The Internal Revenue Service (IRS) on March 25 released an updated version of its Guide for Completing Form 8823: Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition (8823 Guide). The guide provides standardized definitions for the noncompliance categories listed on Form 8823, so that the state agencies can act consistently in interpreting and applying Section 42 of the Internal Revenue Code (IRC) and in its reporting of noncompliance. The updated guide corrects typographical errors, clarifies requirements and provides additional discussions and examples.

“We have a new regulation for utility allowances that’s much expanded. When we wrote the guide in 2009, we weren’t really sure what were going to be common problems,” said Grace Robertson, IRS senior program analyst. Many of the revisions clarify program guidance provided in the 2009 version.

The IRS, in an effort to help users identify the changes in the 8823 Guide, has marked significant changes from the 2009 version of the guide with asterisks. It has not identified corrected typographical and formatting errors that do not affect the meaning of the text. The revised guide is available on the IRS website.

Physical Standards & Utilities
The most significant changes in the 8823 Guide are to Chapter 6, which concerns physical inspections, and Chapter 18, which concerns utility allowance calculations. The IRS added a Chief Counsel Advice (CCA) memorandum to the list of references included in Chapter 6. CCA 201042025 addresses how the IRS examines the Section 42 suitable for occupancy requirements for affordable housing units. It says that building- or property-wide issues, such as foundation cracks, can be used to determine that all units in the building are unfit for occupancy, eliminating the need to determine if units are unfit on a unit-by-unit basis. It also will help owners and property managers determine if their buildings are in compliance.

The IRS has provided additional examples and discussion points in Chapter 18 to clarify utility allowance requirements. “It helps people identify problematic fact patterns,” Robertson said. The updated guide clarifies that the IRS makes a determination of noncompliance when gross rent exceeds the maximum gross rent limit as the result of computational or procedural errors.

The IRS also made minor changes to several of the 8823 Guide’s chapters. Changes include: clarification on assets disposed of for less than fair market value within two years of a tenant’s initial certification or recertification — they are included as assets in the tenant’s income determination; an amendment to reflect Housing and Economic Recovery Act-related program changes for 100 percent LIHTC properties; and a revision that reflects Treasury regulations that require a unit that falls out of compliance be treated as a residential unit rather than a low-income unit. More information about the changes can be found in a summary of the revisions that the IRS provided with the updated guide.

Robertson stressed that the guide does not cover every situation. “The guide is written from the perspective of the state agency,” she said. Stakeholders with questions about the information contained in the 8823 Guide, including possible typographical errors, should email Robertson at [email protected]. As questions arise, the IRS will update the guide on its web site and alert stakeholders to the changes via its newsletter.

More to Come
At press time, Robertson was working on a new Audit Technique Guide (ATG) to assist IRS examiners when conducting audits of IRC §42 issues and requested content suggestions from stakeholders. The ATG was last updated in 1999. The IRS hopes to release a draft of the new ATG for comment next year, but did not have a firm date for its release. Interested parties can email content suggestions for the ATG or 8823 Guide to Robertson at [email protected].