IRS Amends LIHTC Compliance Monitoring Requirements

On February 13, 2019, the IRS approved final regulations to amend the compliance monitoring requirements for Low-Income Housing Tax Credit (LIHTC) projects. The final regulations will be published in the Federal Register on February 26, 2019. Read the final regulations here.

While the final regulations carry forward many of the requirements in the temporary regulations published February 25, 2016, a few of the provisions were changed prior to being adopted in the final regulations. The changes include:

Changes to Sample Size – The required minimum sample size for low-income unit and certification inspections is now solely based on the sample size required by the Minimum Unit Sample Size Chart provided in Revenue Procedure 2016-15, referenced as "Table to Paragraph (c)(2)(iii)" in the final regulations. This is the same sample size required by HUD for REAC Inspections. See 1.42-5 (iii)(b). This table uses a scale of 1-27 units based on the size of the property.
      • Previously, under the temporary regulations and through the publication of Revenue Procedure 2016-15, the required sample size for inspection was the lesser of 20% of the low-income units or the number of low-income units reflected in the Minimum Unit Sample Size Chart in the Revenue Procedure.
        • The final regulations removed the 20% component of this rule and instead adopts the minimum unit sample size required by HUD for REAC inspections.

Changes to Notification of Inspection Requirements – The reasonable notice of inspection time period is being reduced from 30 days to 15 days, with extensions allowed for extraordinary circumstances. See 1.42-5 (iii)(c)(3)​

  • The temporary regulations provided that a Housing Finance Agency could give an owner reasonable notice of 30-days of an upcoming project inspection. The final regulations reduce this notice period to 15 days.
  • The final regulations include exceptions to the notice period in cases of extraordinary circumstances, such as natural disasters, that would prevent the Housing Finance Agency from conducting the inspection within the given time frame. The final regulations further clarify that the Housing Finance Agency may not notify the owner of the specific units that will be inspected prior to the day of inspection.

The final regulations will go into effect on the date the regulations are published in the final register.

NOTE TO HOUSING FINANCE AGENCIES: Qualified Allocation Plans must be updated no later than December 31, 2020.

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