Arkansas Administrative Code › Agency 109 - Arkansas Development Finance Authority › Division 04 - Multi-Family Housing › Rule 109.04.06-001 - Procedures Manual for the Low Income Housing Tax Credit (LIHTC) Program

Current through Register Vol. 49, No. 6, June, 2024
SECTION I
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			 GENERAL INFORMATION
I.A
INTRODUCTION
The Arkansas Development Finance Authority ("ADFA" or the
				"Authority"), a public body politic and corporate, with corporate succession,
				was created May 1, 1985 by Act 1062. This act abolished the former Arkansas
				Housing Development Agency that had existed since 1977. The former agency had
				as its sole purpose to sell tax-exempt bonds and use the proceeds to develop
				safe, decent, sanitary and affordable housing for low and moderate income
				Arkansans. All records, funds, properties, obligations, debts, functions,
				powers and duties were transferred to ADFA, which sells both taxable and
				non-taxable bonds and supports programs not only for housing but also for
				economic development, agriculture, aquaculture, export finance, government
				finance, and tourism development.
This Policies and Procedures Manual presents an overview of
				ADFA's policies as they pertain to compliance monitoring for the Low Income
				Housing Tax Credit ("LIHTC") Program. The procedures are designed to assist
				owners and managers of developments that have received an allocation pursuant
				to the LIHTC Program to ensure that the developments remain in compliance with
				Section 42 of the Internal Revenue Code ("the Code"). The procedures are not
				intended to be all-inclusive. In the event of a conflict or inaccuracy, the
				Code will control. If the development has received a combination of funds from
				other government entities, owners must follow the most restrictive regulations.
				For instance, an owner may have received funds under a governmental program in
				which he agreed to rent a certain number of units to persons earning 40% or
				less of the area median income. The owner must be sure to satisfy this
				restriction in addition to the applicable LIHTC area median income limit.
				Employees and officers of ADFA are not liable for any adverse consequences that
				affect the taxpayer or investor relative to compliance with the federal tax
				code. ADFA reserves the right to implement additional policies as needed. Also,
				new rulings or other changes may be made periodically. Owners are responsible
				for compliance with any amendments or updates to the federal
				regulations.
Any questions regarding this Manual should be directed
				to:
Compliance Monitoring Department Arkansas Development Finance
				Authority P. O. Box 8023 Little Rock, AR 72203-8023 Telephone: (501) 682-5900
				Telecopy: (501) 682-5859
I
.B
BACKGROUND
Congress created the LIHTC Program under the Tax Reform Act of
				1986. The LIHTC Program, governed by Section 42 of the Internal Revenue Code,
				began in 1987. The tax credit is a dollar-for-dollar reduction in tax liability
				to investors in exchange for equity participation in the construction or
				acquisition and rehabilitation of rental housing that will remain income and
				rent restricted for an extended period of time. Tax credits are allocated by
				ADFA for properties located in Arkansas.
ADFA is also designated as Arkansas' LIHTC compliance
				monitoring agency. Crucial elements of compliance are ensuring that the
				appropriate number of tax credit units is occupied by eligible households,
				following income eligibility guidelines and restricting rents over a specified
				time period. ADFA is available to provide guidance to owners in maintaining
				continuous compliance with federal and state LIHTC guidelines throughout the
				compliance period.
I.C
CREDIT PERIOD AND COMPLIANCE PERIOD
Once a development is placed in service, it is generally
				eligible for the tax credit every year for ten (10) years. To continue
				generating the credit and avoid recapture, an LIHTC building must satisfy
				specific tax credit compliance rules for fifteen (15) years. In cases where
				100% low-income occupancy is not achieved during the first tax credit year,
				(for example, either due to unqualified tenants or inability to find qualified
				tenants to qualify units) there will be possible increases in qualified basis
				in subsequent years. In such cases, excess qualified basis shall have the
				percentage equal to 2/3 of the applicable fraction applied, thus extending the
				tax credits claimed over the 15-year compliance period. The tax credits may be
				generated annually on a building-by-building basis beginning either with the
				taxable year in which the building is placed in service or, at the election of
				the taxpayer (owner), the succeeding taxable year.
The compliance period for any building is the period beginning
				on the first day of the first taxable year of the credit period of such
				building and ending fifteen (15) years from such date. Beginning in 1990 and no
				later than 1991, ADFA implemented the Land Use Restriction Agreement ("LURA"),
				which extended the compliance period for an additional fifteen-year period. The
				LURA, recorded in the real estate records of the county in which the
				development is located, is a binding agreement of the owner and any successors
				to maintain specific occupancy and affordability requirements for the
				development.
Projects placed in service before the use of the LURA (1987,
				1988, 1989, and some in 1990) must comply with the initial 15-year compliance
				period only. In reference to those projects, ADFA will review the IRS form 8609
				to determine the year the owner claimed the tax credits. If there is no
				completed copy of the IRS form 8609 available, ADFA staff will ask the project
				owner to confirm the credit year. Upon determining that the 15-year compliance
				period has expired, ADFA will notify the owner that the
compliance period has ended and that ADFA will no longer
				conduct physical or tenant file audits.
After the initial 15-year compliance period, ADFA will continue
				to monitor developments with extended use agreements. ADFA intends to enforce
				the terms and agreements set forth in the Land Use Restriction Agreement and
				Declaration of Restrictive Covenants for the Low Income Housing Tax Credits
				("LURA") and ADFA's Compliance Monitoring Policies and Procedures Manual for
				the LIHTC Program. ADFA will not reduce any of the Section 42 requirements.
				Owners will be allowed specific time periods, as deemed appropriate by ADFA, to
				correct items of noncompliance.
Remedies for noncompliance include, but are not limited to, the
				following:
* Temporary suspension or permanent expulsion from
				participation in the LIHTC, HOME, or any other program administered by
				ADFA;
* Notification to other lenders or agencies that provided
				funding for the project;
* Notification to the limited partners, syndicators, board of
				trustees, or any other affiliate of the project; and
* Legal action.
I.D
FOUR TAX CREDIT
			 REGULATION PERIODS
Since the 1986 enactment of the LIHTC, Congress has changed or
				amended the laws governing the program, yet many changes have not been
				retroactive. In some cases, the change in regulations brought forth by a
				technical correction is minor; in others, the effect is substantial. Owners
				must be aware of the differences in regulations and which credit period applies
				to each building or development. The period considered for
				management/compliance purposes is the year in which tax credits were allocated
				by ADFA. Currently, there are four (4) specific credit regulation periods as
				follows:
1. January 1, 1987 - December
			 31, 1989
Properties receiving credit allocations during this period
				based rent on the number of people living in the unit. Rents were subject to
				change whenever the household composition changed. The Omnibus Reconciliation
				Act of 1993 allowed owners of these developments a one-time opportunity to
				either maintain the per-person formula or elect to change to the formula based
				on apartment bedroom size used for 1990 and later allocations. The owner had to
				write to the IRS no later than February 6, 1994, to request this election. Once
				made, the decision to switch formulas or retain the per-person formula was
				irrevocable. The new rent formula only affected any new move-ins on or after
				the election date. A copy of the election letter must be provided to ADFA or
				available during the on-site inspection.
2. 1990
Rent is calculated by number of bedrooms in a unit. This rule
				was not retroactive. Gross Rent Floor was adopted. This rule was not
				retroactive. See definition herein. Extended Low-income Housing Commitment
				required. See Section I.C for further discussion.
3. 1991
AFDC Student Rule exception was retroactive. See Section III.P
				FmHA Overage Rule (not retroactive) is discussed in Section III.F. Extension on
				Initial Compliance with Set-Aside (not retroactive). Minimum Set-Aside
				requirements are discussed in Section III.A.
4. August 10, 1993
Married Students Rule (retroactive). We discuss students in
				Section III.P.
Single Parent Student Rule (not retroactive).
1987-1989 Rent Change Option (special rule)
Section 8 requirement (retroactive) that states owners cannot
				refuse to lease to
Section 8 tenants.
References: Blue Book, Section 42 of the Code, Congressional
				Laws
I.E
ADDITIONAL REVENUE RULINGS
Two important revenue rulings were later issued that were not
				retroactive.
September 9, 1992
IRS Revenue Ruling 92-61 deals with treatment of staff
						  units as part of the eligible basis.
September 26, 1997
Section1.42-15 Available Unit Rule was adopted as an
						  amendment to the regulations. This rule allows over-income persons in LIHTC
						  units to relocate to another unit in the same building.
I.F
RESPONSIBILITIES OF OWNERS
Compliance with the requirements of the Code is the development
				owner's responsibility. ADFA's obligation to monitor the development for
				compliance does not make ADFA liable for an owner's non-compliance, nor does it
				alleviate an owner's duty to comply with applicable Code requirements. In
				Compliance with Section 42 of the Code and in accordance with ADFA's Compliance
				Monitoring Policies and Procedures Manual for the LIHTC Program, the owner, by
				accepting the allocation of low-income housing tax credits, is obligated
				to:
(1) Manage the development in
			 accordance with the Code, and all other applicable regulations and
			 agreements;
(2) Ensure that, once
			 the development is placed in service, it is suitable for occupancy by meeting
			 Housing Quality Standards ("HQS") requirements;
(3) Ensure that the development is
			 continually managed in accordance with all applicable federal, state, local and
			 fair housing laws;
(4) Ensure that
			 the complete records for the first year of the credit period are maintained for
			 a minimum of twenty-one (21) years1;
(5) Ensure that the records for subsequent
			 years are maintained for a minimum of six (6) years after the due date for
			 filing the federal income tax return for that year;
(6) Keep ADFA informed of the placed in
			 service date, completion of the development, as well as any material changes
			 such as ownership or management that is made at any time during all phases of
			 development; see page 32 for notification requirements;
(7) Furnish to ADFA a
signed
copy of the
completed
IRS form 8609, and make available all such 8609 forms to ADFA's staff during
			 any on-site review;
(8) Cooperate
			 with ADFA's staff during compliance reviews;
(9) Furnish a copy of the election request to
			 the IRS, showing change from family size to unit size in determining maximum
			 allowable rents;
(10) Furnish the
			 Annual Owner's Certification and Compliance Monitoring Status Report current as
			 of December 31st of each year. ADFA mails the
			 Owner's Certification and Compliance Monitoring Status Report forms to owners
			 annually in November. The Annual Owner's Certifications are due in ADFA's
			 office by January 15th. Annual Compliance Monitoring
			 Status Reports are due in ADFA's office by February
			 1st. ADFA may accept company rent rolls
if
they are
consistent
with
			 our Compliance Monitoring Status Report format and provide
essential information
. The Annual Owner's
			 Certification, attached hereto as
1 Refer to the IRS Compliance Monitoring Requirements - Page
				A-72(b)(2) Record Retention Provision, a copy of which is attached hereto as
				Exhibit A.
Exhibit B, and the ADFA Compliance Monitoring Status Report,
				attached hereto as Exhibit C, are annual requirements for the duration of the
				compliance period; and
(11)
			 Assume liability for any instance of non-compliance and to correct such
			 deficiencies as required.