Background — IRS IRC § 42 Audit Technique Guide

The taxpayer should provide background and financial information regarding the formation of the ownership entity and development of the project. The taxpayer should specifically discuss the development of the IRC §42 project, including:

The people and entities responsible for the planning and construction phases of the project, including the disclosure of related parties.
The services provided by the developer, the terms of the development contract, and to what extent the fee has been paid.
How the project was acquired; i.e., undeveloped land or land with improvements and existing buildings. The taxpayer should also explain how costs were allocated between land, nonqualifying land improvements, and depreciable residential rental property included in eligible basis.
The financial resources such as construction loans, permanent financing, grants, and funding from local, state, or federal programs.
The terms of IRC §42 credit allocation and any additional requirements imposed on the taxpayer by the state agency as part of the extended use agreement.
How the final cost certification was prepared.

The interview is also an opportunity for the taxpayer to answer any questions arising from a review of documents such as the partnership agreement, the prospectus or offering memorandum, the credit allocation application, market study, credit allocation award, final cost certification, or depreciation schedules. For example, if the depreciable basis on the depreciation schedules is substantially different than what is reflected on the final cost certification, the taxpayer needs to explain the differences in costs.