Business Practices

The taxpayer should explain how the IRC §42 project is managed and identify the people and organizations responsible for the project's day-to-day operations during the tax years under audit, including personnel responsible for determining whether households were income-qualified, preparing and maintaining the tenant files, receiving rents, making bank deposits, paying expenses, and accumulating financial information used to prepare the tax return.

The taxpayer should explain to what extent it is involved with the on-going operation of the project, how often the project is physically inspected, and whether the financial records are reviewed. If a management company is involved, how often does the taxpayer receive updates, reports, or financial summaries for the IRC §42 project? How and when does the management company notify the taxpayer of any irregularities? Does the taxpayer approve expenditures or to what extent does the taxpayer delegate responsibilities and to whom?

Does the taxpayer maintain written policies and procedures for the operation of the IRC §42 project describing how the project is intended to operate? Who opens the mail? Who receives rents from the tenants? Who deposits the rents in the bank? Who has authority to write checks? Who approves expenditures? Who reconciles bank statements? Are there periodic reviews by independent third parties?