News

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.

Court Decision Restates Owner's Right to Information Relating to Accommodation Request

A recently decided Indiana case once again makes it clear that landlords have the right to request certain information to determine that an accommodation request for a disabled person is both reasonable and necessary due to the disability of the applicant or resident. In Furbee v. Wilson, 2020 Ind.App. LEXIS 122, March 2020), the court ruled in favor the landlord with regard to the request for an assistance animal. Facts of the Case Despite a community s no pet policy, a resident requested to have a cat as a support animal.The resident provided a letter from a licensed therapist stating that the resident was disabled and needed an emotional support animal to alleviate her symptoms.The letter did not identify any disability or symptoms.The community requested more information from the resident, which the resident failed to provide.The resident brought the cat into the unit and was evicted for doing so.The resident filed a complaint with the state civil rights commission, which sued the community for failing to accommodate the resident s request for the support animal in violation of state fair housing law.The community requested judgment without trial which was refused by the court.The community appealed. Decision In March 2020, the Indiana appeals court reversed the lower court, ruling that the fair housing case against the community should be dismissed. Reasoning Fair housing law does not require that housing providers immediately grant all accommodation requests.Before a community can decide on a resident s request for accommodation, it is entitled to conduct a "meaningful review" to determine whether the accommodation is required.This review may include requesting documentation and opening a dialogue (the "interactive process.")In this case, the community requested more information, but the resident did not respond.By not providing the community with information about her disability and disability-related need for the accommodation, the resident caused a breakdown in the process.Without this basic information, the community could not conduct a complete review of the resident s request for the support animal.Based on this, the court stated that the community was entitled to judgment without trial. The Takeaway While owners must grant reasonable accommodations to disabled residents when necessary for the resident to have full use and enjoyment of the property, and it is reasonable to do so, owners do have the right to request additional information when the need for the accommodation is not obvious.  In this case, while the therapist did state that the resident was disabled and an animal could ease the symptoms of the disability, the letter did not identify any disability. In this case, since the landlord was unaware of the tenant s disability, it had the right to request more information demonstrating a clear relationship between the disability and the need for the accommodation - i.e. the support animal. The overriding issue in this decision was the failure of the tenant to participate in the interactive process, thus creating a "breakdown in the process." Based on the facts, this case could have gone either way, but it does indicate that landlords have the right to request the information needed to make an informed decision as to whether or not to grant an accommodation.

Mandated Mask Wearing in Apartments Must be in the Form of a Written Policy

More and more apartment owners and managers are considering mandating the wearing of masks for residents, guests, and others in common areas of apartment communities. While such a policy makes good sense from a public health perspective, it cannot be implemented arbitrarily or on an ad hoc basis. Even federally assisted properties such as HUD or Rural Development are allowed to require residents to wear face coverings at the property and may treat a resident s failure to do so as a lease violation - as long as modifications to the lease or property policies have been made. While no property is required to have policies outside the actual lease itself, it is a good idea to do so. But, such policies must be attached as a lease addendum and should be maintained in the file of each resident. These policies generally outline specific conduct required of all residents, in more detail than would generally be in the lease itself. Typical items in property policies include issues relating to safety, noise, pest management, pet rules, car washing, security, and trash disposal. House rules relating to face coverings should be reasonable and consistent with state and local law as well as public health guidance. The latest HUD update to its COVID-19 guidance says changes to property policies - or "house rules" as HUD calls such policies - may be sent to the local HUD office or Performance-Based Contract Administrator (PBCA) for review. While approval of these policies is not something that normally must be sought from HUD or the PBCA, they can guide whether the proposed rule violates any HUD statutory, regulatory, or programmatic requirements. At HUD properties, owners and agents (O/As) must notify existing tenants, who have completed their initial lease terms, of modifications to house rules 30 days prior to implementation. Tenants who have not yet completed their initial lease terms must be notified 60 days prior to the end of their lease (see HUD Notice H2012-22). Failure to comply with a site s face covering requirements may be treated as a lease violation only if the policy is reasonable and consistent with state and local law and directives. Also, the house rules must be identified in the lease as an addendum or attachment to the lease. While the wearing of face masks may be mandated, there are several requirements that may not be made of residents. For example, owners may not require tenants to take a health or medical test and disclose results. Landlords may certainly encourage, but not require, tenants, to get testing and disclose the results. From a public health perspective, there is little doubt that the wearing of face masks assists in preventing the spread of COVID-19, and requiring it in common areas of apartment communities is sound policy. But, as noted here, it must be done according to state and local law, and for HUD properties, following HUD guidelines.

HUD Updates COVID-19 Guidance

The Department of Housing & Urban Development (HUD) recently updated its "Frequently Asked Questions (FAQs) for subsidized multifamily housing programs to encourage owners to take certain longer-term actions and to address specific issues such as mask-wearing and accounting for enhanced unemployment benefits provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This new guidance encourages owners but does not give a great deal of permission relating to what can be done. For this reason, owners should tread lightly and consult counsel when implementing any of the HUD suggestions. Enforcement of COVID-19 Restrictions HUD provides some suggestions on how to respond if a resident contracts COVID-19. There is more emphasis on recommending that landlords contact local authorities in the event a resident is known or suspected to have COVID-19. HUD is neither sanctioning nor prohibiting testing or face coverings, mandatory or otherwise, but notes that landlords should be guided by state or local law.HUD advises that if owners want to take mandatory measures that could be enforced as lease violations, they should do show through changes to house rules (which do not require HUD approval).Notice 20-12 reminds owners that house rules should be "within the bounds of common sense" and that owners must provide a 30-day notice (60-days for tenants during the initial term of their lease) when revising house rules. Impact of COVID-19 Relief Payments on Tenant Income The FAQ has been updated to provide detail on how unemployment assistance affects tenant income. There are several types of unemployment benefits provided by the CARES Act, and different rules apply to different benefits.Federal Pandemic Unemployment Compensation (FUPC) is regarded as temporary income and not included in annual income calculations for purposes of determining rent subsidies. The FUPC has been the program that allowed recipients collecting state unemployment insurance to receive an additional $600 per week through July 31, 2020.However, owners must include in income the Pandemic Unemployment Assistance (PUA), the unemployment benefit for self-employed or part-time workers, as well as the Pandemic Emergency Unemployment Compensation (PEUC), providing a 13-week extension of regular unemployment benefits. Mortgage Forbearance & Eviction Moratorium In addition to the well-known 120-day eviction moratorium that expired on July 25, 2020, the CARES Act also included an eviction moratorium on properties that took advantage of its mortgage forbearance provisions.If an owner is receiving mortgage forbearance under the CARES Act - including extensions - an eviction moratorium must be given to the tenants.The forbearance protection for tenants also applies if an owner is able to obtain mortgage forbearance outside of the CARES Act. Oversight Management Occupancy Reviews (MORs) are resuming, but they do not require entering units. The requirement to enter units is suspended until September 30.While HUD has generally extended the deadline for filing audits until September 30, audits that were delinquent as of March 20, 2020, are still considered delinquent.Entities with June 30 year-ends must file audits within 90 days (September 30).Concerning loan production and related inspections, HUD will permit lenders to submit a sampling of units that is less than that prescribed by the MAP Guide until September 30 or sooner if the COVID-19 National Emergency is lifted.The guidance from Notice 20-4 regarding electronic signatures continues, allowing certain electronic signatures, consistent with local laws. Documents converting personal information must be encrypted. Multifamily loan closings must have original signatures, but copies can be scanned and sent electronically. HUD continues to regularly update the COVID-19 guidance and multifamily owners should be alert for additional changes.

September 1 Webinar on Income Calculation & Verification

A. J. Johnson will be conducting a webinar on September 1, 2020, on Calculation and Verification of Income at Affordable Housing Properties. The Webinar will be held from 1:00 PM to 3 PM Eastern Time. A critical aspect of every affordable housing manager's job is the determination of income for applicants and residents. This two-hour training covers how income is defined for virtually all affordable housing programs, including the LIHTC, Section 8, HOME, and Rural Development programs, and provides guidance on how to both calculate and verify various types of income. Specific instruction is included for employment income, military pay, pensions and Social Security, self-employment, and child support. A full discussion of how household membership impacts the income determination will be included, as well as a review of the basic rules regarding the calculation of income. This section features guidance on using year-to-date information when projecting income. The course concludes with practice problems to ensure a full understanding on the part of the student and there is plenty of time for Q&A. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training."

Executive Order Does Not Extend Eviction Moratorium

I have received a number of questions from clients lately expressing confusion with regard to whether tenants in certain federally assisted properties are still protected from eviction due to non-payment of rent. The CARES Act moratorium on evictions for non-payment of rent expired on July 24, 2020, and on August 8, President Trump issued an executive order that he indicated would provide eviction protection for residents in federally assisted housing. The order directs a number of federal agencies, including HUD and the Department of Treasury, to consider actions to prevent eviction and foreclosure. It requires the secretaries of HUD and Treasury to identify any available federal funds that could be used to provide temporary financial assistance to renters due to the pandemic. Specifically, the CARES Act provided a 120-day eviction moratorium for renters who received federal housing assistance, renters in properties with federally backed mortgages, and residents in LIHTC properties. Between 30 and 40 million people could be at risk of eviction over the next few months without an extended moratorium. Trump s executive order does not extend the moratorium. Instead, it directs executive branch officials to think about possible solutions, rather than actually impose or extend the moratorium. Here are the key provisions of Trump s executive order: It directs the Treasury and HUD Secretaries to identify federal funds that can be applied to "temporary financial assistance to renters and homeowners;"It directs the Secretary of Health & Human Services and the Director of the Centers for Disease Control and Prevention to "consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary;" andIt directs the Director of the Federal Housing Finance Agency (FHFA) to identify "resources that may be used to prevent evictions and foreclosures for renters and homeowners" caused by the pandemic. As an independent agency, it is unclear whether the President can direct the FHFA to do anything. The executive order contained no deadlines for action and is essentially a political document - not an order to extend the eviction moratorium. Unless governed by state or local law, affected landlords are not prevented from moving to collect the rent that became due during the 120-day moratorium and to take action against residents who fail to pay.

A. J. Johnson Partnering with Mid-Atlantic AHMA - Webinar on Preparing Affordable Housing Projects for Physical Inspections

A. J. Johnson is partnering with the Mid-Atlantic Affordable Housing Management Association (Mid-Atlantic AHMA) in offering a webinar on Preparing Affordable Housing Properties for Agency Required Physical Inspections. The webinar will be live and will be held on August 26 from 9 AM to 1 PM (Eastern Time). Agency inspections of affordable housing properties are required for all affordable housing programs, and failure to meet the required inspection standards can result in significant financial and administrative penalties for property owners. This four-hour training focuses on how owners and managers may prepare for such inspections, with a concentration on HUD REAC inspections and State Housing Finance Agency inspections for the LIHTC program. Specific training areas include (1) a complete discussion of the most serious violations, including health & safety; (2) how vacant units are addressed during inspections; (3) when violations will be reported to the IRS; (4) the 20 most common deficiencies; (5) how to prepare a property for inspection; (6) strategies for successful inspections; and (7) a review of the most important Uniform Physical Conditions Standards as they relate to the five inspectable areas [site/doors & windows/electrical/building exterior & systems/Units & Common Area]. Also, an update on the current status of REAC will be presented as will a discussion of the new "NSPIRE" protocol, that will ultimately replace the current REAC procedures. At the end of the training, attendees will have a blueprint they can use to prepare their properties for agency required physical inspections - regardless of the program under which they operate. For information on these webinars or other training offerings by A. J. Johnson Consulting Services, please visit our website (www.ajjcs.net) and click on training.

New HUD Rule Eliminates Fair Housing Act Requirement to Affirmatively Further Fair Housing

On Friday, August 7, 2020, HUD announced its new "Preserving Community and Neighborhood Choice" rule (85 Federal Register 47899) - (the "Choice Rule"), repealing the Affirmatively Furthering Fair Housing (AFFH) rule announced by the Obama Administration in 2015, and circumventing one of the primary requirements of the 1968 Fair Housing Act. The 2015 rule imposed rigorous obligations on state and local recipients of HUD funds to identify obstacles to fair housing in their jurisdictions and take active (affirmative) steps to eliminate them. This new HUD rule eliminates those obligations, making it easy for states and localities to turn a blind eye to housing discrimination while continuing to benefit from HUD funding. While all regulations reflect some political bias, the new Choice Rule is a clear attempt to use the Fair Housing Act (FHA) to draw political lines in a way that has never been seen at the national level. The subject of affirmatively furthering fair housing has been one of the most politically charged issues addressed by HUD in recent decades. Beginning in the mid-1990s, when the duty to affirmatively further fair housing was first imposed on HUD grantees, including state and local governments and agencies, HUD has insisted that grantees provide an "analysis of impediments" to fair housing in their jurisdictions and then certify that they were taking steps to eliminate those impediments and affirmatively further fair housing. In truth, even these requirements were weak-kneed and included no specific duty to take action to halt discriminatory practices, such as exclusionary zoning. Because of this, litigation ensued, including False Claims Act litigation against Westchester County in New York State, charging that grantees were making their certifications - and receiving HUD funds - without actually doing anything to further fair housing goals. During the Obama administration, HUD took a more aggressive stance, publishing it AFFH rule in 2015. This rule required HUD grantees to seriously examine the legal, demographic, and socio-economic issues in their localities that made achieving fair housing difficult (if not impossible) and to propose steps that they would take - including measures of their success for failure - to overcome those obstacles. HUD offered "assessment tools" and deep databases of socio-economic and demographic data to assist jurisdictions in the preparation of the "assessments of fair housing." If a grantee did not take effective measures to eliminate impediments to fair housing, HUD would restrict or eliminate funding to the locality. The major problem with the AFFH rule was the difficulty in implementation due to its complexity and the volume of information needed to complete the assessments. While some jurisdictions were able to submit their assessments of fair housing, delays by the Office of Management & Budget in approving the many versions of the assessment tool developed by HUD for different types of grantees meant that few jurisdictions were even able to begin the process. In truth, the AFFH rule, while laudable in its intent, was awful in its design. If was far too complex for all but the most sophisticated localities, and left many towns and cities struggling to figure out how to implement it. Criticisms were leveled that, in addition to the time and cost involved in preparing the assessments, the rule required grantees to assess issues - such as the availability of education and health care resources - that were outside their jurisdictional authority and professional ability. This was an "ivory tower" rule created for real-world circumstances. The Trump administration has, from day one, looked for ways to slow down or stop the requirement to affirmatively integrate the nation s communities, and the complexity of the 2015 rule provided the opening. In 2018, the current administration suspended the duty to file assessments for most grantees until 2020 or later. Then, in early 2020, HUD announced an overhaul of the AFFH rule. This proposed rule retained the idea of state and local assessment of fair housing issues, but it identified a list of 16 obstacles to fair housing and directed grantees to identify three goals to overcome those obstacles. Some of the obstacles identified by HUD- such as source of income laws, rent control, and energy and water efficiency standards - were themselves politically charged. HUD retained the right to review submissions and to take action regarding grantees depending on their success. This was basically a scaled-back version of the 2015 AFFH rule and was created by HUD professionals within the political parameters given to them by current HUD leadership. However, following the release of this new proposal, the White House indicated that the rule did not go far enough to lessen the burden on local grantees and directed HUD to revise the rule "to empower local communities and to reduce the regulatory burden" on local grantees (85 Federal Register at 47901). This, in essence, required HUD to start the process from scratch. HUD has determined that "affirmatively furthering fair housing" is a "vague, undefined term that could be open to several different plausible meanings." Announcing that "HUD s interpretation will be entitled to deference as long as it is reasonable," HUD has adopted the so-called "Ordinary-Meaning Canon" and uses dictionary definitions of "affirm" and "further" to put forth new interpretations of grantees duties. Basically, the new Choice Rule replaces the prior AFFH rule with three short provisions: It defines "fair housing" as "housing that, among other attributes, is affordable, safe, decent, free of unlawful discrimination, and accessible as required under civil rights laws;It defines "affirmatively further" to mean "to take any action that is rationally related to promoting any attribute or attributes of fair housing as defined in the previous subsection" (it should be noted that HUD did not attempt to define the term "rationally); andIt states that a grantee s certification "that it will affirmatively further fair housing is sufficient if the participant takes, in the relevant period, any action that is rationally related to promoting one or more attributes of fair housing " In effect, a grantee can meet its obligation to affirmatively further fair housing by simply certifying that it has taken "and action" to promote the "attributes" of "fair housing" in the new rule. This level of obligation is so minimal as to be non-existent. For example, by promoting a single "attribute" of the new definition of "fair housing" - such as "safe housing" - a grantee will meet the requirement to show that they are affirmatively furthering fair housing. An even better example would be the certification by a locality that it is working to ensure that all of its housing is "decent," - which is a word with virtually no meaningful definition and is as subjective a term on one could imagine - and, thus meeting the obligations of the locality. This new rule is a brazen abandonment by the federal government of any responsibility to ensure that all Americans - regardless of race, color, religion, national origin, sex, familial status, or disability - have an equal right to housing. It constitutes a carte blanche permission slip for localities to continue to restrict the availability of housing in high opportunity areas to minorities and lower-income individuals. With an election looming, and the possibility of a new administration in January 2021, this issue will again be front and center sooner rather than later.