Fair Housing Enforcement at LIHTC Properties
A violation of fair housing law is reportable noncompliance for Low-Income Housing Tax Credit (LIHTC) properties. It is reported on Line 11h of IRS Form 8823, along with any other finding of noncompliance relating to a violation of the general public use rule. While the IRS has indicated that Housing Finance Agencies responsible for implementation of the LIHTC program should not report a taxpayer for a fair housing issue that the HFA believes has occurred, the Agency should report the issue to HUD for administrative follow up.
HUD is responsible for enforcing the Fair Housing Act (FHA). When a fair housing complaint is filed, HUD or a substantially equivalent State or local Fair Housing Agency will investigate it.
The Department of Treasury, HUD, and the Department of Justice (DOJ) entered into a Memorandum of Understanding (MOU) in August 2000, in an effort to ensure cooperation between the agencies with regard to fair housing enforcement at LIHTC properties. Key points of the MOU include coordinated procedures for notifying the state agencies and the IRS of charges, lawsuits, or other actions under the Fair Housing Act that involve LIHTC properties. Based on the terms of the MOU, HUD or DOJ will notify a state agency of:
- A charge by the Secretary of HUD for a violation of the FHA;
- A probable cause finding under a substantially equivalent state law or local ordinance by a substantially equivalent state or local agency;
- A lawsuit under the FHA filed by the DOJ; or
- A settlement agreement or consent decree entered into between HUD or DOJ and the owner of an LIHTC property.
Non-FHA civil rights actions and lawsuits, such as Section 504 Rehabilitation Act lawsuits or administrative actions, are not covered under the MOU and are not to be reported to the IRS as noncompliance for Section 42 purposes.
When an HFA receives notification from HUD or DOJ of a violation under the FHA, the agency will immediately file a Form 8823 with the IRS (there will be no correction period given) checking the “out of compliance” box on Line 11h and will notify the property owner in writing of the action that has been taken.
When the IRS receives the 8823, they will send a letter to the property owner stating that a finding of discrimination, including an adverse final decision by HUD or a substantially equivalent state or local fair housing agency, or an adverse judgment by a federal court, will result in a loss of low-income housing credits. Similarly, the IRS will also send a letter to owners notifying them that a judgment enforcing the terms of a settlement agreement or consent decree will result in the loss of low-income housing credits.
In order for the finding to be corrected, documentation that the owner has complied with the court order and/or HUD’s requirements and that the violation has been corrected is required.
Depending on the nature of the violation, noncompliance may be determined at the unit, building, or project level.
In summary, the two key elements to be aware of relative to fair housing violations at LIHTC properties are (1) HFAs are required to report potential fair housing violations to HUD or other appropriate fair housing enforcement agencies, and (2) uncorrected 8823s will be issued to the IRS for fair housing violations. It will be the responsibility of the owner to provide evidence to the HFA that the terms of the settlement agreement or consent decree have been complied with in order to have a corrected 8823 sent to the IRS.