Employee Units at LIHTC Properties
Recently I received an eHotline question that read, “We are considering hiring a maintenance person who would live on site. Are there specific regulations regarding staff living on site?” Even though I thought I knew the answer I wanted to put on my research hat and dig into the regulations and my archived notes to make sure I was right. Believe it or not, I actually enjoy doing this on occasion, but then again I am a compliance geek so that probably explains my pleasure in researching regulations!
First off, I found guidance on this issue in Chapter 8 of the IRS’s Guide to Completing Form 8823, which addresses Category 11e – Changes in Eligible Basis. Those of you familiar with this publication probably know that on the cover it states explicitly that the contents should not be cited as authority. However, the regulations that are referenced within the Guide can be cited so that led me to my next point of research, Revenue Ruling 92-61, which became effective Sept. 9, 1992.
Both of these basically say that if there are resident managers, maintenance personnel, or security officers occupying units that are considered to be reasonably required for the benefit of the project, these employees do not need to be income qualified. Hence, these units would be included in the eligible basis but not in the applicable fraction for determining the qualified basis. In other words, the unit housing the employee would be removed from both the numerator and the denominator of the applicable fraction. Under these circumstances, it is technically considered to be common space.
One of the basic requirements for common space to be included in the eligible basis at LIHTC projects, which means eligible for tax credit qualification, is that rent cannot be charged for it. So, for that reason, the IRS says that rent cannot be charged for employee units under these circumstances. If the owner charges rent for these, then it could be inferred that the owner is not requiring the employee to occupy the unit as a condition of employment which would then mean that having them live on site would not be considered reasonably required for the benefit of the project. If the unit subsequently ceases being common space and becomes residential space, then rent can be charged to an eligible household and the applicable fraction would then include the unit.
My purpose for relaying this information to you is twofold: so that you can benefit from my research and learn the answer to the question, and also to illustrate how you can research these questions on your own.
Here is the link to download the guide, which I highly recommend all LIHTC managers keep handy: http://www.irs.gov/pub/irs-utl/lihc-form8823guide.pdf. Also, remember that one of the benefits of being NCHM-certified is that you can use our eHotline service (connect via our website, www.nchm.org) if you have property management questions but don’t have time to be a compliance geek like me!