gets welfare assistance. If this exception applies, get proof of the member’s assistance from the local welfare agency. Note that the assistance must be under Title IV of the Social Security Act. This includes a student who was previously under the care and placement responsibility of the state agency responsible for administering a plan under part B or part E of Title IV of the Social Security Act. Other forms of assistance, such as disability benefits, aren’t covered by the exception [Checklist, #2(c)].
- At least one member is enrolled in a federal, state, or local job training program. If this exception applies to a household, get proof from the organization running the job training program that the member is enrolled in the program [Checklist, #2(d)].
How to Use Checklist
If, when screening applicants, you determine that a household made up of students wouldn’t violate the student rule because one of the six situations listed on the checklist applies, you can use the checklist to get the documentation you’ll need to prove it.
You may also need to use the checklist for an existing household. If a household that previously wasn’t affected by the student rule is now made up of students, you’ll need documentation to prove its continued eligibility. And you may need to use a new checklist for a household that fit an exception if its status changes (for example, because a different exception applies).
How to Fill Out Checklist
Here’s how to complete the checklist.
Identify household. Write down the household head’s name at the top of the checklist and, if applicable, the building and unit numbers.
Check box next to applicable situation. Check the box next to the situation that applies to the household and read what documentation is needed.
Get documentation. You may need to contact a third party—a household member’s school, for example—to get documentation. Once you have the proper documentation, write down the date you got it.
Sign form. Always sign the form. This way, if someone has questions about the household’s eligibility, he’ll know to speak to you.
Keep checklist and any documentation in household file. When you complete a checklist, attach any documentation you need to prove compliance and keep the checklist in the household file.