Document Sample
					                                     Chapter 2
                             THE LOW INCOME HOUSING
                          TAX CREDIT PROGRAM (OVERVIEW)

2.1      OVERVIEW

                                               In return for receiving Tax Credits, owners are responsible for
             This chapter explains the six
             major types of requirements       leasing suitable units to low-income tenants for 30, 40, or
             that owners of Tax Credit         more years. An owner’s ability to claim the full amount of the
             projects must fulfill.            tax credits allocated to the project depends on its continued
                                               compliance with Tax Credit requirements.

         MFA’s role is to allocate Tax Credits to qualified projects and monitor them for compliance with
         program requirements.       The MFA will work to help project owners understand their
         responsibilities under the program and assist owners and their managers in fulfilling their

         It is essential that owners and/or managers understand the requirements that apply to Tax Credit
         projects. This chapter describes these requirements, which are grouped according to six key
         topic areas:

              Low-Income Occupancy;
              Tenant Eligibility;
              Rent Restricted Units;
              Record-Keeping and Reporting Requirements;
              Compliance Monitoring Fees; and
              Resale Requirements.


         Owners receive tax benefits from Tax Credit developments in return for renting some or all of the
         units to eligible low-income tenants. To retain the tax benefits, owners must maintain the low-
         income occupancy of the project for the federal compliance period of 15 years and an additional
         compliance period from 15 to 30 years based on requirements set forth in the QAP or application
         of Tax Credits as approved by MFA.


                   Units that can be counted for purposes of establishing the development’s low-income
                   occupancy are called TC units. The six specific requirements a unit must satisfy to qualify
                   as TC units are outlined in Section 3.3. Units that do not meet all six requirements
                   may not be counted as TC units, even if occupied by eligible tenants.

         B.        MINIMUM SET-ASIDES

                   To qualify for Tax Credits, a development must contain a minimum number of qualified
                   TC units. This number is determined by the minimum set-aside selected for the project
                   by the owner and is called the “federal set-aside.” The income requirement that TC units

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                 must satisfy differs according to the minimum set-aside selected. An owner must choose
                 one of the following low-income set-asides:

                      20/50 Set-Aside. This set-aside requires that a minimum of 20 percent of the
                       units in a project be qualified TC units leased to tenants with incomes less than or
                       equal to 50 percent of the area median income, adjusted for household size.

                      40/60 Set-Aside. This set-aside requires that a minimum of 40 percent of the
                       units in a project be qualified TC units leased to tenants with incomes less than or
                       equal to 60 percent of the area median income, adjusted for household size.

                 All Tax Credit projects must contain enough qualified TC units to satisfy the chosen set-
                 aside by the end of the tax year following the year that the project was placed in service.
                 If a project does not have enough TC units, the owner cannot claim the project’s Tax

                 When submitting a Tax Credit Application to MFA, owners indicate which set-aside they
                 will use in developing the property. The set-aside selected at this time and the low-
                 income requirement established by the set-aside apply throughout the life of the project.

                 Example 2-1: The owner of a 100-unit property has applied for and received Tax
                 Credits for the project. In the Tax Credit application, the owner elected the 40/60 set-
                 aside requirement. To satisfy the set-aside, the owner must document that at least 40
                 units in the project have been leased to tenants whose incomes meet the 60 percent
                 income limit and also satisfy the other Tax Credit unit requirements, such as having rents
                 consistent with Tax Credit rent restrictions.

         C.      QUALIFIED BASIS

                 The amount of Tax Credits an owner can claim depends on the actual low-income
                 occupancy of the project during the tax year for which the credits are claimed. The
                 percentage of TC units (applicable fraction) is applied to the allowable development costs
                 (eligible basis) to establish a building/project’s qualified basis. The allowable qualified
                 basis is then multiplied by the Tax Credit percentage for the project to determine the
                 amount of credit an owner can claim each year for the next ten years. Details of these
                 calculations may be found in IRS Code Section 42.

                 Owners have until the end of the tax year in which the project is placed in service, or at
                 their option, the close of the following tax year to establish the project’s low-income
                 occupancy (applicable fraction). The low-income occupancy achieved at this time will
                 establish the project’s original qualified basis (see Section 3.5).


                                                          Federal Tax Credit regulations include a specific
                     Applications from households with    requirement pertaining to households holding a
                     HUD Section 8 Certificates or        Section 8 Certificate or Voucher. When leasing
                     Vouchers may not be turned           units that will be counted as TC units, owners
                     down simply because they             and/or managers may not refuse to rent these
                     participate in these programs.       units to applicants holding a HUD Section 8
                                                          Certificate or Voucher simply because they
                 receive rental assistance through these programs. These applicants are still subject to all
                 tenant selection criteria that the owner/management agent applies to other applicants,
                 as long as that criteria is permissible under federal, state and local law. This Tax Credit

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                 requirement took effect on August 10, 1993 and applies to all TC units leased after this
                 time. Section 3.4 discusses this requirement in more detail.


                 Compliance Period

                 As discussed above, all Tax Credit projects must fulfill a minimum 15-year compliance
                 period. The first tax year for which the owner claims a project’s Tax Credits serves as
                 the first year of the compliance period. This period lasts for 15 consecutive tax years or
                 longer with a LURA.

                 Tax Credit Recapture Provisions

                 If a project’s qualified basis for a given tax year has decreased from the previous year,
                 the IRS may recapture some or all of the accelerated portion of the project’s credits
                 claimed in previous years and add an interest charge. A drop in a project’s low-income
                 occupancy reduces its qualified basis and triggers a recapture of Tax Credits. (Note: The
                 accelerated portion refers to the additional amount of credits that the owner has been
                 allowed to claim as a result of the program’s use of a 10-year credit period rather than a
                 15-year credit period. Generally, the accelerated portion is equal to one-third of the
                 amount claimed.)

                 The determination of the amount to be recaptured is made exclusively by the IRS based
                 on information reported by the owner and MFA, as well as data gathered by the IRS. IRS
                 Form 8611 and its instructions explain how the recapture amount and any interest charge
                 is determined.

                 Keeping Sufficient TC Units

                                                          To retain the full tax benefits from a Tax Credit
                   By maintaining a sufficient            project, the low-income occupancy established at
                   number of TC units, owners             the time the owner began claiming the project’s
                   can avoid recapture.                   credits must be maintained throughout the
                                                          compliance period. More specifically, owners
                 and/or managers must make sure that the applicable fraction of TC units for the
                 project does not drop below the fraction established in the first year of the credit period
                 to avoid a drop in qualified basis, which triggers Tax Credit’s recapture provisions.

                 If the low-income occupancy of any project (i.e., the number of TC units) drops below
                 the low-income occupancy reported for the preceding year, the owner may not be able to
                 claim the full amount of the project’s credits for that year and the IRS may recapture a
                 portion of the project’s tax credits claimed in previous years. If the low-income
                 occupancy of the project drops below the applicable minimum set-aside, the
                 owner cannot claim any of the project’s credits claimed in previous years (see
                 Tax Credit Recapture Provisions above).

                 Section 3.6 describes the procedures owner and managers should follow to maintain the
                 project’s low-income occupancy and prevent the loss of past and future credits.

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                  Extended Use Period

                  Owners receiving Tax Credits in 1990 or later years must continue to maintain the low-
                  income occupancy of their projects for anywhere from 15 to 30 additional years beyond
                  the end of the federal compliance period. Depending on the time specified in the
                  agreement, failure to maintain a project’s low-income occupancy during this subsequent
                  period will not result in a recapture of the project’s credits. However, owners committing
                  compliance violations may be subject to administrative and judicial sanctions.

                  Chapter Six provides more information on compliance violations and enforcement as well
                  as providing you with the Year 15 compliance plan which relaxes certain federal


                                                                Tax Credit requirements prohibit TC units
                      Tax Credit projects may not be            from being used as transient housing. The
                      used as transient housing. They           Guide for completing Form 8823, page 20-1
                      may be used as transitional               explains as follows “A unit is non-transient if
                      housing for the homeless.                 the initial lease term is six months or more.”
                                                                Subsequent month-to-month renewals are
                  acceptable. If a property receives rehabilitation credits and the resident has been living in
                  his unit for a period of more than six months the non-transient rule is satisfied. See
                  Chapter 5 regarding possible complications with month-to-month renewals.

                  The restriction against the use of TC units for transient housing does not apply to units
                  providing transitional housing for the homeless and single room occupancy units. TC
                  units can be used for short-term occupancy if a Tax Credit building meets the following

                      the unit contains sleeping accommodations, kitchen, and bathroom facilities;
                      the building is used exclusively to facilitate the transition of homeless individuals to
                       independent living within 24 months; and
                      the building is operated by a government entity or qualified nonprofit organization
                       that provides temporary housing and support services.

                  Transitional housing includes housing primarily designed to serve deinstitutionalized
                  homeless individuals and other homeless individuals with mental disabilities, and
                  homeless families with children.


              Who’s eligible to        Before a unit can be counted as a TC unit, the owner must establish
              occupy a TC unit?        that the tenant is eligible as a low-income household. To determine
                                       a tenant’s eligibility, the owner must compare the household’s
         annual (gross) income to the Tax Credit income limits that apply to the property. Statutory
         Guidance on how to qualify Income and asset eligibility can be found in HUD 4350.3 Chapter 5.
         IRS code requires us to follow the 4350.3 chapter 5 when qualifying prospective residents.

         To help ensure that a tenant’s eligibility is accurately established, owners must verify the
         household’s income and have the tenant certify its accuracy. Because income and household

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         composition may change over time, the owner must re-examine the eligibility and recertify
         tenants in TC units at least once a year.

         Special Note: If an income eligible household is composed entirely of students, the household
         may be disqualified by Tax Credit’s restriction against students. There are exceptions to the
         student restrictions, but owners must carefully document that a household with students meets at
         least one of these exceptions before the tenant can occupy a TC unit. (See Section 4.3 for more
         detail about eligible student households.)


                 The Tax Credit program establishes specific income requirements (income limits) for
                 determining who qualifies as a low-income tenant. The minimum set-aside selected by
                 the owner determines the income requirement that must be used in determining whether
                 a household qualifies as a low-income tenant.

                     20/50 Projects. The income eligibility requirement for Tax Credit projects with this
                      set-aside is set at 50 percent of area median income, adjusted for household
                      size. Only households with incomes equal to or less than this income limit qualify as
                      low-income tenants in these projects.

                     40/60 Projects. The income eligibility requirement for Tax Credit projects with this
                      set-aside is set at 60 percent of area median income, adjusted for household
                      size. Only households with incomes equal to or less than this income limit qualify as
                      low-income tenants in these projects.

                     New limits must be implemented        The limits are based on HUD’s annual
                     within 45 days of their effective     determination of area median income.
                     date.                                 There are sets of income limits for various
                                                           median income requirements, i.e., 30%,
                 40%, 50%, 60%, and so on, and the limits vary by household size and either county or
                 MSA. Owners must use the set of income limits that correspond to the minimum set-
                 aside for their project.

                 Tax Credit income limits are published by MFA and are available (on the MFA website) at
        as they become available. Because the limits rely on HUD figures
                 for area median income and involve adjustments made using a specific methodology,
                 owner/managers are encouraged to use the limits provided by MFA. As an added
                 measure recalculate to ensure our calculations are correct. New limits must be
                 implemented within 45 days of their effective date. When determining eligibility, owners
                 must use the income limits in effect on the date the tenant is certified as income eligible.
                 ACTUALLY COMPLETED.

         B.      HOUSEHOLD SIZE

                 Because income limits vary by size of household, owners must determine the number of
                 people in a tenant’s household to decide whether the household is income eligible.
                 Section 4.5 of this manual provides further information on determining household size.

         C.      ANNUAL INCOME

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                 To determine whether a tenant is eligible, an owner must compare the tenant’s known,
                 anticipated annual income for the next 12 months to the income limits for the
                 appropriate household size. The program uses the definition of annual income as defined
                 in Section 8 of the United States Housing Act of 1937. This is the same definition used
                 by HUD to determine the gross annual income of families and individuals receiving
                 housing assistance through the Section 8 program. The eligible income of all members of
                 the household must be counted when determining a household’s annual income.

                 Under this definition, annual income includes not only income from employment and
                 government entitlements, but also income from assets. There are very specific
                 requirements regarding the sources of income that must be included and excluded when
                 determining annual income. Chapter 4 and the “Guide for Determining Annual Income”
                 (see Appendix B) provide detailed information on how to calculate annual income. As
                 HUD publishes updates to these requirements, MFA will post this information on it’s

                 This manual includes a sample rental application that owners may use to collect the
                 information needed to calculate annual income (see Appendix C). This form, or other
                 application forms specifically designed for affordable housing properties, should aid in
                 determining potential eligibility. The Apartment Association of New Mexico publishes an
                 application that fits the Tax Credit program requirements.

                 Example 2-2: A four-person household applies to move into a Tax Credit project subject
                 to the 40/60 minimum set-aside. The manager determines that the household’s annual
                 income (using the rules in Appendix B) is $21,000. No students live in the household.
                 The four-person income limit at 60 percent of median income is $22,000, while the four-
                 person limit at 50 percent of area median income is $18,350.

                 Question: Is the household eligible under Tax Credit requirements?

                 Answer: Yes. The manager compares the household’s annual gross income of $21,000 to
                 the income limit for 60 percent of median income ($22,000). The household’s income is
                 less than the applicable income limit and Tax Credit student restrictions are not an issue
                 because no students live in the household.


                                                          To gather and verify information about household
                   Owners and/or managers                 income and composition, owners and/or managers
                   need to obtain a tenant’s              should have tenants complete a Release and
                   consent to verify their                Consent Form (see Appendix C) or a substantially
                   income.                                similar form. This form authorizes key parties to
                                                          furnish or release information necessary to evaluate
                 the household’s eligibility. When seeking tenants for TC units, owners and/or managers
                 should ask all potentially eligible applicants to sign this form.

                 The consent form provided in this manual authorizes the following parties to provide
                 information regarding the household:

                 a)        depository institutions;
                 b)        private sources of income; and
                 c)        any federal, state, or local agency.

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                 Use or disclosure of information obtained from a household or from another source
                 pursuant to the release and consent form must be limited to purposes directly connected
                 with determining a tenant’s eligibility to occupy a TC unit.


                 If the anticipated, known annual income of a prospective or existing tenant appears to
                 fall within the appropriate income limit, the next step is to verify that the income
                 information provided by the tenant is accurate.

                 The verification process is a very important step in establishing a tenant’s eligibility. To
                 ensure that the steps for verifying tenant income provide reliable results, the verification
                 procedures for Tax Credit properties follow methods quite similar to those used in other
                 affordable housing programs, such as the RD-assisted, tax-exempt bond, mortgage
                 revenue bond, and HUD-assisted section 8 housing programs.

                 There are three basic methods of verification:

                 Third party written verifications are preferred. The owner must attempt to use this
                 method wherever feasible. Tenants who are self-employed are one example where this
                 method is not feasible.

                 Firsthand documentation should be used in cases where third-party verification is not
                 feasible or available. Examples of acceptable forms of firsthand documentation include:
                 paycheck stubs, W-2 forms, certified tax returns, and bank statements.

                 Third-party oral verification may be used when there is not response to the owner’s
                 request for written verification. Oral verifications also may be used to update written
                 verifications. The tenant’s file should be documented explaining why 3rd party written
                 verification was not obtained.

                 Section 4.5 provides more detailed information on acceptable verification procedures.
                 Sample verifications forms are included in Appendix D.


                 Owners must have tenants of TC units sign a written certification that the information
                 they provided regarding their income and household composition is complete and
                 accurate. This certification must be completed before a unit can be counted as a TC unit.
                 For new tenants, the certification should be signed at the time the tenant signs the lease.

                                                                     In preparing a certification, owners
                   Other acceptable certification forms:             must use the Tenant Income
                    1944-8 RECD/FMHA financial projects             Certification (TIC) Form included in
                    50059 Project based HUD properties              Appendix F to this manual or a
                    50058 Local PHA Certificate or Voucher          comparable form acceptable to and
                      holders                                        approved by MFA.           The form
                                                                     provides a place to record all
                 necessary information about household composition, tenant income, and unit rent. The
                 owner or manager should fill out the sections on household income and the verified
                 income figures for the tenant. The tenant must then sign and date the form, certifying
                 the accuracy of the eligibility information shown. The owner or manager then completes
                 the remainder indicating that the tenant’s income shown on the certification does not
                 exceed the applicable income limit for the project and size of household. Owners and/or

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                 managers must also sign and date the form, indicating that it was properly prepared and
                 the information is true to the best of their knowledge.

                 For new tenants, the verification of income and completion of the TIC form by the owner
                 and/or manager should be performed prior to occupancy to ensure that an applicant is an
                 OR SIGNING OF A NEW LEASE AT TIME OF RENEWAL. For existing tenants in a rehab
                 property, these steps must be completed prior to designating a unit as a TC unit.


                 Once a year, owners need to recertify the eligibility of tenants living in TC units. During
                 this process, owners must gather current information on household members and annual
                 income, verify the accuracy of this information, assess the tenant’s continued eligibility,
                 and execute a recertification TIC form.

                 Conducting Recertifications

                 To recertify tenant eligibility, owners must have the tenant of each TC unit update
                 household size and annual income. Even if no changes have taken place, tenants must
                 still provide information showing that their status remains the same. After verifying this
                 information, owners and/or managers must have tenants sign a recertification form
                 attesting to the accuracy of the information provided.

                 When executing a recertification, owners must use the TIC Form (see Appendix F), or use
                 a comparable form that contains the necessary information. All income information must
                 be verified, even if no change has occurred. The methods for verifying initial
                 certifications described in Section 4.5 also apply when verifying tenant income for

                                      All income information must be verified at
                                      the time tenant eligibility is recertified, even
                                      if no change has occurred in household
                                      income or composition.

                 The TIC form must be executed not later than the recertification date for the unit. The
                 anniversary of the effective date of the tenant’s most recent certification will serve as the
                 standard recertification date. Owners may establish different recertification dates as long
                 as the recertification is completed within 12 months of the initial certification or the most
                 recent certification.

                 Assessing Continued Eligibility

                 Once the recertification information has been obtained, owners and/or managers must
                 assess whether the tenant occupying the TC unit remains an eligible tenant. In assessing
                 ongoing eligibility, tenants remain eligible as long as their income does not exceed 140
                 percent of the applicable Tax Credit income limit. For example, in a community where
                 the Tax Credit income limit for a three-person household at 60 percent of median is
                 $20,000, a household of three persons living in a TC unit would remain eligible as low
                 income tenants as long as their income did not exceed $28,000 (i.e., 140 percent of

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                 $20,000). Chapter 4 of this manual describes steps for evaluating increases in tenant
                 income in more detail.

                                                        Owners may continue to count TC units occupied
                     NEXT AVAILABLE UNIT rule           by tenants who are found to be over-income at
                     for TC units with over-            recertification as long as the tenant’s rent remains
                     income tenants.                    restricted and the owner continues to lease the
                 next available unit of comparable or smaller size in the same building to an eligible low-
                 income tenant. Once a subsequent unit of the same or smaller size is leased to an
                 ineligible tenant, any TC unit occupied by an over-income tenant ceases to count as a TC
                 unit. If the owner has already leased a new TC unit, the unit with the over-income
                 tenant is no longer needed to maintain the project’s low-income occupancy. If a new TC
                 unit has not been leased, the number of TC units in the project drops by one unit.

                 In September of 1997, the IRS published a final rule regarding the Next Available Unit
                 Rule. These new regulations provide that for:

                 MIXED INCOME PROJECTS
                     The rule applies separately to each building in a project containing more than one
                      low income building.
                     A current tenant whose income exceeds the applicable limitation may move to a
                      different unit within the same building; the new unit occupied by this tenant will
                      assume the over-income low income unit status, but this move will not in itself cause
                      any other over-income low income units in the same building to lose their status as
                      low income units.
                     If the rule is violated through rental of any comparable unit to a nonqualified tenant,
                      all over-income low income units within the same building lose their status as low
                      income units.
                     Despite the term “next available unit” used in the Code, the rule actually applies to
                      any available unit – even if it were already available at the time the over-income low
                      income unit became over-income – until such time as the building has the requisite
                      number of low income units.

                 100 PERCENT LOW INCOME PROJECTS
                 In building that consist of 100 percent low income units, unit rents may never exceed the
                 maximum allowable rent for low income units, even if tenant incomes increase.

                 Tenants who are found to be over-income at the time of recertification do not need to be
                 removed to maintain the project’s low-income occupancy and should not be evicted
                 without proper cause. Section 3.6 of this manual discusses the procedures for
                 establishing new TC units to substitute for TC units with over-income tenants.


                 MFA requires that lease agreements with households occupying TC units contain specific
                 language obligating these tenants to cooperate with the owner in documenting their
                 eligibility. These provisions should clearly set forth the tenant’s responsibility to provide
                 information about the household’s size, income, and student status necessary to assess
                 the household’s eligibility under Tax Credit requirements. The requirement to provide
                 this information should be established as an obligation of tenancy to allow recourse if a
                 tenant refuses to fulfill this responsibility. Unless MFA has given its prior approval
                 to the contrary, the Rental Agreement and its Affordable Housing Addendum
                 published by the Apartment Association of New Mexico is the required form in
                 New Mexico.

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                  Leases for TC units should require tenants to:

                     provide information regarding household size and annual income; and
                     certify the accuracy of this information on an annual basis.

                  These lease requirements can be incorporated by using a lease addendum or executing a
                  new lease. The specific provisions are discussed in Chapter 5.


         To ensure that units made available to low-income tenants are affordable to these households,
         Tax Credit establishes the maximum rents that owners can charge for TC units. The rent limits
         are set at levels affordable to low-income households, based on the median income for the area
         in which the property is located with an allowance for tenant-paid utilities. Because the eligibility
         requirement is somewhat higher for projects using the 40/60 set-aside test, the Tax Credit rent
         limits for projects using this set-aside are generally 20 percent higher than the limits for projects
         electing to meet the 20/50 set-aside requirement.

         For most projects, the rent limits for TC units correspond to unit sizes (i.e., number of bedrooms).
         See Section 5.2 for further information.

         MFA publishes the Tax Credit rent limits on the same schedule as the income limits. The
         schedules are distributed (mailed, e-mailed, faxed) by MFA to all owners and managers, and are
         also available on MFA’s website The income and rent limits are updated
         annually by MFA, after they are published by HUD.


         There are several record-keeping and reporting requirements that owners must meet to ensure
         compliance with the program. These requirements fall into four major groups:

                 on-site record-keeping;
                 annual compliance reports (WCMS online entry both resident and financial);
                 owner certifications; and
                 cooperation during agency on-site reviews.

         A.       ON-SITE RECORDS

                  All records concerning the property must be kept separate from any business unrelated
                  to the property and in a condition that allows for a proper audit. The records must be
                  maintained as required by MFA. Representatives of the IRS or the MFA may examine or
                  photocopy documents pertaining to the project during regular business hours.

                  There are three principal types of on-site records owners must maintain:

                     tenant files;
                     compliance monitoring reports (Project Compliance Reports); and
                     project reports.

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                 It is recommended the following records be kept on-site for assistance to any onsite

                          Land Use Restriction Agreement (LURA)
                          Initial Application with scoring
                          Qualifying Application Plan (QAP) (year Credits were awarded)
                          A copy of Section 42 and other information from the IRS
                          HUD 4350.3 Chapter 5

                 Tenant Files

                 Owners must keep a tenant file for each TC unit. Each file must contain:

                     the tenant’s rental application;
                     proper income and asset verification documents;
                     all TIC forms for the tenant (including the initial certification);
                     a move-in inspection form, completed by both the tenant and the manager; and
                     a proper dwelling lease with all required addenda.

                 These items are considered project records and must be maintained as required below.

                 Occupancy Records

                 Owners should keep records by building that correctly reflect occupancy at the property
                 on the last day of each month or a date established by MFA. These listings will provide
                 the agency with an up-to-date record of TC units. They also allow monitoring staff to
                 track changes in the status of TC units and unrestricted units during past months to
                 confirm that over-income and vacated TC units were properly replaced. These records
                 must be maintained in the online system (WCMS) currently utilized by MFA. All records
                 must be inputted online by the 15th of the following month of the certification.

                 These records should provide the following information by building for every unit in the
                 project, especially for TC units:

                     unit number
                     tenant name
                     number of bedrooms
                     floor space (square feet)
                     unit status (TC unit or market rate unit)
                     household size
                     move-in date
                     move-out date (vacancies only)
                     recertification effective date
                     household income (current)
                     monthly rent
                     utility allowance (if applicable)
                     student tenant code

                 Owners must maintain files for the project and individual buildings documenting the
                 eligible basis and qualified basis at the end of the first year of the credit period as
                 required in Section 6.2.

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                 Project Files

                 Also, owners must document the character and use of any nonresidential area of a
                 building that is included in the building’s eligible basis. For example, the documentation
                 should establish that tenant facilities included in the eligible cost of the project’s
                 Community Room are available to all tenants and that no fee is charged for use of these
                 facilities. For example, if the Community Room is included in the eligible basis, the
                 owner/manager may not charge tenants a fee for use of the room. Owners may meet
                 this requirement by simply adapting their monthly rent rolls to provide all of the
                 necessary information.

                 MFA may request that owners provide a copy of the most recent records at any time
                 during the compliance period.

                 Maintaining Records

                 Owners must maintain all required project records for at least six years beyond the due
                 date for filing the tax return for that year (see Section 6.2 for a listing of these records).
                 For example, all tenant files, monthly unit listings, and project records for 1993 must be
                 kept until April 15, 2000, assuming the date for filing the 1993 tax return was April 15,

                 Project-related records for the first year of the credit period must be kept longer.
                 Records must be kept for at least six years beyond the date of the owner’s tax return for
                 the last year of the compliance period. For example, an owner that first claimed the
                 credits for a project in 1991 must keep the project records for that year until April 15,
                 2012 - six years after the date of the owner’s tax return for the year 2005 (i.e., April 15,


                 Once a project is placed in service, an owner must start submitting annual compliance
                 reports to MFA. These reports not only document a property’s low-income occupancy,
                 but also provide information about the eligibility of tenants living in TC units and show
                 the rents charged for these units. MFA staff review these records to assess owner
                 compliance with Tax Credit requirements.

                 During project rent up, the owner must submit Quarterly Status Reports to MFA. This
                 report documents project activity during the rent up period. Reports should be submitted
                 no later than April 10, July 10, October 10 and January 10. If the project remains in
                 compliance during this period, owners may convert to reporting on an annual basis. The
                 forms as well as instructions for completing them can be found in Appendix G.

                 Annual compliance reports document the occupancy status of a property as of the end of
                 the tax year for the project. Because the tax year for most projects is the same as the
                 calendar year, compliance reports will generally document a project’s occupancy as of
                 December 31. Owners must submit compliance reports to MFA by January 31 of the
                 following year.

                 The compliance report summarizes the status of the property’s TC units and includes a
                 listing of each unit in the property. Owners report this information building by building.
                 The information the owner must provide for each unit includes:

                     unit number

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                         name of tenant
                         unit size, i.e. number of bedrooms
                         unit designation (TC or market rate unit)
                         number of persons in household
                         move-in date
                         move-out date (vacant units)
                         date of last income certification/recertification (TC units only)
                         annual gross income (TC units only)
                         tenant-paid rent (TC units only)
                         utility allowance (TC units only)

                     All of the information needed to complete a report should be readily available from the
                     property’s monthly unit listing, tenant files, and the income and rent limits provided by
                     MFA. A copy of the Tax Credit Compliance Report is provided in Appendix H.

                     MFA may ask owners to include additional materials with their annual reports to assist in
                     evaluating whether a property’s TC units comply with Tax Credit requirements.


                     As required by the IRS, owners must document a project’s continuing compliance with
                     Tax Credit requirements by submitting an annual owner’s certification of program
                     compliance to MFA. Owners must begin submitting certifications when a project is placed
                     in service and annually thereafter until the end of the compliance period for the project.
                     The certification includes a requirement to submit annual utility cost verifications. This
                     document must be property executed by the owner and the owner’s signature
                     must be notarized.

                     A copy of the Tax Credit Annual Owner Certification of Program Compliance is included in
                     Appendix I. Further guidance is provided in Chapter 6.


                     MFA representatives will conduct on-site reviews, (at least once every three years), of
                     Tax Credit properties and their records to evaluate owner compliance with program
                     requirements. During a review, owners and their property management staff must
                     provide monitoring representatives with access to all documents regarding an owner’s
                     continued compliance with the Tax Credit requirements specified in the Owner’s
                     Certification of Program Compliance.

                     MFA will give on-site managers (where applicable) and/or owners reasonable advance
                     notice prior to conducting an on-site visit, usually 30 days. The managing owner and key
                     on-site staff should be present during the review whenever possible.
                      Noncompliance issues identified and corrected by the owner prior to notification of an of
                     an upcoming compliance review or inspection by the state agency need not be reported;
                     i.e., the owner is in compliance at the time of the state agency’s inspection and/or tenant
                     file review.

1 1
   “Guide for Completing Form 8823 Low-Income Housing Credit Agencies Report of Noncompliance or
Building Disposition” Chptr. 5, page 3-2

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         To offset the cost of monitoring owner compliance, Tax Credit requirements allow housing credit
         agencies to charge owners an annual compliance monitoring fee. In New Mexico, the fees are
         evaluated annually to determine their reasonableness and their ability to cover costs of
         monitoring. Each owner and/or authorized representative receives an annual reminder notice of
         the due date of both compliance fees and the annual certification. At the time of publication of
         this manual, the compliance fees are set at $40 per qualifying TC unit.

         Compliance fees are due in MFA’s office by January 31 of each year. Owners will be notified
         once, or one time, of past due compliance fees. They will then have 30 days to submit payment.
         If payment is not submitted, MFA will send a Notice of Non-Compliance (IRS Form 8823) to the
         Internal Revenue Service.


         Tax Credit buildings/projects may be sold to purchasers who agree to maintain the low-income
         occupancy until the end of the compliance period for pre-1990 projects and the remainder of the
         extended use period for post-1989 projects. Purchasers may be eligible to claim Tax Credits for
         any remaining portion of the project’s credit period.

         However, owners who sell Tax Credit buildings/projects, or an interest in a building/project, are
         subject to Tax Credit recapture provisions (see Section 2.2-E). The amount that is subject to
         recapture is the accelerated portion of the project’s credits that have been claimed up to the time
         of sale and are attributable to ownership interest sold. (Note: The accelerated portion refers to
         the additional amount of tax credits that the owner has been allowed to claim as a result of the
         program’s use of a 10-year credit period rather than a 15-year credit period. Generally, the
         accelerated portion is equal to one-third of the amount claimed.)

         Owners disposing of a Tax Credit building/project can defer or avoid recapture by furnishing a
         suitable surety bond to the IRS covering their credit recapture liability on the interest sold. Initial
         guidance regarding the terms and amount of the surety bond that must be furnished is provided
         in IRS Revenue Ruling 90-60. (Appendix K)

         Because ownership changes are generally recapture events, project owners who sell an interest
         in a Tax Credit building/project must notify both the IRS and MFA of the change in ownership and
         provide the purchaser’s name, address, phone number, and taxpayer ID number, as well as the
         seller’s taxpayer ID number and a copy of the deed or document transferring ownership. Failure
         to provide this information to both the IRS and MFA in a timely manner is a compliance violation
         (see Section 6.5) and will be reported to the IRS on Form 8823, Notice of Non Compliance.


         The extended use agreements executed for 1990 and later projects allow owners the option to
         offer the low income portion of a Tax Credit project for sale to a qualified buyer once the federal
         compliance period has expired. Owners can exercise this option by notifying MFA in writing at
         any time after the fourteenth year of the compliance period. The notice states that the owner is
         willing to accept a qualified contract for the purchase of the project. If MFA is unable to obtain a
         qualified offer to purchase the project and maintain its low income occupancy within 12 months
         of the date the owner provided proper notice to the agency, the extended use agreement will

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  Chapter 2: The Tax Credit Program                                            MFA Tax Credit Compliance Plan

         To date, the IRS has not issued specific guidance regarding the contract provisions that would be
         necessary for an offer to be considered a “qualified contract.” MFA will advise owners as the IRS
         publishes additional guidance on resale requirements.


         When the extended use agreement for a project terminates early (i.e., prior to the original
         expiration date), Tax Credit requirements state that owners must allow tenants of TC units to
         continue to occupy the units at restricted rents for an additional three years. Owners may not
         terminate the occupancy of these tenants without proper cause and adequate notice.

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