IRC §42, Low-Income Housing Credit - Part I Introduction and Pre-Contact Analysis

Revision Date - August 11, 2015

NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.

• Chapter 1 Introduction o Topics

  • Overview of the IRC §42 Program

    • Types of Housing

    • Combining with Other Tax Credits

    • Computation of Allowable Annual Credit

    • Eligible Basis

    • Applicable Fraction

    • Qualified Basis

    • Applicable Percentage

    • Compliance Requirements

    • Credit Disallowance and Recapture

  • State Housing Agency Responsibilities.

    • Qualified Allocation Plan (QAP)

    • Allocating Credits

    • Compliance Monitoring

    • Reporting Noncompliance to the IRS

    • Annual Report to the IRS

o IRS Responsibilities: Chief Counsel

o IRS Responsibilities: LIHC Compliance Unit

• Form 8610, with Form 8609 and Schedule A (Form 8610)

• Form 8823

• Form 8821

o IRS Responsibilities: Audits

o Summary

• Chapter 2 Pre contact Analysis

o Introduction

• Topics

o Form 8609, Low-Income Housing Credit Allocation and Certification

• Amount of Credit Allocated

• Eligible Basis and Qualified Basis

• Applicable Percentage

• Type of Allocation

• Tax-Exempt Bonds

• Nonprofit Set-Aside

  • Credit Period: BINs, Dates, and Elections

  • Multi-Building Projects

  • Minimum Set-Aside

  • Property Address

• Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition

  • Reconciliation to Forms 8609

  • Rental Units

  • Period of Noncompliance

  • Categories of Noncompliance

  • Dispositions

• Form 8609-A, Annual Statement for Low-Income Housing Credit Part I, Compliance Information

  • Part II, Computation of Credit

o Balance Sheet

• Land Values

• Buildings and Other Depreciable Assets

• Accounts Receivable and Payable

o Schedule K and Schedule K-1

o Ownership By Individuals

• Prior and Subsequent Year Returns

o Related Returns

• Partners: Consistent Treatment

• General Partner: Additional IRC §42 Projects

o Risk Analysis

• Example 1: Estimating Potential Tax

• Initial Information Document Request

  • General Information about the Taxpayer

  • Tax Returns

  • Eligible Basis

  • Qualifying Low- Income Households

  • 1st and 11th Year of the Credit Period

  • Additions to Qualified Basis

  • Examination of Income: Rents & Other Sources of Income

  • Noncompliance

  • Dispositions

  • IDR & Crosswalk to Issues

• Summary

o Exhibit 2-1 IDR & Crosswalk to Issues

• General Information about the Credit Allocation

• Eligible Basis

• Qualifying Low- Income Households

• 1st and 11th Year of the Credit Period

• Additions to Qualified Basis

• Rents & Other Sources of Income (Minimum Income Probes)

• Noncompliance

  • Dispositions

• Chapter 3 Audit Techniques

  • Introduction

• Topics

  • Interviewing Taxpayers

    • Background and Financial History

    • Business Practices

    • Internal Controls

    • Compliance with IRC §42

    • Physical Maintenance

    • Tenant Qualifications

    • Tenant Files

    • Rents

    • Cash Flows

    • Community Service Facilities

    • Forms 8823

    • Prior and Subsequent Year Tax Returns

    • Large, Unusual, or Questionable Items.

    • Related Parties or Returns

o Touring IRC §42 Projects

• Preparing for Tour of an IRC §42 Project

• Physical Characteristics to Observe When Touring IRC §42 Projects

• Rents

• Income Qualifying New Tenants

• Mixed-Use Projects

• Community Service Facilities

• Analyzing Results

• Case File Documentation

• Evaluating Internal Controls

  • Control Environment

  • Accounting System

  • Control Procedures

  • Testing Internal Controls

  • Establishing Scope and Depth of the Audit

• Third Party Contacts Contacting State Agencies

  • Other Third Party Contacts

o Summary