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Rental Units

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

Forms 8823, lines 7a-d, provide information about the rental units:

  • Line 7a identifies the total number of rental units in the building and line 7b identifies the total number of low-income units in the building. If line 7b is less than line7a, then the buildings has a mix of low-income and market-rate rental units. For "mixed-use" buildings, audit issues should include consideration of the taxpayer's compliance with the Available Unit Rule, the Vacant Unit Rule, and the requirement to perform annual income recertifications for all low-income households. Noncompliance with any of these rules may result in failure to meet the minimum set-aside requirement.

  • Line 7c identifies the total number of rental units in a building for which noncompliance issues were identified by the state agency. The extent of known noncompliance can be estimated by comparing this number to line 7a.

  • Line 7d identifies the total number of low-income units reviewed by the state agency. By regulation, the state agency is required to review at least 20% of the low-income units on a "project" basis. If line 7d is more than 20% of line 7a, then the state agency may have expanded the sample size because extensive noncompliance was identified; e.g., poor internal controls (significant risk of error), multiple problems, a significant number of noncompliant units, or the state agency had credible information from a reliable source.

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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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