The Impact of the Multiple Building Election on LIHTC Compliance
Part II
This is the second article in a series related to the impact of the multiple building election on LIHTC compliance. Last month we reviewed the affect the election has on the minimum set-aside. This month we look at how the election impacts unit transfers. I found that the deeper that I delved into this topic, the more I discovered in terms of the multi-faceted implications to LIHTC properties regarding the option to take the multiple building election at the end of the first year of the credit period. Before we go further, however, let me back track a little and give you the basics.
Under Part II of the IRS Form 8609 which is completed by the owner with respect to the first year of the credit period, item 8(b) asks: “Are you treating this building as part of a multiple building project for purposes of section 42?” The two options are a straight-forward “yes” or “no” where the owner checks the appropriate box. So, on face value, this seems to be a fairly simple election and in many instances, it is probably made and then not given much thought. That is where the danger lies, especially from a management perspective. Now, I will attempt to explain why the answer to this question is so critical and why every LIHTC manager should know the answer provided for this question for their properties.
To continue our discussion, let’s review the rules concerning unit transfers at LIHTC properties. This is an area where the IRS has slowly relaxed its stance over the twenty-plus years that the program has been in existence. Once upon a time, there was no such thing as a unit transfer for LIHTC. If a household moved from one unit to another at the same property, it was treated as a new move-in and the household had to completely requalify for the program. Then, with modification to the Next Available Unit Rule, it became permissible to have unit transfers within the same buildings, or BINs. Following that, unit transfers between buildings were allowable but only if the household’s income did not exceed 140% of the current applicable income limit when transferring. That is basically where the rule currently stands. Again, on face value this may seem uncomplicated. It’s when you apply it in conjunction with the multiple-building election that it can get tricky.
The IRS has stated in their “Guide to Completing Form 8823” that when households transfer between units in the same building that the newly occupied unit adopts the status of the vacated unit. Likewise, when a transfer occurs between two different buildings within the same project the newly occupied unit adopts the status of the vacated unit. I hope you picked up on the italics there. Whether or not the other building is in the same project is key.
So, if the multiple building election was chosen by a “yes” on the form 8609, then transfers between buildings all being in the same multiple building project are permissible as long as the household’s income does not exceed 140%. The IRS has even said that since there is no way of knowing when or if a household’s income exceeds 140% of the income limit at 100% LIHTC projects where annual recertification is no longer required, then transferring between buildings without that knowledge is acceptable. If, however, the multiple building election was not taken by answering “no” on the 8609, then each building represents a separate project and transfers may not occur between projects. In effect, those circumstances return to the earliest interpretation of the rule, where a transferring household would have to requalify for the program in order to make the move between buildings.
The moral of the story, yet again, is that managers should have full knowledge of how their owner(s) chose to answer question 8(b) under Part II on the 8609. Without that information, multiple compliance errors are inevitable in their proper management of the LIHTC property. Next month we’ll move ahead to the multiple building election with regard to the Unit Vacancy Rule.