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Eligible Basis

IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis) · 2026 edition · updated 2026-07-29 · United States

The audit of eligible basis will start with an analysis of the following documents to identify specific costs for in-depth consideration as large, unusual, or questionable items:

  • Final cost certification submitted to the state agency with supporting documentation; e.g., purchase agreements and construction contracts, or settlement documents if existing buildings were acquired.

  • Documentation of all financing sources; e.g., grants, loans, tax-exempt bonds, below market federal loans, and loans payable to the developer or any partner. The taxpayer should provide all debt instruments; e.g., mortgages and promissory notes. Identify outstanding balances and records for all loan repayments.

  • Financial reports; e.g., compilations, reviews, or audited financial statements.

  • Development contracts or agreements for the acquisition, construction, or rehabilitation of the IRC §42 project and related payments and/or notes.

  • Documentation of cost allocations between land, land improvements, and depreciable residential rental property included in eligible basis.

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▸Contents — IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis)
IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis)

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