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