If a multifamily project with Low-Income Housing Tax Credits (LIHTC) is experiencing issues with crime or security or is located in a high crime area, owners may want to house a security or police officer in one of the low-income units. IRS Revenue Ruling 2004-82 permits the provision of units to security officers if the use of the unit for such a purpose is necessary for proper operation of the property. Such units are known as “facilities reasonably required” by the project, and are treated in a manner similar to common areas, such as leasing offices or community rooms.
While the IRS ruling does not require that State Agency permission be obtained prior to converting a unit to a security unit, many states do require that permission be obtained prior to converting a unit to a security unit. This is important since it is often the State Agency (HFA) that determines whether common area is a facility reasonably required by the project.
This memo provides some guidance and advice on the process to follow when seeking HFA permission for a security unit.
Security Unit Basics
Who qualifies as a security officer? While guidance issued recently by the IRS (the “Audit Guide”) indicates that security officers should be employed full time at the property, it is not clear that this guidance is indicative of an actual IRS requirement. The Audit Guide goes on to state that the most important indicators of the eligibility of a security unit is the need for the services and that the presence of the security officer meets that need. Generally, it is recommended that the police or security officer work full time (at least 35 hours per week) in law enforcement. In fact, for HUD properties, this is a requirement, and if the officer works less than 35 hours per week in law enforcement, he or she must be removed from the property. The security officer should be screened in the same manner as any other applicant relative to criminal or prior landlord references.
How many units may be set aside as security units? There is no set number, but I recommend no more than 1 percent of the units. However, if the HFA approves a higher percentage due to need, it should be acceptable.
What rent can be charged? The IRS has now indicated that the charging of rent to a security officer will not necessarily indicate that the unit is not a facility reasonably required. In HUD projects, rent must be charged for security units. My recommendation is that no rent be charged for LIHTC security units unless approved by the HFA. When requesting approval for a security unit from the HFA, you should state how much, if any, rent you wish to charge.
Can the security officer be paid for their services? Such arrangements are generally between the officer and the project owner, but should be revealed to the HFA when requesting permission.
Structure of the Request
The request to the HFA should include the following items:
- Purpose of the Request: State that you are requesting permission to house an over-income officer in one of the low-income units.
- Conditions Requiring Police Presence: Describe the reasons why a security officer is required for proper operation of the site. For example, show that the site will benefit from the presence of the officer by deterring crime and giving additional security to residents.
- Describe the Criminal Activities at the Site: Describe the criminal activity at or near the property and how such activity affects the safety of your residents. Attach any local studies or police reports on activities in the area.
- Officer’s Qualifications: Describe the qualifications of the police or security officer that will live on site, and how long you anticipate needing the security unit. Describe the number of years of experience of the officer and any awards or commendations he/she has received.
- Background Check: Describe how you have checked the background of the officer that will live at the site.
- Conflicts of Interest: Disclose any family relationship the officer has with the owner or principals of the project.
- Proposed Lease Arrangement: If you propose to charge rent to the officer, state the amount.
- Contact Information: Invite HFA staff to call you with questions or to discuss the request.
- Don’t forget to sign the request.