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Low Income Housing Credit Edition

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Description

IRS Tax Audit Manual for the Low Income Housing Credit

Provides examiners with technical support for identifying and developing issues related to IRC Section 42.

TABLE OF CONTENTS

  • CHAPTER PAGE
  • Chapter 1
    • Introduction 1-1
    • Background 1-1
    • Overview of the Credit Process:
    • The Participants and Their Roles 1-2
    • IRS Apportions Tax Credits to
    • the Allocation Agencies 1-2
    • Developers Apply to the Allocating
    • Agencies for Credits 1-2
    • State Housing Agencies 1-3
    • Tax Benefits Provide a Return on
    • Equity Investments 1-6
  • Chapter 2
    • Qualified Low-Income Housing Project 2-1
    • Introduction 2-1
    • Residential Rental Requirements 2-1
    • Functionally Related Facilities 2-1
    • Scattered Site Project 2-1
    • Mixed-Use Building 2-1
    • General Public Use 2-2
    • Minimum Low-Income Set-Aside Requirement 2-2
    • Household Income Limitations 2-3
    • Minimum Set-Aside Election 2-11
    • Audit Techniques 2-12
  • Chapter 3
    • Eligible Basis 3-1
    • Definition 3-1
    • Issues Specific to Acquisition Expenditures
    • (Purchase of Existing Buildings) 3-2
    • The 10-Year Rule 3-2
    • Exceptions to the 10-Year Rule 3-2
    • Waiver of 10-Year Rule for Certain
    • Federally Assisted Buildings 3-3
    • Related Party Ownership 3-3
    • Like-Kind Exchange Property 3-3
    • Issues Specific to New Construction
    • Expenditures 3-4
    • Expenditures Specifically Excluded from
    • Eligible Basis 3-4
    • Developer Fee 3-4
    • Developer Fee Notes 3-6
    • Nonrecourse Notes 3-7
    • Contingent Liabilities 3-9
    • Developer Fees Exceeding Economic
    • Feasibility Under IRC section 42(m)(2) 3-9
    • Allocation of Overhead and
    • Soft Costs to Land 3-11
    • New Construction Summary 3-12
    • Issues Specific to Rehabilitation Expenditures 3-13
    • Eligible Basis Computations for
    • Mixed-Use Buildings 3-15
    • Eligible Basis and the Compliance Period 3-17
    • Eligible Basis in “Difficult Development Areas” 3-17
    • Evaluating the Validity of Costs Included in
    • Basis (The Corbin West Tax Court Case) 3-18
    • Audit Techniques 3-19
    • Closing Documents and Settlement Sheets 3-19
    • AIA (American Institute of Architects)
    • Statements or Construction Vouchers 3-20
    • Development Agreements 3-21
    • Certificate of Occupancy 3-21
    • Prospectus/Offering Memorandum 3-21
    • State Housing Credit Agency File 3-23
  • Chapter 4
    • Qualified Basis 4-1
    • Introduction 4-1
    • Applicable Fraction 4-1
    • Determination of Qualified Basis 4-1
    • Increases to Qualified Basis 4-3
    • Low-Income Unit Requirements 4-4
    • Student Occupancy Rules 4-6
    • On-Site Manager’s Unit 4-7
    • Projects with Four or Fewer Units 4-7
    • Audit Techniques 4-8
  • Chapter 5
    • Calculating the Low-Income Housing
    • Tax Credit Audit Techniques 5-7
  • Chapter 6
    • Federal Financing 6-1
    • Impact of Federal Financing on a
    • LIHC Project 6-1
    • Types of Federal Grants 6-3
    • Federally Subsidized Loan 6-4
    • Mechanics of Election for Use of
    • Lower Credit Amount 6-7
    • Audit Techniques 6-9
  • Chapter 7
    • Recapture of the Credit 7-1
    • Audit Techniques 7-2
  • Chapter 8
    • Related Tax Topics 8-1
    • Related Tax Liability Restrictions 8-1
    • At-Risk Limitations 8-2
    • Audit Techniques for At-Risk Issues 8-5 LIH
    • Credits and the Passive Loss Limitations 8-8
    • Introduction 8-8
    • Overview of the Passive Loss Limitations 8-8
    • LIH Losses 8-11 LIH Credits 8-12
    • Only One $25,000 Offset 8-12
    • Ordering Rules 8-13
    • Passive Income Issues 8-14
    • Dispositions 8-15
    • Forms 8-15
    • Rehabilitation Credit 8-16
    • Additional Help 8-16
    • Summary of Passive Loss Limitations 8-16
    • Low Income Housing and
    • Passive Loss Limitations 8-17
    • LIH Credit Issues 8-19
    • LIH Loss Issues 8-20
    • Alternative Minimum Tax 8-20
    • General Business Credit Limitation 8-21
    • Audit Techniques 8-22
  • Chapter 9
    • Extended Use Commitments 9-1
    • Audit Techniques 9-3
  • Chapter 10
    • Qualified Nonprofit Organizations 10-1
    • Special Benefits Awarded to Nonprofits 10-1
    • Nonprofit Set-Aside 10-2
    • At-Risk Limitation Concessions 10-2
    • Exception to the Rule for Owner
    • Occupied Buildings 10-4
    • Exception to the Rule for Transitional
    • Housing for the Homeless 10-4
    • Right to Purchase at the End of
    • the Compliance Period 10-4
    • Exception to the Rule for
    • Fees for Supportive Services 10-5
    • Exception to the 10-Year Rule 10-5
    • Nonprofit Organizations Defined 10-5
    • Safe Harbor 10-5
    • Joint Venture 10-7
    • Unrelated Business Taxable Income 10-8
    • Tax-Exempt Use Property 10-9
    • Property Leased to a Tax-Exempt Entity
    • (Other Than Nonresidential Real Property) 10-9
    • Failure to Make a Qualified Allocation
    • (Any Depreciable Partnership Property) 10-9
    • Disqualified Leases
    • (Nonresidential Real Property) 10-10
    • Debt-Financed Property 10-11
    • Audit Techniques 10-12
  • Chapter 11
    • Development Fees and Soft Costs 11-1
    • Developer Fee Requirements 11-1
    • Steps for Issue Identification 11-2
    • Characterization of Expenses 11-4
    • Position of the Service 11-7
    • Summary 11-7
    • Description of Syndication Scenarios and
    • Current Industry Tools for Marketing the
    • Low-Income Housing Tax Credit 11-9
  • Chapter 12
    • State Administration of the Low-Income
    • Housing Credit 12-1
  • Appendix A
    • Low-Income Housing Tax Credit
    • Interview Questions A-1
  • Appendix B
    • Information Document Request B-1
  • Appendix C
    • Code and Regulation Reference Table By
    • Issue and Chapter C-1
  • Appendix D
    • Reference Guide D-1
    • Appendix E
    • Forms Used in Connection with the
    • Low-Income Housing Credit E-1
  • Glossary G-1

Don’t forget – The IRS Tax Audit Manual for Low Income Housing Credit is tax deductible as a business expense!