Being Prepared for a File Review

Written By: Andy Bowden, CAHEC Board of Directors

I asked our staff for feedback regarding some of the basic issues that they are seeing while performing compliance file reviews of LIHTC properties and do you know what the top recurring theme was? Over and over, I heard that a lack of knowledge on the part of the site staff regarding the regulatory requirements for their project was an issue. LIHTC projects can have vastly different income levels, rent limits, programing requirements, etc., and it is important for the site staff to know exactly what these requirements are. It is certainly not unusual for us to show up at a property to conduct a compliance audit and discover that site staff is unaware of many of the requirements of their project. Oftentimes the information is held at the corporate office and never communicated to the site.

To help solve this issue, we recommend that all management offices contain a “LIHTC Football” in either a binder or a fastened file folder. This binder will contain the most important compliance project documents and should contain, at a minimum, the following:

1. Regulatory Agreement: Every project has a deed restriction with the state credit agency that outlines most of the technical requirements that the project is bound to adhere to. This document may be referred to as a Deed Restriction, Extended LIH Agreement, Land Use Regulatory Agreement, or a similar name. The number of units, number of restricted units, and the income levels of the units is contained in this document. It is not unusual for us to audit a project where the manager is unaware of a commitment to have units set-aside at lower rent limits.
2. IRS Form 8609: There should be a separate 8609 for every building. The most important data on the 8609 for our compliance purposes are the Building ID number, date of allocation, Minimum Set Aside (which should tie to the Regulatory Agreement), 10(a) election on whether the building elects to defer the credit, 8(b) election regarding multiple building election, and the placed in service date.
3. Utility Allowance Documents: These are needed to show evidence that the proper allowance is being utilized when tenants pay for utilities. Management should review this document annually and be sure that it adheres to IRS regulations, is current, and is put into effect within 90 days. Every management company probably has their own policy regarding how many years’ worth of data needs to be kept on-site, so please consult with your corporate office. If there is not a policy or recommendation, we recommend that at least three years of documentation be retained on-site.
4. Rent and Income Limits: The file should contain the documentation evidencing the current allowable levels for your project. Be sure that you are using the correct limits for the correct location, and that the limits are instituted timely (45 days from publishing). If possible, we recommend that these tables be obtained from your state agency as, although extremely rare, we have seen instances where income levels obtained from third-party providers have been incorrect.
5. System Certificates: A copy of the current elevator certificate, the fire suppression system inspection, and the back-up electricity generator inspection should be on premises. Oftentimes these inspections are coordinated and paid by a corporate office, which also receives the certificates and neglects to forward a copy to the site.

The above list is not all-inclusive, but it does outline the basic documents that should be maintained on-site. By attending training and reading industry publications, on-site management can create a LIHTC football to best suit the needs of their property and help ensure the compliance file review of their property runs smoothly.