Official Gives Update on IRS Housing Credit Compliance Projects

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Tax Credit Advisor, July 2009: An Internal Revenue Service official has reported on the status of several low-income housing tax credit (LIHTC) compliance projects, and the most common reasons for current LIHTC audits.


IRS senior analyst Grace Robertson said she hopes the new, revised version of the so-called 8823 guide will be released by the end of September at latest. A revised draft is currently under review in the Service’s Chief Counsel’s office.


The guide provides instructions and guidance to state housing credit allocating agencies on how to identify and to report to the Service – on IRS Form 8823 – discovered incidents of non-compliance with LIHTC program requirements in tax credit projects, and the correction of non-compliance events.


The first edition of the 8823 guide was issued in 2007. The new, updated version will reflect new LIHTC regulatory developments since then, such as the final utility allowance regulations published last year.


Robertson said once the revised 8823 guide is issued she will concentrate on completing a revised audit techniques guide for the LIHTC program. She didn’t estimate a release date. The IRS years ago had an LIHTC audit techniques guide that was publicly available, but it became obsolete.


The new guide will describe LIHTC program requirements and provide instructions to IRS agents on how to conduct LIHTC-related audits of taxpayer federal income tax returns, such as the returns of limited partnerships that own LIHTC properties.


Robertson also provided a breakdown of the reasons for the selection of LIHTC owner tax returns for LIHTC-specific tax audits that currently are underway. These are audits of returns selected by Robertson based on filed Forms 8823. Robertson said the top four reasons are the same now as in a 2007 analysis.


The triggers for these current LIHTC-specific audits are: claiming the housing tax credit before state agency approval, 16% of the audit cases; poor physical condition, 15%; foreclosure, 13%; casualty events, 9%, failure to file first-year certification form (Form 8609, Part II); credit year/credit computation errors, 7%; disposition of the property, 7%; no longer in LIHTC program, 7%; and miscellaneous, 18%.