Rents & Other Sources of Income (Minimum Income Probes)

Gross income is to be considered and the minimum income probes completed (see Chapter 20). Generally, taxpayers owning IRC §42 projects are single purpose entities and the rents from leasing residential rental units will be the primary source of income. In addition to the routine records needed to complete the examination of gross income, the taxpayer should also provide:

• Description of residential rental units, including total number of units, total number of low-income units, size (bedrooms) and rents charged for low-income and market units. Also identify units for on-site managers or security personnel.

• Documentation that rents are correctly restricted, include HUD schedules of Area Median Gross Income (AMGI) and computations of the maximum allowable gross rent for the year under audit.

• Sources of rent subsidies; e.g., HUD section 8 payments.

• Utility Allowances and documentation of the computation.

• Fees for services provided to tenants in addition to housing; e.g., providing meals or cleaning services in assisted living housing.

• Other income from related activities; i.e., vending machines, laundry facilities, charges for cable/satellite television, etc.

• Other income sources such as from the commercial use of a portion of the property; e.g., the taxpayer may receive income for a cell phone tower installed on the roof of one building.

• Documentation of funds received from other sources; e.g., federal grants or subsidies received during the year, additional capital contributions, or loan proceeds.

See Chapter 12 for discussion of these topics.