The Multiple Building Development Election–How to Answer IRS Form 8609 Line 8b
A single low-income housing tax credit (LIHTC) allocation will often be awarded to a development that consists of more than one physical building. Each building will receive its own Internal Revenue Service (IRS) Form 8609. Unless otherwise elected on IRS Form 8609 by the taxpayer, each building in an LIHTC development will be treated as its own development/entity.
Line 8b of IRS Form 8609 reads as follows: “Are you treating this building as part of a multiple building development for purposes of section 42?” A taxpayer can choose to group buildings that are within the same LIHTC allocation into one development or divide them into separate developments, by selecting “Yes” on line 8b and including a statement that identifies which buildings should be included as part of a multiple building development. It is important to review what this election means and how it affects the operation of an LIHTC development.
Multiple Building Developments
A LIHTC development that has multiple buildings can be divided in the following ways:
- All the buildings in the development treated as one LIHTC development for LIHTC compliance and calculation purposes.
- All the buildings in the development treated as separate developments for LIHTC compliance and calculation purposes.
- Taxpayer can opt for a combination of the above options, where some of the buildings are treated as one development and some of the buildings are treated as a separate development.
Answering “No” on Line 8b
Answering “no” on line 8b of Form 8609 means that even though two buildings have the same LIHTC allocation they are viewed by the IRS as being two separate developments.
Answering “Yes” in Line 8b
Answering “yes” on line 8b of Form 8609 means that buildings in a development that are identified as a group in the 8b statement (attached to the Form 8609 in the one-time IRS filing) should be treated as one, multiple building development for the purposes of LIHTC compliance.
Certain information is required to be attached to IRS Form 8609 if “yes” is selected on line 8b. The following information must be attached to each Form 8609 where “yes” is selected for this question:
- The name and address of the development and each building in the development;
- The building identification number of each building in the development;
- The aggregate credit dollar amount for the development; and
- The credit allocated to each building in the development.
Please note that two or more qualified buildings may be included in a multiple building development only if they are:
- Located on the same tract of land (including contiguous parcels), unless all of the dwelling units in all of the buildings being aggregated in the multiple building development are rent-restricted units;
- Are owned by the same person for federal tax purposes;
- Are financed under a common plan of financing; and
- Have similarly constructed housing units.
LIHTC Compliance and Calculation Issues
There are a number of issues to consider. Some of the bigger issues include meeting the minimum set-aside, dealing with tenant transfers, and calculating income limits.
Every LIHTC development must meet the minimum set-aside test. If a property owner divides an LIHTC development into multiple developments (i.e., by selecting “no” on line 8b), then each development must meet the minimum set-aside test on its own. This has the potential to be an issue in mixed income developments.
- Choosing “yes” on line 8b: Some buildings can be below the minimum set-aside as long as the entire development (all buildings in the aggregate) meets the minimum set-aside.
- Choosing “no” on line 8b: Each building must meet the minimum set-aside on its own.
Tenants often request to transfer between buildings. In general, the IRS requirements regarding certifications when tenants transfer within and between buildings are as follows:
- Choosing “yes” on line 8b: Tenants are allowed to transfer between buildings within the same LIHTC development if the tenants meet the income requirements. A new income certification is not required by the IRS for transfers between buildings.
- Choosing “no” on line 8b: If a tenant transfers to a different building, the tenant is treated as moving out of one development and moving into a new development and must be income qualified. If each building is a separate development, tenants over the income limit will not be able to transfer between the buildings.
Because the U.S. Department of Housing and Urban Development (HUD) discontinued its hold-harmless policy, income limits for counties can decrease from year to year. However, for LIHTC developments, the income limit can never be less than it was for the development in the previous year. This is commonly called the multifamily tax subsidy development (MTSP) hold-harmless policy. The MTSP hold-harmless policy starts when a development is placed in service and is determined on a development by development basis:
- Choosing “yes” on line 8b: The MTSP hold harmless for the income limit for all buildings in the development is determined by the date the first building was placed in service.
- Choosing “no” on line 8b: The MTSP hold harmless limit for each building is determined by the date each building was placed in service.
Is the 8b Election Irrevocable?
The short answer is that the election is not irrevocable, but it is difficult to change the election once made. The election is made when the IRS Forms 8609 are filed with the IRS’ Philadelphia office. The IRS had previously issued a series of private letter rulings that allowed taxpayers to change their answer from “no” to “yes” on line 8b.
It is important when operating an LIHTC development that owners and managers understand the ramifications of line 8b on IRS Form 8609. Property managers and asset managers need to understand how line 8b was answered, and the development team needs to plan ahead and discuss how to best answer line 8b.
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