Revised 8823 Guidebook Issued
The Guide to Completing Form 8823, originally issued by the IRS in January 2007, has been published with the latest revision dated October 2009. From its inception, language in the Guide has been clear that it is written for state agencies when preparing Form 8823 which is used to report noncompliance at LIHTC properties to the IRS. It is not to be considered formal IRS guidance and should be used solely for the interpretation of existing IRS regulations, which are well cited throughout the Guide. In other words, it should not be cited as an authoritative document. It does, however, provide important clarification for the industry in regard to several elements pertaining to the existing regulations.
In its latest revision, the Guide offers further clarification and guidance on several key elements of compliance, including those that have changed within the last year due to recent regulatory activity. Following HUD’s lead with their Upfront Income Verification (UIV) initiative, the IRS has clarified that if little to no income or sporadic income is reported by a household, then estimates based on actual income earned or received during the past twelve months immediately preceding the certification may be used to determine annual income. This, of course, differs from the traditional approach of attempting to anticipate or project estimates of income forward for the twelve-month period covered by the certification. Those reporting little to no income have always presented a problematic scenario in this regard because their current circumstances at certification may not be a true refection of their past income situation or of their future income, for that matter. Allowing this flexibility will hopefully lead to greater accuracy in calculating income for both HUD programs and LIHTC.
Another issue that has been problematic for LIHTC properties in the past few years is the Section 8 student rule when it comes to handling student financial assistance. HUD Handbook 4350.3 states that for students receiving Section 8 assistance, any excess after tuition has been deducted from student financial aid should be included in income. (The two exceptions are students over age 23 with dependent children and those who are residing with their parents who receive Section 8 assistance.) The IRS has clarified that the rule only applies with respect to the LIHTC program if the student is receiving Section 8 assistance. Otherwise, no educational scholarships or grants are counted. Since the Section 42 regulations specifically defer to the Section 8 regulations when it comes to asset and income determination and calculation, this has been a topic of debate between industry professionals who have argued for using the Section 8 guidance for LIHTC just the same and those who believed you should not use it unless there was also Section 8 assistance going to the family. The IRS has settled the dispute by stating clearly that LIHTC properties without Section 8 assistance should not follow the rule.
Two more issues dealing with students at tax credit properties are additions to the 8823 Guidebook as well. The IRS states that student status also includes those students pursuing a full-time course of institutional on-farm training and that annual student status verifications must be completed at all LIHTC properties within 120 days of the original student verification. For mixed-income properties this can be done in conjunction with tenant income recertifications. This provision is especially important in light of the Housing and Economic Recover Act (HERA) which eliminated the annual income recertification requirement at 100% LIHTC properties in July of 2008. Since full-time student status is a crucial element of ongoing eligibility for Section 42, the IRS wants to ensure that annual student status certification continues at all housing credit properties and even includes a sample form for it in the 8823 Guide.
One other significant addition to the Guide is how to handle adding new household members after initial certification which is detailed in two parts for 100% and mixed-income LIHTC properties. This will be the topic of the next LIHTC HMU article, where we will review it and explain its significant nuances.