News

Recent Court Decision Confirms that a Right of First Refusal is Not an Option to Purchase

A recent New York court case has affirmed that a non-profit s Right of First Refusal ("ROFR") is not an option to purchase a Low-Income Housing Tax Credit (LIHTC) property. The Case Riseboro Community Partnership, Inc., formerly known as Ridgewood Bushwick Senior Citizens Council, Inc., v. SunAmerica Housing Fund (SHF) 682, a Nevada Limited Partnership; SLP Housing I LLC; and 420 Stockholm Street Associates, LP Introduction to the Case The case is a basic disagreement over the meaning of a "right of first refusal" ("ROFR") held by the Plaintiff to purchase an affordable housing property in Brooklyn, NY. The property was developed under the LIHTC program.The court limited all parties' initial briefing to the issue of the meaning of the ROFR granted to Plaintiff.The court held that the Plaintiff s ROFR operates by its definition under New York common law and is not an option to purchase the subject property. Background The defendant (420 Stockholm Street Associates, LP) is a limited partnership formed under the laws of the State of New York in 1998.Riseboro, a non-profit entity, is not part of the partnership, but the agreement governing the Partnership grants Riseboro the ROFR central to the dispute.The LIHTC program makes clear, in the provision central to this dispute, that a taxpayer will not be deprived of its tax benefits merely by a non-profit entity holding a "right of 1st refusal" to purchase an affordable housing property. The exact wording in 42 (i)(7) is:No federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified low-income building merely by reason of a right of 1st refusal held by a qualified nonprofit organization to purchase the property after the close of the compliance period for a price which is not less than an amount equal to the sum of -The principal amount of outstanding indebtedness secured by the building andAll Federal, State, and local taxes attributable to such sale.The minimum purchase price arrived at using the formula stated above will very likely be less than market value.Section 42(i)(7) recognizes the possibility - and, it is only a possibility - that were a nonprofit entity to hold a ROFR to purchase an affordable housing property at below-market value, the IRS could deem the non-profit entity the "true owner" of the property under the so-called "economic substance doctrine." If the IRS were to conclude that the non-profit ROFR-holder was the "true owner" of the property, it could limit, disallow, or redirect the flow of LIHTC Program tax credits.If the flow of tax credits were to dry up, this would remove the incentive to for-profit entities investing in affordable housing. Section 42 (i)(7) protects against this result.At the core of the dispute is a section of the 1999 Partnership Agreement, which states: "Right of First Refusal. On and after the end of the 15 year Compliance Period, [Riseboro] or its designee, if it is at that time a qualified nonprofit corporation, shall have a right of first refusal to purchase the Apartment Complex for the price equal to the sum of:The principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5 years ending on the date of the sale;All Federal, State, and local taxes attributable to such sale and to any amounts paid pursuant to subsection (iii) hereof; andAny amounts of a Tax Credit shortfall which have not been paid.The 1999 Agreement states that it "shall be construed and enforced in accordance with the law of the State [of New York]. The Litigation In November 2015, after the Compliance Period expired, Riseboro notified the General Partner that it would soon exercise the ROFR.In response, the Partners asserted that because investor consent was required for the Partnership to sell the Apartment Complex and the Partnership was not interested in selling, Riseboro could not exercise its ROFR.Three years later, in February 2018, Stockholm sought to transfer ownership of the complex to Riseboro, its corporate parent, under the partnership agreement but met with the same result: counsel for SHF and SLP indicated that their clients did not consent to sell the property. - The litigation followed. Discussion Riseboro asked the court to hold that there were no conditions precedent to it exercising its ROFR, and that it may exercise its ROFR at any time after the Compliance Period has ended. In other words, Riseboro contended that its ROFR is, in fact, an option to purchase.The defendants countered that Riseboro may exercise its ROFR only after two conditions are satisfied: (1) the Partnership must be willing to sell; and (2)a third party must have made a bonafide offer to buy.The language in the partnership agreement was "unambiguous," and the language of a contract is not made ambiguous simply because the parties urge different interpretations.Under New York law, contracts are "construed in accord with the parties intent," and "the best evidence of what the parties to a written agreement intend is what they say in their writing," which here is the 1999 Partnership Agreement. New York Law "Right of first refusal" is a legal term of art with a well-established definition in New York. A ROFR "requires an owner, when and if he decides to sell, to offer the property first to the party holding the preemptive right so that he may meet a third-party offer or but the property at some other price set by a previously stipulated method."A "ROFR does not give its holder the power to compel an unwilling owner to sell." Rather, a ROFR restricts "the power of one party to sell without first making an offer of purchase to the other party upon the happening of a contingency: the owner s decision to sell to a third party."A ROFR thus "binds the party who desires to sell not to sell without first giving the other party the opportunity to purchase the property at a specified price."A ROFR stands in contrast to an "option" to purchase, which may be triggered unilaterally, even against the owner s unwillingness to sell at the time the option-holder invokes the option.The court was not persuaded by the Riseboro argument that they had a unilateral right - or "option" - to purchase the property regardless of the owner s willingness to sell or the availability of a good-faith third party purchaser. The Context of 42 and Other Terms in the 1999 Agreement "Right of first refusal" is a common-law term, and Congress is "presumed unless the statute otherwise dictates" to have incorporated its common-law meaning.The court stated - "It is a settled principle of interpretation that absent other indication, Congress intends to incorporate the well-settled meaning of the common-law terms it uses."The presumption that Congress incorporated the common law meaning of ROFR is confirmed by the legislative history of 42(i)(7). Where this section refers to "right of first refusal," a pre-enactment draft of the bill originally used the term "option." The House Report on the law makes clear that when Congress made this change, it grasped the difference between "option" and "right of first refusal," stating:The bill provides that any determination as to whether Federal income tax benefits are allowable to a taxpayer for a qualified low-income building shall be made without regard to whether the tenants are given the right of first refusal to purchase the building, for a minimum purchase price, should the owner decide to sell (at the end of the compliance period).H.R. Rep. No. 101-247 supports the conclusion that Congress "understood that a right of first refusal - in contrast to an option to purchase - could not be exercised unilaterally by the holder." This change and the explanation given in the House Report is a clear indication, not "shoddy evidence" as Riseboro suggested, that 42(i)(7) refers to common law ROFR.Riseboro also took the position that no third party in their right mind would go through the process of making an offer to purchase knowing that an entity with a ROFR purchase price set below fair market value will very likely exercise its superior purchase right.The court agreed that Riseboro may be right that a third party offer is unlikely, but the conclusion that this leads to a senseless statute or contract provision is wrong. Regardless of whether a third party offer materializes, the fact that Riseboro holds a ROFR secures its right to purchase the property at the stated price. The partnership need not wait for a third party offer before it offers the property to Riseboro at the stipulated price.In the event the Partnership attempts a sale to a third-party without first offering the property to Riseboro, the ROFR provides a contractual basis for Riseboro to defeat such a sale. Conclusion The partners granted Riseboro a right of first refusal, not an option. This case is another strong indicator that unless a partnership attempts to sell a LIHTC property to a third party purchaser, a non-profit with a ROFR has no right to invoke the ROFR and force a sale.

Helping Older Adults Age Safely in Place

With the aging of the U.S. population, the number of older adults living if affordable housing is growing and the average age of residents is increasing. Assisting residents to age in place safely is good for both property owners and residents. People typically want to live independently for as long as possible and stable tenancy reduces operational costs. However, as older adults age and their ability to live on their own changes, the features and configuration of their home can present challenges to living safely. Simple modifications can improve the comfort and safety of older persons, allowing them to live on their own much longer. Home modification refers to converting or adapting the environment to make it easier for older adults (or people with disabilities) to manage basic activities more easily and more safely. For many, the term "home modification" leads to images of structural modifications, such as converting tubs to roll-in showers or widening doorways. But, modifications can be as simple as installing tub benches, rearranging furniture, fixing uneven flooring, or improving lighting. Many simple, low-cost modifications can make a huge difference to the health and safety of older adults. Modifications that the Residents May Make Residents themselves can make many changes to their living environment to immediately improve the quality of their lives, including - Remove clutter from the floor and increase storage;Secure cords to walls or floors;Remove or secure throw rugs with gripper pads or gripper tape;Mark uneven thresholds with contrasting tape or paint;Install nightlights in the bedroom and bathroom;Stick motion sensor LED lights on baseboards;Purchase a shower seat, place adhesive anti-slip treads on shower or tub floors; andAdd seating to the bedroom to assist with dressing and in the kitchen for cooking prep. Low-Cost Improvements that Site Staff can Make Replace knob style door and faucet handles with lever style handles;Securely install grab bars around tubs, showers, and toilets and raise toilet seats;Install adjustable hand-held shower heads and anti-scald water devices;Replace bulbs with bright, non-glare lighting;Replace traditional light switches with rocker switches; andInstall double hinges to widen doorways (this can widen doorways by up to two inches). Still more improvements may be made by professional installers - if permitted by project budgets. These include - Widen the frames of entryways and doorways;Remodel bathrooms to include a shower with supports and no threshold;Install slip resistant flooring in bathrooms; andCreate level flooring by removing thresholds and other uneven areas. Home Modification & Fall Prevention Increasingly, research is showing that, in addition to helping older adults live more comfortably and independently, home modifications (including home hazard removal) can reduce the fall risk for individuals. It is estimated that one in four older adults falls each year, with more than half of all falls occurring in the home. Injurious falls can force people to move to institutional settings. Home modifications can reduce fall risks and may promote longer residency in traditional apartments, and less unit turnover. Multifamily Owners Responsibility for Modifications Owners of HUD and Rural Development-Assisted multifamily housing are subject to Section 504 of the Rehabilitation Act of 1973, which provides rights to people with disabilities in federally-funded programs. Under Section 504, owners have a responsibility to provide reasonable accommodations to residents with disabilities who need such accommodations to be able to participate fully in the housing. While the Fair Housing Act requires all owners to provide such accommodations, Section 504 requires that owners pay the cost of home modifications - unless it is unreasonable to do so. Resources to Assist with Home Modification Increasingly, programs and funding are available to help renters modify their home environments to support independent living. Service coordinators can help residents of HUD multifamily housing access these resources, and owners of conventional properties (including the Low-Income Housing Tax Credit) can provide information on these resources to residents. Some of the best resources follow: Area Agencies on Aging (AAAs), Aging and Disability Resource Centers (ADRCs), and Centers for Independent Living (CILs). These agencies maintain information and resources on home accessibility and available programs to finance home modifications. The programs are funded by the U.S. Administration for Community Living (ACL). To find the AAAs and ADRCs in your area, visit the eldercare locator website (https://eldercare.acl.gov/) or call 1-800-677-1116.The Department of Veteran s Affairs offers Home Improvement and Structural Alteration grants to veterans and service members for medically-required home modifications. Renters are eligible for the grants if they have a signed and notarized statement from the property owner authorizing the improvement or structural alteration.Many communities offer comprehensive home modification programs, often operated through nonprofit organizations, that help older adults determine the environmental modifications they need and then carry out the modifications free of charge. Some of these programs include a visit from an Occupational Therapist or Nurse to ensure the modifications meet the needs of the resident and are part of a comprehensive approach to helping the resident live independently. The www.homemods.org website provides a directory of home modification and repair programs by state.Medicare Advantage Plans may pay for home safety inspections conducted by a qualified health professional and safety devices, such as shower stools, hand-held showers, grab bars, and raised toilet seats, to prevent home injuries.Medicaid home and community based services provide opportunities for Medicaid recipients to receive services in their own home or community rather than institutions or other isolated settings.When prescribed by a doctor, or as part of a discharge plan when returning from a hospital stay, residents may receive in-home visits form an occupational therapist, physical therapist, or nurse. During these visits, the professionals often identify specific equipment and environmental modifications that residents need for safety and independence. HUD encourages service coordinators to work with the health professionals (and residents) to ensure the residents needs are met. Owners of properties for older persons would do well to become familiar with the resources available to assist resident in remaining independent in their homes. This is good for the emotional and physical well-being of the residents as well as the financial well-being of the properties.

A. J. Johnson to conduct a webinar on Interviewing Skills for Affordable Housing Managers.

A. J. Johnson will be conducting a webinar on October 7, 2020, on Interviewing Skills for Affordable Housing Managers. The Webinar will be held from 1 PM to 4 PM Eastern. One of the most important skills any affordable housing manager can possess is the ability to interview applicants and residents and obtain the information required to determine eligibility - this is also one of the greatest weaknesses of most affordable housing managers. This training has been developed to address that weakness. This half-day session focuses on the interview process and provides concepts and tools that will aid managers as they conduct their interviews. Techniques apply to all interview settings including initial eligibility interviews, interim certifications, and annual recertifications, and will provide tips for successful "virtual" interviews. The primary emphasis is on the initial eligibility interview since it is so critical to the housing process. The skills taught during this session will also assist managers in detecting fraud and in dealing with third parties when resolving discrepancies. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."

A. J. Johnson to Host Webinar on Critical Policies for Affordable Housing Developments

A. J. Johnson will be conducting a webinar on October 6, 2020, on Critical Policies for Affordable Housing Developments. The Webinar will be held from 10 AM to 3 PM Eastern. As important as it is to understand the technical requirements of compliance for affordable housing programs, it is equally as important to have sound operational policies in place. This 5-hour training reviews the critical operating and liability policies that every affordable housing property should have. A full discussion of the following policies is included: Management Plans, Property Policies (House Rules), Resident Transfer Policies, Waiting List Management, Sexual Harassment Policy, Criminal Screening, Reasonable Accommodations, VAWA, and Fraud Prevention & Detection. The training concludes with a discussion of the special issues relating to "layered" projects. The training is intended for site staff as well as supervisory and compliance personnel. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."

A. J. Johnson to Host Webinar on Management of Rural Development Section 515 Properties

A. J. Johnson will be conducting a webinar on October 8, 2020, on The Management of Rural Development Section 515 Properties. The Webinar will be held from 9 AM to 3 PM Eastern. This full-day course outlines the basic requirements of the Rural Development Section 515 Program, with particular emphasis on combining the Section 515 program with the federal Low-Income Housing Tax Credit. The training provides an overview of Section 515 Program regulations, including rent rules, resident eligibility, income restrictions, waiting list management, and recertification requirements. The session will also include a discussion of management/tenant relations - including tips on how to deal with difficult residents. The course includes a detailed discussion of combining Section 515 and tax credits, focusing on occupancy requirements and rents, tenant eligibility differences, handling over-income residents, and monitoring requirements. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."

Justice Department Settles Accessibility Case with Major Developer

The Department of Justice (DOJ) and the U.S. Attorney for the Southern District of Ohio announced on July 28, 2020, that the owners, developers, and builders of 82 multi-family housing complexes have agreed to make extensive modifications to their properties and pay $475,000 to resolve claims that they violated the Fair Housing Act (FHA) and the Americans with Disabilities Act (ADA) by designing and constructing apartment complexes that are inaccessible to persons with disabilities. This agreement in the case of the United States of America v. Miller-Valentine Operations, et al resolves one of the largest housing accessibility lawsuits the DOJ has ever filed. The housing complexes at issue are located in Illinois, Indiana, Iowa, Kansas, Kentucky, Missouri, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, and West Virginia, and contain more than 3,000 units that are required to have accessible features. Under the terms of the settlement, the defendants must take extensive corrective actions to make the complexes accessible to persons with disabilities. These include replacing excessively sloped sidewalks, installing properly sloped curb ramps, providing sufficient room for wheelchair users in bathrooms and kitchens, and removing accessibility barriers in public and common use areas. The settlement also requires the defendants to receive Fair Housing and ADA training, to take steps to ensure that their future developments comply with the laws, and to provide periodic reports to the DOJ. Many of the complexes were built under the Low-Income Housing Tax Credit (LIHTC) program. The case indicates the importance of adhering to federal requirements relative to the design of apartment communities in so far as the requirements relate to accessibility. All owners should review the design of their properties to ensure compliance with the accessibility requirements of the Fair Housing Amendments Act of 1988. These requirements apply to covered housing that was built for first occupancy on or after March 13, 1991.

CDC Issues Emergency Order Halting Residential Evictions

On September 4, 2020, the Centers for Disease Control and Prevention (CDC) published an Agency Order for a Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19. This order is issued under Section 361 of the Public Health Service Act and applies to all residential rental properties in the United States. Background The virus that causes COVID-19 spreads very easily and sustainably between people who are in close contact with one another (within about six feet), mainly through respiratory droplets produced when an infected person coughs, sneezes, or talks. COVID-19 presents a historic threat to public health. In response to this threat, Federal, state, and local governments have taken unprecedented actions, including border closures, restrictions on travel, stay-at-home orders, mask requirements, and eviction moratoria. Despite these efforts, COVID-19 continues to spread and the CDC believes that more aggressive action is needed. Eviction moratoria facilitate self-isolation by people who become ill or who are at risk for severe illness from COVID-19 due to an underlying medical condition. They also allow State and local authorities to more easily implement stay-at-home and social distancing directives to mitigate community spread of COVID-19. Such moratoria also reduce homelessness by limiting the number of persons that will be forced into homeless shelters or other congregate settings. Applicability of the Order Under this Order, a landlord, owner of a residential property, or another person with a legal right to pursue eviction or similar action, shall not evict any covered person from any residential property in any jurisdiction to which the order applies. This order does not apply to any jurisdiction with a moratorium on residential evictions that provides the same or greater level of public-health protection than the requirements provided in this Order. The Order also does not apply to American Samoa, which has reported no cases of COVID-19. The Order is a temporary eviction moratorium and does not relieve any individual of any obligation to pay rent, make a housing payment, or comply with any other obligation that the individual may have under a tenancy, lease, or similar agreement. The order also does not preclude landlords from collecting fees, penalties, or interest as a result of the failure to pay rent or other housing payments when due. The order does not include foreclosure on a home mortgage, nor does it include hotels, motels, or other guest house rented to a temporary guest or seasonal tenant. Renter s or Homeowner s Declaration The Order includes an attachment ("Declaration Form") that tenants, lessees, or residents of residential properties who are covered by the CDC s Order may use to claim the protection. To invoke the CDC s order these persons must provide an executed copy of the Declaration form (or a similar declaration under penalty of perjury) to their landlord. Each adult listed on the lease must complete a declaration. This order is in effect - unless extended - through December 31, 2020. Tenants may be evicted for reasons other than payment of rent or making a housing payment. In order to avail themselves of this protection, residents must provide a declaration under penalty of perjury indicating that: The individual has used best efforts to obtain all available government assistance for rent or housing;The individual either (i) expects to earn no more than $99,000 in annual income for calendar year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the IRS, or (iii)  received an Economic Impact Payment (stimulus check) pursuant to the CARES Act.The individual is unable to pay the full rent or housing payment due to substantial loss of income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;The individual is using best efforts to make timely partial payments that are as close to the full payment as the individual s circumstances permit, taking into account other nondiscretionary expenses; andEviction would likely render the individual homeless - or force the individual to move into and live in close quarters in a new congregate or shared living setting - because the individual has no other available housing options. This Order goes well beyond the eviction moratorium under the CARES Act, which only protected renters living in federally assisted properties, and increases the number of protected persons by 30-40 million. Criminal Penalties Under 18 U.S.C. 3559, 3571; 42 U.S.C. 271; and 42 CFR 70.18, a person violating this order may be subject to a fine of no more than $100,000 if the violation does not result in death or one year in jail, or both, or a fine of no more than $250,000 if the violation results in a death or one year in jail, or both, or as otherwise provided by law. An organization violating this order may be subject to a fine of no more than $200,000 per event if the violation does not result in death or $500,000 per event if the violation results in death. Summary This Order applies to all landlords - not just those with some type of federal assistance at their property. While the order does not waive or forgive in any way rent that may be owed, or the collection of any fees relating to that rent, it also provides no relief to landlords relative to cash flow shortfalls as the result of the failure of residents to pay rent. For this reason, landlords should familiarize themselves with any local, State, or Federal assistance that may help in offsetting the loss of income due to non-payment of rent. Also, landlords are not required to inform residents of this Order, nor are they required to inform residents of the steps that must be taken in order to request the relief afforded by this Order. Finally, residents are not entitled to the relief granted by this Order unless they provide the Declaration of need, as outlined in the Order.

Claiming Credit Without an 8609 - Impact of the Centralized Partnership Audit Regime

The Bipartisan Budget Act of 2015 created the Centralized Partnership Audit Regime (CPAR). This created a new process for amending or making changes to certain federal partnership tax returns for effective years beginning after December 31, 2017. As a result, most partnerships (including those owning LIHTC projects) are no longer allowed to amend a tax return after its extended due date. Instead, a partnership will do an Administrative Adjustment Request (AAR). In the past, if 8609s were delayed, tax returns were amended and credit was claimed in the applicable tax year. Under CPAR, the investor will have to claim the credit on the tax return for the year in which the AAR is filed. For example, a partnership placed buildings in service during the 2018 tax year and intended to claim credits in 2018. However, the state did not issue 8609s until January 2020 and the extended due date for the 2018 return was September 15, 2019. Under prior law, an amended 2018 return would have been filed to offset 2018 taxes. Under CPAR, the credit is claimed on the 2020 return, delaying the tax benefit by two years. The investor response in these cases may be to impose a penalty on the general partner (GP) and reduce equity. Issuing an 8609 even one day after the return due date will have this effect. Because of this new rule, some investors are examining the risk of claiming credit before issuance of the project 8609s. There is most definitely risk associated with claiming credit before credit has been allocated (the 8609 is the Allocation Form). However, there may be circumstances where the claiming of credit before receipt of an 8609 may be possible. There are several problems with claiming credit without an 8609, beginning with the preparation of the 8609-A. Line C of this form asks whether the taxpayer has the original 8609 in his or her records. If answered "no," the IRS may follow up for clarification, with the assumption that the property is subject to credit disallowance. IRS Chief Counsel Advisory 200137004 stated that once a Form 8609 is issued by an HFA, taxpayers may file amended returns to claim credit for taxable years prior to the year in which the Form 8609 was issued. However, the ability to do this has been impacted by the current tax rules. This same CCA includes two examples of when the credits may be disallowed due to the lack of an 8609. Unless it is shown that claiming credit without the first-year certification is due to "reasonable cause" and not to willful neglect, no credit is allowable for any year before the issuance of the 8609. The Code does not provide examples of "reasonable cause," but in United States v. Boyle, the court said that the taxpayer bears the heavy burden of proving both (1)that the failure did not result from willful neglect, and (2) that the failure was due to reasonable cause Congress intended to make the absence of fault a prerequisite to avoidance of the late filing penalty. A taxpayer must, therefore, prove that his failure to file on time was the result neither of carelessness, reckless indifference, nor intentional failure." Treasury Regulation 301.6651-1(c)(1) provides that, to demonstrate "reasonable cause," a taxpayer filing a late return must show that he "exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time." In the context of claiming credit without an 8609, the taxpayer would be expected to show that they exercised ordinary business care and prudence in determining its tax obligations but is unable to comply with those obligations. Guidance from the IRS regarding claiming credits without an 8609 indicates that the following questions would be asked: 1. How long after the end of the first year of the credit period did the taxpayer receive the Forms 8609 from the HFA? 2. How many years has the taxpayer claimed credit without completing the 8609? 3. How did the taxpayer answer question C on the Form 8609-A filed with the tax returns? 4. Did the taxpayer encounter other difficulties while noncompliant with 42(1)(1) certification requirement, and how were the problems resolved? 5. What reason did the taxpayer give for the delay? To show reasonable cause, the dates and explanations should clearly reflect efforts to timely resolve the problems and expeditiously obtain the Forms 8609 from the HFA. 6. Did the taxpayer know or make reasonable attempts to determine the Code certification requirements? 7. Is the GP a professional specializing in the development and management of 42 properties? 8. Did the taxpayer make a mistake that delayed issuance of the 8609s? Generally, errors do not provide a basis for reasonable cause, but additional facts and circumstances may support such a determination. Forgetfulness, oversight, or reliance upon another person does not support a determination of reasonable cause. 9. Death, serious illness, or unavoidable absence of the taxpayer may establish reasonable cause. Consider the relationship of the responsible party to the partnership; the dates, duration of the illness or absence; how the even prevented compliance; whether other business obligations were impaired; and whether the noncompliance was remedied within a reasonable period after a death or absence. The taxpayer bears the burden of demonstrating that the failure did not result from willful neglect and that there was a reasonable cause for failing to complete the 8609 before the due date of the first tax return on which credit was claimed. A taxpayer may argue that delays were caused by the state agency responsible for completing the 8609s. A taxpayer is not subject to credit disallowance or recapture because an HFA failed to timely provide executed Forms 8609 (see IRS Audit Technique Guide, page 4-7). The evaluation should be made based on the individual facts and circumstances of the case and the taxpayer s actions. The issue is whether there is a "reasonable cause" for any delays caused by the taxpayer and whether the taxpayer s failure resulted from willful neglect. So, while a taxpayer may decide to claim the credit without a signed and filed 8609, they should be prepared to affirmatively defend the decision if challenged by the IRS. It would seem that if the taxpayer can show that the HFA unreasonably delayed issuance of the 8609 - through no fault of the taxpayer - the affirmative defense test would be met. However, this is by no means an absolute, and if it is determined that the taxpayer could not establish a reasonable cause for the failure to provide the first year certification (i.e., 8609) prior to claiming credit, the IRS will disallow prior credit and consider the imposition of penalties under IRC 6701. A better option is to work closely with the HFA to ensure timely provision of the 8609s.