Physical Characteristics to Observe When Touring IRC §42 Projects

Touring an IRC §42 project can provide insight and understanding needed to identify and address IRC §42 issues. Characteristics to consider include:

Signage and Advertising : Signs posted around the project provide insight as to how the owner is representing this project. Are there are any indications that the project is low-income housing?

Site : Particularly if housing is new construction, try to envision the amount of land grading, clearing, grubbing, cutting, filling and rough grading costs the developer might have incurred to prepare the land for construction.

Buildings and Assets : Identify garages, picnic areas, gazebos, laundry rooms, community rooms, and other buildings on the project site that could be classified as: (1) a facility for the

tenants' exclusive use as part of the leasing of a low- income unit, or (2) a facility necessary for the operation of the project.

Additional Income-Producing Activities : Look for potential uses of the assets that might generate additional income for the taxpayer, such as renting the roof for commercial advertising or as a radio tower.

On-Site Management or Security : The taxpayer may require the site manager or maintenance personnel to live on the premises. Similarly, to deter crime in and around the project, the taxpayer may lease a rental unit to a security officer. How many rental units are occupied by employees and security officers?

Physical Maintenance : Look at the buildings, windows, grounds, sidewalks, parking lot, dumpsters, common areas, and landscaping to observe the owner's diligence in providing lowincome housing. This is particularly important if the state agency reported that the project was not suitable for occupancy. See Chapter 12.

Landscaping : How much landscaping is there? Is it maintained? Is it trimmed? Is it overgrown or weedy? Is there a pond or lake on the property? Would the landscaping be destroyed if the low-income housing was destroyed?

Educational Institutions : Is the project located near a school? Compliance with the rules for households composed entirely of full-time students will be an issue if the IRC §42 project is in close proximity to post-high school educational institutions.

Duplication or Diversion of Costs : If the owner or general partner owns more than one project, is the construction similar? Are the construction material and designs similar for all the projects? If the taxpayer or general partner buys building materials and supplies in bulk, ensure that the appropriate materials (and appropriate amounts) were delivered and used at the intended site. In addition, consider whether internal controls were in place to ensure all costs are properly attributed to the appropriate project.

Building Interiors : What does the project look like on the inside? Tour the interiors of structures. Look for any common areas or non-rental areas that may not have been visible during the tour of the grounds. Look for additional sources of income, such as laundry facilities, access to cable television (the taxpayer may wire the entire building and provide access at a discount), or services provided for the residents in addition to housing. Due to privacy issues and the intrusiveness of such inspections, currently occupied units should not be inspected unless a specific reason is identified.