Compliance Online Reference Manual

Compliance

Online

Reference

Manual

Assisting in the Development and Maintenance

of Quality Rental Housing Communities

Affordable to

Low Income Californians

California Tax Credit Allocation Committee

California Tax Credit Allocation Committee (CTCAC)

915 Capitol Mall, Room 485

Sacramento, CA 95814

(916) 654-6340

Main Office

(916) 654-6033

Fax

www.treasurer.ca.gov/ctcac/compliance.asp

Nancee Robles, Executive Director

Anthony Zeto, Deputy Executive Director

Ricki Hammett, Deputy Executive Director

Compliance Staff

Compliance Section Chiefs

Elizabeth Gutierrez-Ramos

Shannon Nardinelli

Program Managers

Phyllis Blanton

Tara Boynton

Emilio Contreras

Quang Le

Mayra Lozano

David McDaniels

Compliance Analysts

Stephen Bellotti

Gene Deguzman

Kimberly Desch-Nilson

Justin Espanol

Ricky Fujitani

Frank Harper

Joshua Helmich

Noemy Iniguez

Ted Johnson

Tricia Mitchell

Pheng Moua

Noeh Nazareno

Alex Ninh

Juan Diego Ochoa

Jahan Tahaei

Kole Tefft

Eric Turlak

Julio Villanueva

Jerry Yang

Office Technician – Compliance

Pa Kou Yang

CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE

LOW INCOME HOUSING

TAX CREDIT PROGRAM

(LIHTC)

COMPLIANCE MONITORING

MANUAL

(online format)

www.treasurer.ca.gov/ctcac/compliance.asp

This material was designed specifically for training

purposes only. Under no circumstances should the

contents be used or cited as authority for setting or

sustaining a technical position.

TABLE OF CONTENTS

SECTION I – INTRODUCTION PAGE

Part 1.1 Background of the TCAC Program 1

Part 1.2 Contents and Summary 1

Part 1.3 Compliance Period 2

Part 1.4 Regulations for Various Tax Credit Programs 3

Part 1.5 CTCAC Policy Memo 4

Part 1.6 Compliance Manual 5

SECTION II – RESPONSIBILITIES PAGE

Part 2.1 The California Tax Credit Allocation Committee 6

A. Issue IRS Form 8609 6

B. Prepare Regulatory Agreement/Restrictive Covenants 6

C. Review Annual Owner Certification 6

D. Review Annual Operating Expense Report 7

E. Conduct On-site Monitoring 7

F. Conduct On-site Monitoring – Extended Use Portfolio 7

G. Conduct 504 Monitoring for TCAP Properties – ARRA Legislation 8

H. Conduct Asset Management Functions for TCAP and Section 1602 8

Exchange Funds – ARRA Legislation

I. Notice of Noncompliance 9

J. Record Retention 10

K. Conduct Training and Provide Continuing Education 10

L. Rural Housing Service (RHS) Agreement 10

M. Subcontracting of Functions 10

Freedom of Information Act / Public Records Act 11

Part 2.2 Owner of Project 11

A. Be Knowledgeable About …. 11

B. Good Cause Eviction 12

C. Comply with Terms of Application 12

D. Meet Initial Eligibility Requirements 13

E. Deeper Targeting Requirements 13

F. Prepare and Submit Annual Certifications 13

1. Annual Owner Certification (part 1) 14

2. Annual Project Ownership Profile (part 1) 16

3. Annual Operating Expense Report (part 2) 16

4. Lender Report (part 2) 16

5. HUD Demographic Data (2010) 17

G. Train On-site Personnel 17

H. Ensure Proper Maintenance 17

I. Recordkeeping and Retention - Site 17

J. Maintain a Development File 18

K. Maintain a Tenant / Unit File 18

L. Prepare and Submit Low Income Housing Credit 19

(IRS Form 8586)

M. Administration and Notification 19

Part 2.3 Management Company and On-site Personnel 19

SECTION III – REGULATIONS PAGE

Part 3.1 Calculating and Claiming the LIHTC 20

A. The Annual Tax Credit Amount 20

B. Claiming Tax Credits in the Initial Year 20

C. Initial Year Proration 20

D. The Two-Thirds Rule 21

E. Increase in Qualified Basis 21

F. Claiming Credit in the Remaining Years of the Compliance 21

Period

Part 3.2 Minimum LIHTC Set-aside Requirements and Income Limits 21

Part 3.3 Maximum Gross Rent 22

A. Projects Allocated Credit During the Years 1987 to 1989 22

B. Projects Allocated Credit After January 1, 1990 22

C. Allowable Fees and Charges 23

D. Section 8 Rents 23

E. Gross Rent Floor Election 24

F. 8609 Form Line 8b Election 25

G. Amenities and Services 26

H. Conflicts with Other Government-Funded Housing Programs 26

Part 3.4 Utility Allowances 26

A. Rural Housing Service or Rural Development RD/RHS Financed 27

B. HUD Regulated Buildings 27

C. Other Buildings (Voucher) 28

D. Tax Credit Only Buildings 28

1. Local Public Housing Authority (PHA) 28

2. Utility Company Estimate 29

3. Energy Consumption Model (CUAC) 29

4. HUD Utility Schedule Model (HUSM) 30

5. Agency Estimate 30

E. Per Building Requirement 30

F. Maintaining Compliance with Utility Allowances 31

G. Utility Allowance (Submetering) 32

H. Ratio Utility Billing System (RUBS) 33

Part 3.5 Rules Governing the Eligibility of Residential Units 35

A. Unit Vacancy Rule 35

B. When a Unit Must Remain Vacant 35

C. Identification 36

D. 140% Next Available Unit Rule 36

E. Totem Pole Rule 36

F. Transfer of Existing Tenants – 100% Tax Credit Property 37

G. Resident Manager’s Unit 37

H. Waitlist 39

Part 3.6 Rules Governing the Eligibility of Tenants and Uses 39

A. Student Eligibility 39

B. Managers or Employees as Tenants 39

C. Live-in Care Attendants 40

D. Unborn Children 41

E. Foster Children and Adults 41

F. Non-transient Occupancy 42

G. Transitional Homeless Properties 42

H. Ineligible Facilities 43

Part 3.7 Other Regulations 43

A. Physical Requirements of Units 43

B. Discrimination Prohibited in Project 43

C. General Public Requirements 43

D. General Occupancy Guidelines/Family Size 44

E. Good Cause Eviction 44

Part 3.8 Qualified Allocation Plan 44

Part 3.9 Statutory Set Asides (State) 45

A. Qualified Nonprofit Organization 45

Part 3.10 Adopted State Regulations 45

Part 3.11 Transfer Events 46

Part 3.12 End of Compliance Period 48

Exhibit A Utility Allowance Chart 50

SECTION IV – QUALIFYING TENANTS FOR LIHTC UNITS PAGE

Part 4.1 The Tenant Application, Lease, and Lease Rider/Addendums 52

A. Application 52

B. Lease 52

C. Section 42 Lease Language, Rider or Addendum 53

D. CTCAC Required Lease Rider (Good Cause Eviction Rider) 53

E. Violence Against Women Act (VAWA) HUD Lease Rider 54

Part 4.2 Determining Maximum Income and Rent Limits 54

Part 4.3 Determining the Average Income Test (AIT) Set-Aside 55

A. Minimum Requirements 55

B. Irrevocable Election 56

C. Designated Units 56

D. Next Available Unit Rule (NAUR) – AIT 56

E. Applicable Fraction 57

F. Required Reporting 57

G. Applicability Date 57

Part 4.4 Tenant Income Verification 57

A. Effective Term of Verification 58

B. Methods of Verification 58

1. Written Verification 58

2. Verbal Verification 58

3. Electronic Verifications 59

4. Verification Requests 59

5. Acceptable Forms of Income Verification 59

C. Discrepancies in Reported Income 60

D. Electronic Signatures 60

E. Assets 60

F. Real Estate 60

1. Normal Sale of Real Estate 61

2. Real Estate used as Rental Property 61

3. Foreclosure 61

4. Short Sale 62

5. Reverse Mortgages 62

G. Computing the Total Household Income 62

H. Anticipated Income 62

I. Cash Payments 63

J. Other Payments 64

1. California Climate Credit 64

2. Kin-GAP 64

3. Flex Benefits 64

4. ABLE Accounts 65

K. Electronic Banking Cards (EBT), Debit Visa or MasterCard 65

L. Mobile Payment Service (Venmo, Zelle, PayPal, CashApp, etc.) 65

M. Cryptocurrency (Bitcoin, Ether, Ripple) 65

Part 4.5 Initial Tenant Income Certification Guidelines 66

Part 4.6 Annual Income Recertification Requirements 67

A. Mass Recertifications 68

B. Recertification Procedure 69

C. Annual Recertification Waiver (pre-2008) 69

Part 4.7 Students 69

A. Part-time Students 69

B. Full-time Students 70

C. $480 Student Income 70

D. Financial Aide Verification 70

Part 4.8 The Tenant/Unit File 71

Part 4.9 Qualifying Section 8 Tenants for LIHTC Units 72

Part 4.10 Qualifying Tenants in RHS Projects for LIHTC Units 73

Part 4.11 Acquisition and Rehabilitation 74

Part 4.12 Resyndication 76

A. Creating a New Tenant File 77

B. Grandfathering of Existing Tenants 77

C. Mixed Income Resyndication 78

D. Reducing Rents 78

Part 4.13 Re-Application – Resyndication of Existing Tax Credit Properties 79

without a Regulatory Agreement

Exhibit B Acq/Rehab, Resyndication, and Re-application Flow Chart 80

SECTION V – COMPLIANCE MONITORING PAGE

Part 5.1 The Compliance Manual 81

Part 5.2 Compliance Training Workshops 81

Part 5.3 CTCAC Required Training 82

Part 5.4 Compliance Files and Records 82

Part 5.5 Compliance Forms 83

A. Annual Owner Certification 83

B. Project Status Report 83

C. Utility Allowance 84

D. Tenant Income Certification 84

E. Tenant Income Certification Questionnaire 84

F. CTCAC Paystub Policy 84

G. Negative Verifications 86

H. The Work Number / Employment Verification Services 86

I. Child Support and/or Spousal Support 87

J. Separated or Estranged Status Affidavit 87

K. Certification of Zero Income (Zero Income Certification) 87

L. Under $5000 Asset Verification 88

M. Student Verification 88

N. Financial Aid Verification Form 88

O. Single Parent Full-Time Student Status Form 88

P. Foster Care Verification Form 88

Q. Tenant Household Information Form 88

R. Live-in Aide Verification Form 89

S. Resyndication Clarification Form 89

Part 5.6 Annual Certification for Section 42 requirements 89

A. Annual Owner Certification 89

B. Project Ownership Profile 89

C. Annual Operating Expense Report 89

D. Lender Report 90

E. Written Request to Amend Supportive Service Requirement 90

Part 5.7 CTCAC Tenant/Unit File Review and On-site Project 90

Inspections

A. On-site (at Project or Management Office) 90

B. In-house at CTCAC (Desk Audit) 91

Part 5.8 Extended Use Portfolio Monitoring 91

Part 5.9 Electronic Copy of Files 92

Part 5.10 Compliance Monitoring Fees 93

Part 5.11 Compliance Period 94

Part 5.12 Amendments to Compliance Monitoring Procedures 94

Part 5.13 Tenant Relations 94

SECTION VI – NONCOMPLIANCE PAGE

Part 6.1 Types of Noncompliance 96

Part 6.2 Consequences 96

Part 6.3 Notification of Noncompliance to Owner 97

Part 6.4 Notification by Owner to TCAC 97

Part 6.5 Correction Period 97

Part 6.6 Reporting Noncompliance to IRS an Recapture 98

A. Reporting 98

B. Recapture 98

Please refer to the IRS 8823 Guide at www.irs.gov

Part 6.7 Retention of Noncompliance Records by TCAC 99

Part 6.8 Liability 99

SECTION VII – SAMPLE ON-SITE AUDIT PAGE

Part 7.1 Preliminary Requirements 100

A. Notification 100

B. Project Status Report (PSR) 100

C. Utility Allowance 100

D. Rent Roll 101

E. Copy of Inspection Notice 101

F. Fire System Log 101

G. Failure to respond to preliminary requirements 101

Part 7.2 File Inspection 101

A. Application 102

B. Income Calculations (Wages) 102

1. Regular Income 102

2. Self – Employment 102

3. Gig Wages 102

4. Day Labor 103

5. Anticipated Earnings 103

6. Cash Wages 103

7. Farm Labor 103

8. IHSS – In-Home Supportive Services (Wage Earner) 104

9. IHSS – (Income) 104

C. Income Calculations (Other Forms of Income) 104

1. Social Security (SSA) 104

2. Supplemental Security Income (SSI) 104

3. EDD and AFDC/TANF Payments 105

. Gifts 105

5. Periodic Payments 105

6. Unemployment Income 105

D. Asset Calculations 106

1. Savings Account 106

2. Checking Account 106

3. Certificate of Deposit (CD) 106

4. IRA/401K/Money Market Accounts 107

5. Mobile Payment Service Apps 107

6. Stocks 107

7. Cryptocurrency 107

8. Trust 107

E. Calculating Asset Change in Value 108

F. Questionable Documentation 109

G. CTCAC Required Forms 109

H. Additional Information 110

I. Rent Ledger 110

Part 7.3 Physical Inspection (UPCS) 110

Part 7.4 National Standards for the Physical Inspection of Real Estate (NSPIRE) 114

Part 7.5 Property Signage 114

Part 7.6 Findings Letters 114

Part 7.7 Correction Period and Owner’s Response 114

Part 7.8 Mixed-Income Property 115

A. HERA and Mixed-Income Properties 115

B. Next-Available Unit Rule 115

C. Applicable Fraction / Eligible Basis 116

Part 7.9 Service Amenities Verification 116

SECTION VIII – LEGISLATIVE CHANGES PAGE

Part 8.1 Housing Economic Recovery Act of 2008 (HERA) 118

HR 3221

A. Requirement to perform Annual Recertifications 118

B. Former Foster Care 118

C. HERA Special Income and Rent Limits 2009 119

D. Rent and Income Limits 2010 and going forward 119

E. Tenant Collection Data 121

Part 8.2 American Recovery and Reinvestment Act of 2009 (ARRA) 121

A. Credit Exchange Program (Section 1062) 121

B. HUD Tax Credit Assistance Program (TCAP) 122

Part 8.3 Consolidated Appropriations Act of 2018 (Average Income) 122

Part 8.4 California State Law – AB 1920 (Fine Authority) 123

Part 8.5 California State Law – AB 1482 (Tenant Protection Act) 123

Part 8.6 California State Law – AB 701 (Exonerated Convictions) 124

Part 8.7 California State Law – SB 329 (Public Voucher Discrimination Prohibition) 124

Part 8.8 California State Law – AB 2006 (Housing Agency MOU) 125

Part 8.9 California State Law – SB 971 (Pets in Affordable Housing) 125

SECTION IX – GLOSSARY PAGE

Part 9.1 Glossary of Terms 126

ONLINE APPENDICES

All appendices are linked on the CTCAC Website: www.treasurer.ca.gov/ctcac/compliance/manual.asp

Links to outside agencies are not maintained by CTCAC and CTCAC is not responsible for broken links or

outdated material. A good faith effort has been made at the time of the CTCAC Manual release to verify the

information.

Appendix 1 LIHTC Foundations

26 CFR Part 1

(IRS Compliance Monitoring Regulations)

Internal Revenue Code Section 42

Memorandum of Understanding – Department of Treasury, Department of Justice, Housing

and Urban Development (HUD)

Government Code 6250-6270

(Public Records Act)

Blue Book (General Explanation of the Tax Reform Act of 1986)

NCSHA Recommended Practices

Appendix 2 Handbooks and Guides

IRS Guide to Form 8823

HUD Handbook 4350.3 Chapter 5 (Revision 3)

(Income, Assets, and Verification)

List of HUD Inclusions and Exclusions

CA Tenant/Landlord Handbook

Appendix 3 IRS Revenue Rulings, Notices, and Procedures

IRS Revenue Ruling 1990-60 Recapture Bonds

IRS Revenue Ruling 1990-89 Guidance on Tax Credit Eligibility and

Maximum Combined Annual Income of

Unrelated Occupants

IRS Revenue Ruling 1991-38 Answers to Frequently Asked

Questions

IRS Revenue Ruling 1992-61 Manager’s Unit

IRS Revenue Ruling 1992-79 Building Receiving 1989 and Post-1989 Credit

IRS Revenue Ruling 1994-57 Change in AMGI

IRS Revenue Ruling 1995-49 Tenant Right of First Refusal

IRS Revenue Ruling 1998-47 Tax-Exempt Bond Ruling on Assisted Living

IRS Revenue Ruling 2004-82 Eligible Basis and Qualified Basis

IRS Procedure 1994-57 Gross Rent

IRS Procedure 1994-65 Income from Assets $5000 or Less

IRS Procedure 1995-28 Relief for Projects in Disaster Areas

IRS Procedure 1999-11 Alternative to Surety Bonds

IRS Procedure 2007-54 Relief in Disaster Areas (Updated)

IRS Procedure 2016-15 REAC Allowance and

Decoupling of File/Physical Requirement

IRS Notice 1988-80 Income Determination

IRS Notice 1988-91 Definition of a Building

IRS Notice 1988-166 Placement in Service

IRS Notice 1989-6 Utility Allowance: General Public Use

IRS Notice 1994-60 Obsolete Notices

IRS Final Regulations (TD 8520) – Carryover Allocations, General

Public Use, and Utility Allowances)

IRS Final Regulations (TD 8731) – Section 42(d)(5) Federal Grants

IRS Final Regulations (TD 8732) – Next Available Unit Rule

IRS Final Regulations (TD 9420) – Utility Allowances

Appendix 4 Internal Revenue Service Sample Forms

IRS Form 4506-T Request for Transcript of Tax Return

IRS Form 8586 Low Income Housing Credit

IRS Form 8609 Low Income Housing Credit Allocation Certification

IRS Form 8611 Recapture of Low Income Housing Credit

IRS Form 8693 Low Income Housing Credit Disposition Bond

IRS Form 8823 Low Income Housing Credit Agencies Report of Noncompliance

CA Tax Credit Allocation Committee 1 April 2023

SECTION I – INTRODUCTION

Part 1.1 Background of the CTCAC Program

In 1986, Congress enacted the Low-Income Housing Tax Credit Program (LIHTC). This

program provides incentives for the investment of private equity capital in the development of

affordable rental housing. The LIHTC reduces the federal tax liability of project owners in

exchange for the acquisition, rehabilitation, or construction of affordable rental housing units that

will remain income and rent restricted over a long period. The amount of tax credit allocated is

based on the number of qualified low-income units that meet federal rent and income targeting

requirements.

The LIHTC is authorized and governed by Section 42 of the Internal Revenue Code of 1986, as

amended (the “Code”). The California Tax Credit Allocation Committee (CTCAC) is the

designated “housing credit agency” to allocate and administer tax credits for the entire state.

Each state develops a Qualified Allocation Plan (QAP), which establishes the guidelines and

procedures for the acceptance, scoring, and competitive ranking of applications and for the

administration of the LIHTC Program. The QAP and California’s Program Regulations are

developed to be relevant to state housing needs and consistent with state housing priorities. For

more information on the Qualified Allocation Plan and the Program Regulations, see Section III,

Parts 3.6 – 3.10.

Part 1.2 Contents and Summary

Section 42(m)(1)(B)(iii) of the Code requires that each state’s Qualified Allocation Plan provide

a procedure that the agency will follow in notifying the Internal Revenue Service (IRS) of any

noncompliance with the provisions of Section 42 of which it becomes aware. This provision

became effective on January 1, 1992.

Final regulations, developed by the IRS and published on September 2, 1992, outline minimum

requirements for owner recordkeeping and reporting, for state credit agency monitoring and

inspecting, and for reporting to the IRS instances of noncompliance.

On July 30, 2008, Congress passed the Housing and Economic Recovery Act of 2008 (HR 3221)

which changed several provisions of the federal LIHTC program including the methodology for

determining Income and Rent limits, adding a fifth full-time student exception, and reducing the

annual recertification requirement for 100% LIHTC projects.

On February 17, 2009, President Obama signed into law the American Recovery and

Reinvestment Act of 2009 (ARRA). ARRA was designed as a sweeping economic stimulus bill

providing resources to various programs and other efforts to reinvigorate the nation’s economy.

The Low Income Housing Tax Credit (LIHTC) program was among those programs that

received additional resources to stimulate the production of affordable rental housing for low-

income families and households. In California, all ARRA funded projects are subject to the same

monitoring procedures and requirements outlined in this manual in addition to asset management

CA Tax Credit Allocation Committee 2 April 2023

requirements. Detailed descriptions of ARRA and the available programs funded by it can be

found on our website at:

http://www.treasurer.ca.gov/ctcac/arra.asp

California’s compliance monitoring plan follows the final regulations, as well as the

recommendations of the National Council of State Housing Agencies (NCSHA), and is

applicable to ALL owners of ALL buildings that have ever claimed the low-income housing tax

credit since the inception of the program in 1987.

In March 2018, Congress passed a tax reform as part of the Omnibus Spending Plan that added a

third Federal Set-aside to the LIHTC – Average Income Target. California released guidance as

part of an emergency regulations package on March 26

, 2018 that outlined how the program

was to be implemented in California. On October 7, 2022, the IRS published final guidance on

the implementation of the AIT set-aside. Please see Section IV Part 4.3 for more information.

Part 1.3 Compliance Period

Once allocated by the housing credit agency, low-income housing tax credits can be claimed

annually over a ten (10) year period beginning either with the year the building is placed in

service or the following year, depending on which option is selected by the owner. Projects must,

however, remain in compliance for a minimum of fifteen (15) years, with some requirements

extending for an additional three years. Additionally, owners who agreed in their applications to

have longer compliance periods will be bound for the length of time specified up to a total of 55

years.

Developments with allocations of 1990 credit and after will have entered into a restrictive

covenant (Regulatory Agreement/Land Use Restrictive Agreement) with CTCAC at the time of

final allocation. These developments must comply with eligibility requirements for an additional

15 years beyond the initial 15 year compliance period (or a total of 30 years).

Many projects, particularly those allocated in 1990 and beyond, elected to extend the number of

low-income use restriction years up to 55 years in order to receive additional points in the scoring

process. 9% Competitive projects allocated from 1996 on were required to have a low-income

use restriction of 55 years in order to compete for an allocation. 4% Bond Allocations through

2003, could choose either 30 or 55 years for the regulatory period. All projects allocated starting

in 2004 must have a 55-year regulatory period. For more information regarding the Extended Use

Agreement, the Qualified Allocation Plan, and the Program Regulations, see Section II, Part

2.1(F), Section III, Parts 3.6 – 3.10.

The restrictive covenant binds the owner and any successors to maintain specified low-income

occupancy during the Extended Use Period. The Extended Use Period may end in the event of

foreclosure, or if, during or after the 14th year of the tax credit period, the owner requests the

credit agency to find a buyer willing to enter into a “qualified contract” to purchase the property

and maintain its low-income use for the remainder of the Extended Use Period. However, please

note, in California, the option of requesting the credit agency to find a purchaser is not available

to owners who agreed to longer compliance periods.

CA Tax Credit Allocation Committee 3 April 2023

If a LIHTC property goes into foreclosure during the 15 year Federal Compliance Period, a 3

year de-control period goes into effect, wherein the owner cannot raise rents for the tax-credit

units to market rate for 3 years. If a property goes into foreclosure in 30-55 year extended use

period, CTCAC will require that the rent be raised to no more than the maximum LIHTC rent per

bedroom size and the provisions of AB 1482 the Tenant Protection Act are enforced.

Part 1.4 Regulations for Various Tax Credit Periods

IRS regulations differ depending on when a project was allocated tax credit. In some cases, the

change in regulations brought forth by a technical correction is minor; in others, it is substantial.

Management must not only be aware of the differences in regulations but must also clearly

understand which rule governs each particular building and/or project. There are six specific tax

credit regulation periods as follows:

1. January 1, 1987 – December 31, 1989

• For projects allocated credit during this period, rent is based on the number of people

living in the unit, and was (is) subject to change as household composition changes.

Owners of these projects, however, had a one-time opportunity to opt to change the

methodology used by sending a letter to the Internal Revenue Service requesting the

conversion. Verification of the option chosen must be provided to CTCAC upon

request.

2. January 1, 1990 and beyond.

• Rent for all projects allocated after January 1, 1990 is based on the number of

bedrooms in a particular unit.

• The compliance period is increased to 30 years.

NOTE: This does not necessarily mean projects placed in service in 1990. It is the tax

credit allocation year that is determinative.

3. 1991 and January 1, 1992 – June 30, 1992

• The Farmers Home Administration Overage Rule and an extension on initial

compliance (not retroactive) were implemented.

4. July 1, 1992 and August 10, 1993

• Section 8 voucher rule (cannot refuse to lease to Section 8 tenants) – retroactive.

• Two student rule changes were implemented.

• 1987 – 1989 projects can convert rental rates from number of persons to number of

bedrooms.

5. 2001

• The IRS issued a Revenue Ruling to include the requirement of physical inspections

in addition to file inspections

6. July 30, 2008 – Housing and Economic Recovery Act of 2008 (HR 3221)

CA Tax Credit Allocation Committee 4 April 2023

(Compliance Related Changes)

• Clarified the general public use test to explicitly allow Credit developments that

establish tenancy restrictions for persons with special needs, tenants who are involved

in artistic or literary activities, and persons who are members of a specified group

under a Federal or state program or policy that supports housing for such a specified

group, effective for buildings placed in service before, during, and after date of

enactment.

• Modifies HUD’s income limit methodology for calendar years after 2008 to require

HUD to increase applicable area median incomes by the amount area median incomes

rise, even if the HUD-determined area median incomes would be frozen under HUD’s

2007 and 2008 income limit methodology. (HERA Hold Harmless)

• Modifies the Housing Credit student rule to make children who received foster care

assistance eligible for Housing Credit apartments, effective for determinations after

date of enactment.

• Defines area median income in rural areas as the greater of the area median income

and the national non-metropolitan median income, effective for income

determinations made after date of enactment, applicable only to 9 percent Credit

developments.

• Eliminates the annual income recertification requirement for 100 percent qualified

unit developments, applicable for years ending after the date of enactment.

• Repeals the Housing Credit recapture bond rule, effective for future dispositions and

past dispositions if:

a) it is reasonably expected the building will continue to be operated as a qualified

low-income building; and

b) the taxpayer elects to be subject to the new longer statute of limitations.

• Excludes military employees’ basic allowance for housing from the definition of

income if they are housed in a building located in a county with a military base that

had its population grow by 20 percent or more between December 31, 2005 and June

1, 2008, or any county adjacent to such a county. Please note: this was made

permanent by the PATH Act of 2015. There are currently no projects in California

that meet the qualification.

7. Consolidated Appropriations Act of 2018 (Average Income)

• Increased the volume cap of credit allocation by 12.5% until 2022.

• Created new federal set aside known as “Average Income Test” (See Section VIII)

• Allows for income restricted units at 20%, 30%, 40%, 50%, 60%, 70%, and 80% as

long as the average income and rent of the property is at or below 60% of Area Median

income

Part 1.5 CTCAC Policy Memo

CTCAC Policy Memos are periodically released to provide notice of a change in policy, updated

procedure, or to provide general guidance about the way California looks at compliance issues

related to the IRS Section 42 LIHTC Program. All policy memos that have been issued are

available on our website at:

http://www.treasurer.ca.gov/ctcac/compliance.asp

CA Tax Credit Allocation Committee 5 April 2023

Part 1.6 Compliance Manual

The CTCAC Compliance Manual is designed to offer guidance on the requirements, restrictions,

and policies of the California Tax Credit Allocation Committee and is not designed to be all

inclusive or cited as an authority for setting or sustaining a technical position. Policies and

procedures may change with little or no notice if Federal, State or Local regulations governing the

program change. Please Note: The CTCAC Online Compliance Manual is updated annually.

However, in the event a change of policy has occurred between revisions to the manual, please

refer to the most current guidance provided by the Committee via Policy Memo.

CA Tax Credit Allocation Committee 6 April 2023

SECTION II – RESPONSIBILITIES

Among the entities/persons involved in the compliance part of the tax credit program are the

California Tax Credit Allocation Committee (CTCAC), the project owner, and the management

company. Their various responsibilities are set forth below.

Part 2.1 California Tax Credit Allocation Committee

The California Tax Credit Allocation Committee allocates and administers the tax credit program

for the State of California. The responsibilities of CTCAC are as follows:

A. Issue IRS Form 8609 (Low-Income Housing Certification)

An IRS Form 8609 is prepared by CTCAC for each building in the project. Part I of the

Form is completed by CTCAC and then sent to the owner when the project is Placed In

Service and all required documentation is received by CTCAC.

Part II of the IRS Form 8609 must be completed by the owner in the first taxable year for

which the credit is claimed. After completion of Part II, the owner is required to submit a

copy of the form to the Compliance Section of CTCAC. The original is sent to the IRS

with the owner’s personal, partnership, or corporate tax returns in the first taxable year in

which the credit is claimed and each year thereafter in the compliance period. After

signing and dating Part II of the 8609 form, the owner should make sixteen (16) copies of

it, one for each of the tax credit compliance years.

Owners should consult with their legal and/or tax advisors for advice on completing and

filing the IRS tax forms. CTCAC cannot give legal or tax advice on the filing or

completion of tax forms.

The issuance of the IRS Form 8609 begins the compliance monitoring period. A sample

copy of the form is included in Appendix 4. CTCAC will conduct the 1st compliance

monitoring visit within two years of the date the last building Placed in Service.

B. Prepare Regulatory Agreement/Restrictive Covenants

CTCAC will prepare a Regulatory Agreement (Land Use Restrictive Agreement) prior to

issuance of the IRS Form 8609. This document must be recorded before the end of the

calendar year in which credit is first claimed. When the original recorded document, from

the County Recorder’s Office in which the property is located, is returned to CTCAC and

all fees have been paid, the IRS Form 8609 will be sent to the owner.

C. Review Annual Owner Certification

For information on the Annual Owner Certification, see Section V, Part 5.6

CA Tax Credit Allocation Committee 7 April 2023

D. Review Annual Operating Expense Report (AOE)

For information on the Annual Operating Expense Report, see Section V, Part 5.6 (C).

E. Conduct On-site Monitoring - Current Portfolio

Currently, CTCAC will conduct in-depth on-site compliance monitoring for at least one-

third of the total portfolio for tax credit projects in the federal credit period each year.

Owners of the selected projects will be required to provide detailed information on tenant

income and rent for all low-income units in each building in the project, and CTCAC will

choose a random sample to audit. Information to be reviewed will include, but is not

limited to, the annual income certifications, the documentation received to support those

certifications, and rent records.

CTCAC retains the right to perform an on-site inspection of any low-income building at

any time during the compliance period. For more information about on-site monitoring,

see Section V, Part 5.7.

In 2001, CTCAC started conducting both file and on-site physical inspections for all

projects no later than the end of the second calendar year following the year the last

building in the project is Placed In Service, and once every three years thereafter. The

physical inspections are conducted for all buildings and common areas in each project.

In 2021, upon finalized federal guidance regarding sample size, CTCAC modified the

total monitoring sample size, for both file and physical audit, to scale with the size of the

project.

- For projects with up to 150 LIHTC units - CTCAC will monitor a 20% random

sample at each inspection.

- For projects with 151 – 300 LIHTC units – CTCAC will monitor a 15% random

sample at each inspection.

- For projects with 301 or more LIHTC units – CTCAC will monitor a 10% random

sample at each inspection.

Additionally, CTCAC will inspect all units on the property that have been vacant for

more than 30 days. The file and physical review will take place at the property. If files

are kept at an off-site location, it is to be expected that they will be brought to the site on

the day of the inspection. In rare instances where there is not available space at the

property to review the files, CTCAC may make prior arrangements to meet at an off-site

location if it is in close proximity to the property.

F. Conduct On-site Monitoring – Extended Use Portfolio

In 1992, the IRS implemented as part of criteria for being awarded Tax Credits the

requirement for owners to enter into a longer period of restriction outside the initial 15

year compliance period for the IRS. In California, this period is called the Extended Use

Period and the terms of the agreement require that all income eligibility and rent

CA Tax Credit Allocation Committee 8 April 2023

restriction continue for an additional 15-40 years (40 year extended use period being the

standard for 9% competitive projects in California as of 1996 and 4% Bond projects as of

2004.)

CTCAC will conduct in-depth on-site compliance monitoring for at least one-fifth of the

total portfolio for tax credit projects in the Extended Use period each year. Owners of the

selected projects will be required to provide detailed information on tenant income and

rent for all low-income units in each building in the project, and CTCAC will choose a

random 10% sample to audit. Information to be reviewed will include, but is not limited

to, the annual income certifications, the documentation received to support those

certifications, and rent records.

Projects that were awarded credits in 1989-1991 had the option of entering into a Land

Use Restriction Agreement (LURA) or Regulatory Agreement after the fact, which

outlined the continued terms the owner needed to abide by.

See Section V, Part 5.8 for details of Extended Use Monitoring Requirements

G. Conduct 504 Monitoring for TCAP properties – ARRA legislation

Starting in 2011, CTCAC began conducting HUD Section 504 monitoring for all

properties that elected to receive TCAP funding. This monitoring is to verify the property

conforms to all ADA accessibility standards and requirements as noted in the ARRA

legislation for TCAP. Unlike the standard CTCAC monitoring for Section 42, 504

monitoring was completed during the final construction phase or concurrent with initial

lease-up of the property. The 504 Monitoring was a one-time inspection to ensure the

projects were compliant. As of July 2013, CTCAC has completed the 504 Monitoring

inspections for all TCAP properties.

H. Conduct Asset Management Functions for TCAP and Section 1602 exchange funds

– ARRA legislation

Starting in 2010 and continuing for the fifteen-year Federal Compliance Period, for all

ARRA projects funded by either 1602 funds or TCAP funds, CTCAC will be monitoring

asset management functions of these projects. The portfolio consists of 138 Tax Credit

developments that received federal assistance through 2 federal programs: TCAP

Program administered by the US Department of Housing and Urban Development (HUD)

and Section 1602 exchange funds administered by the US Treasury.

CTCAC will require all ARRA project sponsors to submit the annual operating budgets,

annual physical inspection reports, and annual audited financial statements for review and

approval by CTCAC and/or asset management contractor. The Operating Budget should

follow the HUD chart of accounts and include all income and operating cost categories.

The Audited Financial Statements consist of Balance Sheet, Statement of Operations, and

Statement of Cash Flows prepared in accordance with Generally Accepted Auditing

Principles (GAAP) Standards.

CA Tax Credit Allocation Committee 9 April 2023

Annual Asset Management Reports:

• Annual Operating Budget

• Annual Audited Financial Statement

• Annual Physical Inspection Report

Asset management fee:

• Projects that received Cash in Lieu Assistance or elected not to share asset

management reports (via Cooperation Agreement) - will be required to pay asset

management fees.

• For those ARRA projects that will pay asset management fees, the following

summarizes the fee structure for CTCAC asset management during the initial 15-

year federal compliance period:

o Annual Asset Management fee of $5,000 for small development projects

with 30 units or fewer (up to 30 units).

o Annual Asset Management fee of $7,500 for projects that range between

31 units and 75 units (up to 75 units).

o Annual Asset Management fee of $7,500 (up to 75 units) and $40 per unit

per year for each additional unit in tax credit project with a maximum cap

of $15,000 per year.

Please note that all ARRA projects will also be subject to regular Section 42 Monitoring

as well as the Asset Management throughout the entire Compliance Period.

I. Notification of Noncompliance

For Properties within the 15-year Federal Compliance Period - CTCAC will notify

the IRS of instances of reportable noncompliance for any projects within the 15-year

federal compliance period. For information on noncompliance, see Section VI.

For Properties in the Extended Use Period – CTCAC may issue negative points for

future funding rounds or fines to the owner or management agent if the issues of

noncompliance are not corrected during the correction period.

For Properties receiving ARRA funds – CTCAC will notify the IRS or Treasury,

whichever is applicable, if the issues of noncompliance are not corrected within the 15

year federal compliance period. Please note: ARRA funded projects must follow all

Section 42 IRS Regulations and will be monitored accordingly.

CA Tax Credit Allocation Committee 10 April 2023

J. Record Retention - CTCAC

CTCAC will retain all owner certifications and records for not less than three years from

the end of the calendar year in which they are received. CTCAC will retain records of

noncompliance or the failure to certify compliance for six years after its filing an IRS

Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance.

K. Conduct Training and Provide Continuing Education

1. Workshops - CTCAC will conduct Compliance Workshops each calendar year.

Information regarding dates and locations will be posted on our website starting in

January of the current year:

http://www.treasurer.ca.gov/ctcac/compliance.asp

Workshops are filled on a 1

come basis. In-person workshops will be limited to 3

persons per company. Virtual workshops do not have a limitation on attendance per

organization. Please see Section V Part 5.2 for more information on Workshops

2. CTCAC offers continuing technical guidance to assist the owner, the management

company, and on-site personnel in complying with federal regulations and state rules.

CTCAC staff can be contacted at:

Low-Income Housing Tax Credit Program

California Tax Credit Allocation Committee

P.O. Box 942809

Sacramento, CA 94209-0001

(916) 654-6340

3. Owner/Management Training Classes - offered 3-4 times a year for projects that

have been awarded 4% credits, sold or resyndicated an existing Tax Credit property

where the incoming owner or management company does not have the required

LIHTC experience per the regulations, or whenever staff determines that such

training is necessary.

L. Rural Housing Service (RHS) Agreement

CTCAC currently has an agreement with the RHS (formerly known as the Farmers Home

Administration) with respect to the provision of monitoring certain tenant and rent

information. RHS projects are subject to the compliance requirements outlined in this

manual.

M. Subcontracting of Functions

CTCAC subcontracts with four third party vendors to provide the following:

• Asset Management services for some of the 138 properties that were awarded Tax

CA Tax Credit Allocation Committee 11 April 2023

Credit Assistance Program (TCAP) or Section 1602 credit exchange funds under

ARRA – Boston Capital

• HUD Tenant Demographic Data Collection as required by HERA – Spectrum

Enterprises

• California Utility Allowance Calculator (CUAC) Submissions – Beningfield

Group

• Compliance Monitoring – American Housing Consultants, LLC

N. Freedom of Information Act / Public Records Act

The California Public Records Act (PRA) Government Code 6250-6270 is similar to the

federal Freedom of Information Act -- the purpose of these acts is to give private citizens

greater access to government information. With some exceptions, the PRA considers

records maintained by most state agencies to be public records, but also recognizes the

right to individual privacy.

To make a FOIA or PRA request, please submit it in writing to:

Ashley Alexander

c/o CTCAC FOIA Request

915 Capitol Mall, Room 485

Sacramento, CA 95814

CTCAC will charge for the cost of copying the documents only. The turnaround time for

all requests is normally 10 business days. If a request will take longer, a notification letter

will be sent within 10 business days. Documents will be mailed via regular US Mail, if

Fed Ex or UPS is requested, the requestor must pay the cost of postage.

Part 2.2 Owner of Project

In exchange for the low-income housing tax credit benefits, the owner must adhere to certain

requirements and accept responsibilities, outlined as follows:

A. The project owner should be knowledgeable about the following:

1. The credit year of the project. (The date of allocation.)

2. The date(s) the building(s) was Placed in Service. The Placed in Service date is the

date of first possible occupancy, not necessarily actual occupancy. Generally, this is the

certificate of occupancy date or temporary certification of occupancy for new

construction properties and the acquisition date for Acq/Rehab properties.

3. If a rehabilitation project:

• whether or not tenants were required to move out during rehab

• whether or not the building was occupied during the rehab

CA Tax Credit Allocation Committee 12 April 2023

4. The number of buildings in the project.

5. The Building Identification Number (BIN) for each building in the project.

6. The percentage of the residential units in the project that are tax credit eligible, or the

percentage of floor space that is tax credit eligible.

7. The year when credit was first claimed with the IRS.

8. The terms under which the tax credit reservation was made, including statutory set-

aside, deeper targeting agreements, etc.

9. The minimum set-aside elected:

• 20/50

• 40/60

• Average Income Target

10. Line 8b election on the 1

year filings of the 8609 forms, determining whether the

project is considered a multi-building project.

B. Good Cause Eviction

On July 29, 2004, The Internal Revenue Service (IRS) issued Revenue Ruling 2004-82

which set forth that all Housing Credit Properties are prohibited against evicting tenants

in low-income housing units for other than good cause throughout the entire Compliance

Period.

In accordance with Revenue Ruling 2004-82, effective July 30, 2004, a low-income

resident of any Housing Tax Credit project may not be evicted other than for good cause.

Housing Tax Credit unit occupants have the right to specifically enforce this prohibition

in State court. Generally, “good cause” is defined as “the serious or repeated violations of

a material term of the lease”, as that definition is applied with respect to federal public

housing.

You must use the CTCAC form to evidence compliance with this provision. See Section

III Part 3.7 (E)

C. Comply with Terms of Application

For more information regarding the compliance monitoring requirements for

representations made by project owners in their applications, see Section III, Parts 3.6 –

3.10

CA Tax Credit Allocation Committee 13 April 2023

D. Meet Initial Eligibility Requirements

Submit compliance monitoring fees as described in Section V, Part 5.10.

Submit to CTCAC a copy of the signed and dated IRS Form 8609 for each building with

Part II completed after the submission of the first-year filing to the IRS.

Change of the composition of the ownership entity, including sale of the property must be

approved by CTCAC prior to the completion of the sale. The owner must provide details

and include a sales agreement identifying the complete information for the new owner

entity if the property is to be sold, if the general partnership interest change is greater

than 50% or if there is a change in the limited partnership, at minimum 45 days prior to

the closing date for the sale. CTCAC reserves the right to require the new ownership

entity to undergo specific CTCAC training or partner with a bona-fide management

company with a current tax credit portfolio in California if it determined the new

ownership entity does not have a sufficient LIHTC Section 42 background or an existing

portfolio of Tax Credit properties in California. For more information on transfer events,

see Section III Part 3.11.

E. Deeper Targeting Requirements

Deeper Targeting requirements are common in 9% competitive tax credit deals and 4%

bond deals awarded credits after 2006. This is a State election and is separate from the

federally elected set-aside of 20/50, 40/60, or AIT. The deeper targeting is determined by

the owner at application stage and will be monitored by the State allocating agency on a

property-wide basis at each audit. All deeper targeting requirements remain in effect for

the full compliance period of up to 55 years.

CTCAC does not regulate the methodology the owner uses to calculate the deeper

targeting set-aside, nor does it moderate in disputes between the owner/management

agent and tenants regarding the movement from one deeper targeted set-aside to another.

CTCAC will monitor to verify the total number of units noted in the Regulatory

Agreement are being met throughout both the entire Federal Compliance and Extended

Use period. Failure to meet the Deeper Targeting Requirements may result in negative

points for a future funding round or fines to the owner.

F. Prepare and Submit the Annual Certification Package

Prior to 2009, the Annual Owner Certification Package consisted of three reports: the

Annual Owner Certification (AOC), the Project Ownership Profile (POP), and Annual

Operating Expense Report (AOE), and was due as of March 1st.

Starting in 2009, the Annual Owner Certification Package (AOC package) will consist of

four reports: the Annual Owner Certification (AOC), the Project Ownership Profile

(POP), Annual Operating Expense Report (AOE), and the Lender Report. As of 2009, the

AOC package is split into two parts. Part 1 will include the Annual Owner Certification

CA Tax Credit Allocation Committee 14 April 2023

(AOC) documentation and the Project Ownership Profile (POP). Part 2 will include the

financial data of the Annual Operating Expense Report (AOE) and the Lender Report.

Part 1 of the Annual Owner Certification Package is due at the end of March of the

current year. See CTCAC website for specific dates.

Part 2 of the Annual Owner Certification Package is due at the end of May of the

current year. See CTCAC website for specific dates.

It is solely the owner’s responsibility to submit the complete Annual Owner Certification

Package before the deadlines noted.

The Annual Owner Certification Package forms and files are available on our website:

http://www.treasurer.ca.gov/ctcac/compliance/AOC/index.asp

Failure to submit all four reports (AOC, POP, AOE, and Lender Report) completely and

legibly by the due date is noncompliance and can ultimately result in the issuance of an

uncorrected IRS Form 8823 and/or a recommendation for negative points (Regulation

Section 10325(c)(2)).

1. Annual Owner Certification (AOC) part 1:

The owner of any building(s)/project which has claimed or plans to claim low-income

housing tax credit or owner’s whose projects are in the extended-use period, must

certify to CTCAC, under penalty of perjury, annually, for each year of the compliance

period, on CTCAC’s Owner Certification form, that, for the preceding 12 month period:

(i) The project meets the requirements:

(A) The 20-50 test under §42(g)(1)(A), or

(B) The 40-60 test under §42(g)(1)(B)

(ii) There was no change in the applicable fraction (as defined in §42 (c)(1)(B) of the

Code) of any building in the project;

(iii) The owner has received an annual income certification from each low-income tenant

and documentation to support that certification; or, in the case of a tenant receiving

Section 8 housing assistance payments, the statement from a public housing authority

described in paragraph (b)(1)(vii) of §1.42-5 (Compliance Monitoring Requirements);

(iv) Each low-income unit in the project was rent restricted under §42(g)(2);

(v) All units in the project were for use by the general public (as defined in §1.42-9),

including the requirement that no finding of discrimination under the Fair Housing

Act, 42 U.S.C. 3601-3619, occurred for the project. A finding of discrimination

includes an adverse final decision by the Secretary of the Department of Housing and

Urban Development (HUD), 24 CFR 180.680, an adverse final decision by a

substantially equivalent state or local fair housing agency, 42 U.S.C. 3616a(a)(1), or

an adverse judgment from a federal court;

CA Tax Credit Allocation Committee 15 April 2023

(vi) The buildings and low-income units in the project were suitable for occupancy,

taking into account local health, safety, and building codes, and the State or local

governmental unit responsible for making local health, safety, or building code

inspections did not issue a violation report for any building or low-income unit in the

project. If a violation report or notice was issued by the governmental unit, the owner

must attach a statement summarizing the violation report or notice, or a copy of the

violation report or notice to this certification. In addition, the owner must state

whether the violation has been corrected;

(vii) There has been no change in the eligible basis (as defined in §42(d)) of any building

in the project, (e.g., a common area has become commercial space, or a fee is now

charged for a tenant facility formerly provided without charge);

(viii) All tenant facilities included in the eligible basis under §42(d) of any building in the

project, such as swimming pools, other recreational facilities, and parking areas, were

provided on a comparable basis without charge to all tenants in the building;

(ix) If a low-income unit in the project becomes vacant during the year, that reasonable

attempts were, or are being made to rent that unit, or the next available unit of

comparable or smaller size, to tenants having a qualifying income before any units in

the project were, or will, be rented to tenants not having a qualifying income;

(x) If the income of tenants of a low-income unit increased above the limit allowed in

§42(g)(2)(D)(ii), the next available unit of comparable or smaller size in the project

was, or will be, rented to tenants having a qualifying income;

(xi) A regulatory agreement as described in §42(h)(6) was in effect, including the

requirement that an owner may not refuse to lease a unit in the project to a

prospective tenant who holds a voucher for assistance pursuant to Section 8 of the

United States Housing Act of 1937, as amended, because of the status of such

prospective tenant as the holder of such voucher or certificate.

(xii) All low-income units in the project were used on a non-transient basis (except for

transitional housing for the homeless provided under §42(i)(3)(B)(iii) single-room-

occupancy units rented on a month-by-month basis under §42(i)(3)(B)(iv));

(xiii) The project met all terms and conditions recorded in its Regulatory Agreement, if

applicable. (As detailed in the Regulatory Agreement and Exhibit A to the Regulatory

Agreement.);

(xiv) The applicable fraction (as defined in IRC Section 42(c)(1)(B)) met all requirements

of the credit allocation as specified on IRS Form(s) 8609 (Low-Income Housing

Credit Allocation Certification.);

(xv) No change in ownership of the project has occurred during the reporting period;

(xvi) The Project has not been notified by the Internal Revenue Service that it is no

longer a “qualified low-income housing project” within the meaning of Section 42 of

the IRC.

(xvii) No additional tax-exempt bond funds or other Federal grants or loans with interest

rates below the applicable federal rate have been used in the project since it was

placed in service;

(xviii) The project contains: ______ low income units. On December 31, 20##, the

number of low income units that were occupied by tax credit eligible households was

_______.

(xix) The project did not suffer any casualty loss in 20##; fire, flood, earthquake, or

CA Tax Credit Allocation Committee 16 April 2023

structural damage;

(xx) No tenants in low-income units were evicted or had their tenancies terminated other

than for good cause, and no tenants had an increase in gross rent with respect to a

low-income unit not otherwise permitted under Section 42;

(xxi) The property is in compliance with the Violence Against Women Act requirements

and all related implementing regulations providing protections for residents and

applicants who are victims of domestic violence, dating violence, sexual assault,

and/or stalking.

(xxii) The project has provided all site / service amenities as identified in the project

Regulatory Agreement during the reporting period;

(xxiii): The project owner certifies compliance with the Capital Needs Agreement to

complete short term work and set aside replacement reserve funding for long term

work during the 15-year agreement (if applicable);

(xxiv) FOR PROJECTS RECEIVING STATE CREDITS ONLY: No more than the 8%

cash distribution from Project operations, after funding required reserves, as provided

for under Revenue and Taxation Code Sections 17058(d) and 23610.5(d), was

distributed during the reporting year.

An Annual Owner Certification must be submitted to CTCAC for each year in which a

project was in service or occupied for one day or more. The form should not be

completed prior to the next calendar year and must be received by CTCAC by the end of

March (see website for specific due dates). Failure to submit legible and thoroughly

completed required forms when they are due will be considered an act of noncompliance

and is reportable to the IRS on Form 8823.

2. Annual Project Ownership Profile (POP) part 1:

CTCAC requires a Current Project Ownership Profile at the AOC filing. This information

should reflect the current and correct Ownership address and contact information, as well

as the current Management company information. The form will be available on our

website and will be due electronically in the same packet as the AOC. Please Note – If

the POP information indicates a change from the Ownership partnership or Tax-Id

Number noted on the 8609’s, CTCAC will contact the owner for clarification prior to

reporting the discrepancy on IRS Form 8823.

3. Annual Operating Expense Report (AOE) part 2:

CTCAC requires an Annual Operating Expense Report (AOE) as part of the Annual

Owner Certification package. The form will be available on our website and report will

be due electronically.

4. Lender Report part 2:

CTCAC will require a complete copy of the Lender Report. The form will be available on

our website and the report will be due electronically.

CA Tax Credit Allocation Committee 17 April 2023

5. HUD Tenant Demographic Data

The Housing Recovery Act of 2008 requires that all LIHTC and HUD programs gather

tenant demographic data for all participants in its programs on an annual basis. Beginning

in 2011, CTCAC will require all owners provide this information.

In November 2010, CTCAC released a revised TIC with Supplemental Tenant

Demographic Data and a Supplemental Tenant Data Sheet for Existing Households. This

form is to be used for all new move-ins as of January 1, 2011 to collect the required data

for HUD

In January 2012, CTCAC further revised the TIC to capture information in a specified

format and language consistent with software requirements of both HUD and our

contractor Spectrum.

CTCAC will post specific instructions on the website to owners on submission of this

data. Data will be due electronically to our assigned contractor – Spectrum Enterprises.

G. Train On-site Personnel

The owner must make certain that the on-site management knows, understands, and

complies with all applicable rules, regulations, and policies governing the project.

Additionally, CTCAC strongly recommends that all onsite personnel be Tax Credit

certified.

H. Ensure Proper Maintenance

The owner is responsible to ensure that the LIHTC project is maintained in a decent, safe,

sanitary condition, and in good repair. Failure to do so is a reportable act of Uniform

Physical Condition Standards (UPCS) noncompliance.

Lock-outs or units where management does not have a key at the time of a

compliance inspection, will be noted as a Level 3 UPCS Health and Safety Violation

(blocked emergency ingress/egress) and will be reported to the IRS on Form 8823.

All properties entering into the Extended Use period must continue to comply with the

UPCS requirements.

I. Recordkeeping and Record Retention - Site

The owner of any building for which credit has been or is intended to be claimed must

keep records that include all of the information set forth below, on a building by

building basis, for a minimum of six years after the due date (with extensions) for filing

the federal income tax return for that year. Please note: The records for the first year

of the credit period must be kept for six years beyond the end of the federal

CA Tax Credit Allocation Committee 18 April 2023

compliance period for each building in a project, for a total period of 22 years.

The records must include the following:

1. The total number of residential rental units in the building (including the number

of bedrooms and the size in square feet of each residential rent unit);

2. The percentage of residential rental units in the building that are low-income units;

3. The rent charged on each residential rental unit in the building and the applicable

utility allowance;

4. The number of occupants in each low-income unit;

5. The low-income unit vacancies in the building and information that shows when

and to whom the next available units were rented (This information must include the

unit number, tenant name, move-in date and move-out date for all tenants, including

market rent tenants.);

6. The income certifications of each eligible tenant;

7. Documentation to support each eligible tenant’s income certification;

8. The eligible basis and qualified basis of the building at the end of the first year of the

credit period; and

9. The character and use of nonresidential portion of any building included in the

project’s eligible basis (for example, any community building, recreational facility,

manager’s unit(s), etc.) available to all tenants and for which no separate fee is

charged.

J. Maintain a Development File

CTCAC suggests that Owners maintain a Development File that contains all pertinent

documents for the project. The Development File should contain:

1. All approved tax credit applications together with applicable attachments;

2. Recorded copy of the Regulatory Agreement/Restrictive Covenant (except for pre-

1990 credit projects);

3. For 1987-89 projects, election to calculate rent on a bedroom basis, if applicable;

4. IRS Forms 8609 and 8586 for each building for each year credit is claimed;

5. All applicable documents relating to any other form of housing or finance programs

(i.e., HOME, HUD Section 8, RHS, etc.);

6. Documentation that the project complies with any statutory set-asides or

Qualified Allocation Plan requirements. For more information, see Section III, Part

3.9;

7. Utility Allowance documentation, for each utility allowance update or revision which

must occur at least once per year. For more information regarding utility allowances,

see Section III Part 3.4

8. Ongoing Site and Service Amenity requirements as noted in the Regulatory

Agreement, including contracts for services and classes.

K. Maintain a Tenant/Unit File for Each Unit in the Project

The Tenant/Unit File requirements are outlined in Section IV, Part 4.8.

CA Tax Credit Allocation Committee 19 April 2023

L. Prepare and Submit Low-Income Housing Credit (IRS Form 8586)

One IRS Form 8586 must be completed to claim credits for the first taxable year in which

credit is taken and every year thereafter in the compliance period. IRS Form 8586 must

be attached to IRS Form 8609 and Schedule A (IRS Form 8609) and submitted annually

with the owner’s federal tax return. A sample copy of the form is included in Appendix 4.

M. Administration and Notification

The owner is required to notify CTCAC immediately in writing and obtain CTCAC

approval prior to any changes in the ownership composition or in the management agent,

such as name, address, and telephone number. Transfer Events such as refinance, sale or

MGP or LP changes are subject to additional requirements noted in the current

regulations. For information on Transfer Events, please see Section III Part 3.11.

Part 2.3 Management Company and On-site Personnel

The management company and all on-site personnel are responsible to the owner for

implementing the LIHTC program requirements properly. Anyone who is authorized to lease

apartment units to tenants should be thoroughly familiar with all federal and state laws, rules,

and regulations governing certification and leasing procedures. It is also important that the

management company provide information, as requested, to CTCAC and submit all required

reports and documentation in a timely manner. The Owner has the ultimate responsibility for

compliance and proper administration of the LIHTC program.

CA Tax Credit Allocation Committee 20 April 2023

SECTION III – FEDERAL AND STATE REGULATIONS

The following section highlights some of the statutory and regulatory provisions directly affecting

project compliance. The following is not meant as an exhaustive listing of compliance regulations.

Part 3.1 Calculating and Claiming the LIHTC

A. The Annual Tax Credit Amount

The maximum amount of credit that can be allocated is calculated by multiplying the

“eligible basis” by an “applicable fraction” to ascertain the “qualified basis” and then

multiplied by the “applicable credit percentage.”

For definitions of Qualified Basis, Eligible Basis, Applicable Fraction, and

Applicable Tax Credit Percentage, see the Glossary in Section IX or a low-income housing

tax credit textbook or guide.

QUALIFIED BASIS = Eligible Basis multiplied by Applicable Project Fraction

ANNUAL TAX CREDIT = Qualified Basis multiplied by Applicable Credit Percentage

The annual credit allocated may not exceed this amount. However, it may be less if

CTCAC determines that this maximum amount is not necessary.

B. Claiming Tax Credits in the Initial Year

The credit is claimed annually for ten years, and the credit period can begin either in the

year that the building is Placed in Service or the subsequent year, depending on the owner’s

election. During the first year of the credit period, the low-income occupancy percentage is

calculated on a monthly basis. The calculation begins with the first month in which the

project was Placed in Service (or the following year if there is an election to defer the credit

period) even though the building may not be occupied during that month. Occupancy for

each month is determined on the last day of the month.

An IRS Form 8609 is completed for each building in the development receiving tax credits

and is filed with the taxpayer’s tax return for the first year of the credit period. Owners can

elect to defer the start of the credit period by checking the appropriate box on the IRS Form

8609. A sample copy of this form and its instructions are located in Appendix 4.

C. Initial Year Proration

A project claiming credit in the initial year of occupancy is subject to a special provision

which limits the credit to a proportionate amount based on average occupancy during the

year.

For example: If one-half of the low-income units were occupied in November and the

remaining one-half were occupied in December, the building would be treated as being in

CA Tax Credit Allocation Committee 21 April 2023

service for 1.5/12 (12.5% - all for December and half for November) of the year for a

calendar year partnership. In the 11th year, the disallowed credit of

10.5/12 (87.5%) could be claimed.

If a qualified low-income tenant becomes an ineligible tenant prior to the end of the initial

tax credit year, that unit cannot be counted in the first year toward the minimum set-aside

for purposes of determining the qualified basis.

D. The Two-thirds Rule

If an owner decides to take the tax credit for a property in the initial year when, for

example, only 80% of the units are rented to tax credit eligible tenants, the maximum

qualified basis for the entire credit period would be 80% with the remaining 20% eligible

for two-thirds credit if later rented to eligible tenants.

Please note – for projects that are 100% tax credit (all units LIHTC), the expectation at

submitting the Placed in Service (PIS) is that all units will be occupied by qualified

households. The two-thirds rule is applicable to units that were later determined to not be

qualified due to error. If an owner is aware at PIS submission that there are unqualified

households (not 100% LIHTC), the project will be considered a Mixed Income (not 100%)

LIHTC property and the over-income units would not be considered tax credit units for the

period of the Regulatory Agreement.

E. Increase in Qualified Basis

If there is an increase in a building’s qualified basis (usually by adding 1 or more new tax

credit units) after the first year of the credit period, and to the extent that a building has

been allocated more credit than it has been eligible to take, the owner may claim an

additional credit equal to two-thirds of what would first have been eligible to claim. This

should not be confused with the first year election described above and is applicable only

for increases that occur after the first year of the credit period.

F. Claiming Credit in the Remaining Years of the Compliance Period

Owners must file an IRS Form 8586 (Low-Income Housing Credit) for every year in the

compliance period. This form indicates continuing compliance and the qualified basis of

the development for each year of the compliance period. A sample copy of this form is

located in Appendix 4.

Part 3.2 Minimum LIHTC Set-aside Requirements and Income Limits

By the time credit is allocated, the owner has elected one of the following minimum set-aside

elections on a project basis:

(A) At least 20% of available rental units must be rented to households with incomes not

exceeding 50% of area median income adjusted for household size.

CA Tax Credit Allocation Committee 22 April 2023

(B) At least 40% of available rental units must be rented to households with incomes not

exceeding 60% of area median income adjusted for household size. The project owner

may have also elected to target a percentage of the units to persons of lower income

levels and/or to target a higher percentage (number) of units to low-income persons.

These project owners must comply with those elections for the duration of the

Regulatory Period.

rented to household up to 80% of AMI provided the Average Income of the property

does not exceed 60% of AMI adjusted for household size. Please see Section IV Part

4.3 for detail on how to determine the AIT at a property.

For more information regarding deeper targeting, see Section II Part 2.2(E). HUD publishes

median income and rent limit information for California and for each county or metropolitan area

on an annual basis.

Part 3.3 Maximum Gross Rent

The maximum gross rent is the tenant paid portion of the rent plus the utility allowance (excluding

telephone and cable) and any other mandatory charge. For more information regarding utility

allowances, see Section III, Part 3.4.

A. Projects Allocated Credit during the Years 1987 to 1989

For projects allocated 1987, 1988, or 1989 credit, the tenant’s gross rent may not

exceed 30% of the applicable median income (that is, either 50% or 60%, depending on

which income set-aside has been chosen) adjusted for household size for the area in which

the project is located. The gross rent must include an allowance for utilities, except those

that are paid for by the development.

Owners of a low-income building placed in service before 1990 had until February 6,

1994 to make an irrevocable election to continue to use household size or to begin using

the number of bedrooms in determining maximum allowable rent. The election applied

only with respect to tenants first occupying any unit in the building after the date of the

election.

B. Projects Allocated Credit after January 1, 1990

Projects receiving tax credit allocations after January 1, 1990, must be rent-restricted based

on an imputed, not actual, household size. Household size is imputed by the number of

bedrooms in the following manner:

1. An efficiency or a unit that does not have a separate bedroom – 1 individual; and

2. A unit that has 1 or more separate bedrooms – 1.5 individuals for each separate bedroom.

The maximum gross rent is calculated as 30% of the applicable median income for the

CA Tax Credit Allocation Committee 23 April 2023

imputed household size (notwithstanding that the actual household size may be different).

For Example:

Income Limits (by household size)

One Person Two Persons Three Persons Four Persons

$10,000 $15,000 $20,000 $25,000

The rent for a two bedroom unit is calculated based on the imputed household size

of three persons (1.5 persons for each of the two bedrooms). Annual rent is 30% of the

income limit for the imputed household size ($20,000 x 30%) divided by 12 months [equals

$500]. The $500 amount would be the maximum allowable gross rent regardless of the

number of persons actually occupying the two bedroom unit.

C. Allowable Fees and Charges

Customary fees that are normally charged, such as security deposits, cleaning deposits, pet

deposits, and/or credit deposits are permissible. However, an eligible tenant cannot be

charged a fee for work involved in completing the additional forms or documentation

required by the LIHTC Program, such as the Certification of Tenant Eligibility. For

verifications that require a fee to complete (such as The Work Number, Verification of

Deposit for assets over $5000, etc.), CTCAC does allows the direct cost of obtaining the

verification to be passed along to the tenant. However, please note that for projects with

HUD funding, HUD does not allow the additional costs to be passed on and the owner may

need to absorb the costs for any verifications.

If after occupying a unit, an eligible tenant cannot pay the rent, the owner has the same

legal rights in dealing with the income-eligible tenant as with any other tenant.

D. Section 8 Rents

Gross rent does not include any payments made to the owner to subsidize the tenants’ rent,

including Section 8 or any comparable federal, state, or local government rental assistance

program to a unit or its occupants. Only the tenant-paid portion of the rent payment

(inclusive of tenant-paid utilities) is considered in determining if the rent exceeds the

maximum gross rent permissible.

Additionally, the gross rent may exceed the federal set-aside Tax Credit limits of 20/50,

40/60 or AIT, as long as the household is receiving at least $1 in federal (Section 8)

subsidy – project based or voucher.

For example:

The maximum allowable tax credit gross rent for a unit is $900. The maximum Section 8

rent is $1250. At the most recent HUD recertification, HUD determined that the tenant’s

income has increased and they have reduced the amount of HUD Rent subsidy for the

tenant to $10. The owner may charge the tenant up to $1240 in rent even though the

CA Tax Credit Allocation Committee 24 April 2023

amount is above the tax credit limits, since the household is still receiving at least $1 in

subsidy assistance.

E. Gross Rent Floor Election

The Gross Rent Floor Election (GRFE) is made by the owner within the 1

year of

receiving a credit reservation. For all projects, CTCAC will determine the GRFE to be at

carryover allocation for 9% tax credit projects or at preliminary reservation for 4% bond

projects unless specific written notification is made by the owner to TCAC specifying the

GRFE is to be at placed in service.

For all projects Placed in Service on or before 5/13/2010, a project’s rent limit is not

impacted by the GRFE selected by the owner, due to HUD’s Hold harmless policy, as the

limits were never less at placed in service than they were at carryover or preliminary

reservation. Similarly, a project could not use HERA Special limits as their GRFE, since to

qualify as a HERA Special project, the project must have been placed in service prior to

12/31/2008.

For all projects that Placed in Service on or after 5/14/2010, the owner and management

company needs to be knowledgeable of the GRFE as the income limit in several counties

decreased in 2009 and continued to fluctuate in the subsequent years.

For all projects that Placed in Service on or after 5/14/2010, the correct Rent limit to use

would be the greater of:

A.) the limits in place at carryover allocation/preliminary reservation, or

B.) the current rent limit at Placed in Service

The time frame for the Rent limit is driven by the Rent/Income release date by HUD. The

following is a list of HUD release dates per calendar year as determined by HUD that may

potentially affect projects placed in service on or after 5/14/2010.

• 2006 – on or after 3/8/2006 through 3/19/2007

• 2007 – on or after 3/20/2007 through 2/12/2008

• 2008 – on or after 2/13/2008 through 3/18/2009

• 2009 – on or after 3/19/2009 through 5/13/2010

• 2010 – on or after 5/14/2010 through 5/30/2011

• 2011 – on or after 5/31/2011 through 11/30/2011

• 2012 – on or after 12/1/2011 through 12/3/2012

• 2013 – on or after 12/4/2012 through 12/17/2013

• 2014 – on or after 12/18/2013 through 3/5/2015

• 2015 – on or after 3/6/2015 through 3/27/2016

• 2016 – on or after 3/28/2016 through 4/13/2017

• 2017 – on or after 4/14/2017 through 3/31/2018

• 2018 – on or after 4/1/2018 through 4/23/2019

• 2019 – on or after 4/24/2019 through 3/31/2020

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• 2020 – on or after 4/1/2020 through 3/31/2021

• 2021 – on or after 4/1/2021 through 4/17/2022

• 2022 – on or after 4/18/2022

In 2022, an analysis of the existing income and rent tables was conducted and several tables were

combined according to their Hold Harmless status. The updated tables can be found on the

CTCAC website at: https://www.treasurer.ca.gov/ctcac/2022/supplemental.asp

The combined tables are:

• 2022 Limits for Projects Placed in Service on or before 12/31/2008

• 2022 Limits for Projects Placed in Service from 1/1/09 – 3/5/2015

• 2022 Limits for Projects Placed in Service from 3/6/2015 – 3/31/2021

• 2022 Limits for Projects Placed in Service from 4/1/2021 – 4/17/22

• 2022 Limits for Projects Placing in Service on or after 4/18/22+

F. 8609 Form Line 8b Election

CTCAC issues the IRS Form 8609 for each building in a project once the Placed in Service

package has been received. The owner then completes Part II and submits the form to the

IRS in order to start claiming credits on the project. The owner is also required to send a

completed copy of the first year filing of the 8609 form(s) to CTCAC for record keeping.

The owner will need to know how the Line 8b election on the 1

year filing of the 8609 forms

is treated or will be treated and be able to relate that information to the management company

operating the property. Line 8b states:

Are you treating this building as part of a multiple building project for purposes of

Section 42? ……………………………..  Yes  No

If the owner elects “Yes” and attaches the required statements to IRS Form 8609, all buildings

are considered to be part of one project (multi-building project). All Section 42 regulations apply

to all buildings, transfers may be completed between buildings as long as the household does not

exceed 140% of Area Median Income, and the Gross Rent Floor Election (GRFE) is the same

for all buildings in the property.

If the owner elects “No”, for IRS Section 42 purposes, each building is to be treated as its own

project for IRS purposes. All Section 42 regulations must be applied to each building separately,

all household transfers must retain income eligibility at the set-aside limit of 20/50 or 40/60, the

gross rent floor will be applied individually to each building, and there may be a different set of

rent limits for each building based on the GRFE. CTCAC strongly recommends developing an

internal tracking system and making sure management is aware of both the owners Line 8b

election and the GRFE for each project in the portfolio, to ensure rents are being held at the

correct limits. Over-charged rents are reportable on Form 8823 to the IRS. For examples and

further clarification see the Gross Rent Floor Memo posted on the CTCAC website in July of

2011.

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G. Amenities and Services

Charges for any mandatory amenities and/or services, such as garages, carports, meals,

laundry, and housekeeping, must be counted as part of the gross rent for these units.

Charges for optional services other than housing do not have to be included in gross rent,

but they truly must be optional.

Physical amenities such as carports, storage, or garages that were included in eligible basis

cannot be charged to the tenant even if they are an “optional” charge.

For more information regarding supportive services and exceptions to the above rule,

See Appendix 3, IRS Notice 89-6 and IRS Revenue Ruling 91-38, Answer 12.

H. Conflicts with Other Government-Funded Housing Programs – Rural Housing (RHS)

Management must be aware of the differences between RHS rent rules and those of the

LIHTC Program that could result in proper RHS rents but in incorrect LIHTC rents. If the

LIHTC maximum allowable rent is less than the overage, the overage cannot be charged.

NOTE: For credit allocations beginning in 1991, the overage can be charged for

amounts that will be returned to RHS. This provision is not retroactive to projects receiving

credit allocations from 1987 through 1990.

If a rent amount that is greater than the maximum allowable LIHTC rent is charged to a

tenant, management may either rebate the difference between the basic rent and LIHTC

rent to the tenant, or discount that amount in the current lease.

NOTE: A lease addendum must be executed indicating the appropriate discount and the

difference between the government RHS rental and the LIHTC. If a discount is not offered,

management must maintain adequate documentation of the rebate.

If the management company determines that the project is not in compliance with LIHTC

Program requirements, the CTCAC monitoring agent must be notified immediately.

Part 3.4 Utility Allowances

The Internal Revenue Service published initial guidance regulations July 29, 2008 and additional

regulations on August 7, 2012 and March 3, 2016 which impacted the way Section 42 determines

Utility Allowances for the LIHTC program. These regulations provide that taxpayers may rely on

the rules for determining utility allowances before the first day of the owner’s taxable year

beginning on or after July 29, 2008 provided that any utility allowance so calculated are effective

no earlier than the first day of the owner’s taxable year beginning on or after July 29, 2008. For

most taxpayers, Treasury Regulation 1.42-10 is effective January 1, 2009.

The maximum gross rent includes the amount of tenant paid utilities. Utilities include heat, lights,

water, sewer, oil, and gas where applicable. Utilities do not include optional telephone, cable,

CA Tax Credit Allocation Committee 27 April 2023

internet, or television charges.

With August 7, 2012 regulation, the Treasury Department and the IRS published in the Federal

that utility costs paid by a tenant based on actual consumption in a sub-metered rent-restricted unit

are treated as paid by the tenant directly to the utility company and thus do not count against the

maximum rent that the building owner can charge.

When utilities are paid directly by the tenant, or in a sub-metered unit where the owner receives a

master bill and bills the tenants directly (treating the owner as a third party agent), a utility

allowance must be used to determine maximum eligible unit rent. The utility allowance (for utility

costs paid by the tenant) must be subtracted from the maximum gross rent to determine the

maximum amount of allowable tenant-paid rent.

For example:

If the maximum gross rent on a unit is $850 and the tenant pays utilities with a utility

allowance of $66 per month, the maximum rent chargeable to the tenant is $784 ($850

minus $66).

If all utilities are paid by the owner and the tenant does not pay out of pocket for utilities, no utility

allowance is required.

Applicable utility allowances:

A. Rural Housing Service or Rural Development RHS/RD Financed Project – Use the

RHS/RD utility allowances.

1. Buildings assisted by the Rural Housing Service. If a building receives assistance

from the Rural Housing Service (RHS-assisted building), the applicable utility

allowance for all rent-restricted units in the building is the utility allowance determined

under the method prescribed by the Rural Housing Service (RHS) for the building

(whether or not the building or its tenants also receive other state or federal assistance).

2. Buildings with Rural Housing Service assisted tenants. If any tenant in a building

receives RHS rental assistance payments (RHS tenant assistance), the applicable utility

allowance for all rent-restricted units in the building (including any units occupied by

tenants receiving rental assistance payments from the Department of Housing and

Urban Development (HUD)) is the applicable RHS utility allowance.

B. HUD Regulated Buildings - occupied by Residents who receive HUD Assistance (HUD

Project Based Rental Assistance (PBRA) and HOME assisted units must use HUD

approved utility allowances.

1. Buildings regulated by the Department of Housing and Urban Development. If

neither a building nor any tenant in the building receives RHS housing assistance, and

the rents and utility allowances of the building are regulated by HUD (HUD-regulated

buildings), the applicable utility allowance for all rent-restricted units in the building is

the applicable HUD utility allowance.

CA Tax Credit Allocation Committee 28 April 2023

i. HUD Project Based Rental Assistance (funded by HUD Office of Multifamily

Assistance) - must use the HUD Rent/UA schedule

ii. HOME assisted units must follow HUD guidance- HOMEfires Vol. 13, No. 2.

Please note it is the owners/management responsibility to keep updated on

future HUD guidance and apply the correct UA on HOME assisted units.

Please speak to your local HUD office for updates and guidance.

*Please note, if the HOME Loan was funded prior to August 23, 2013, the owners may use the Local

PHA UA on HOME assisted units, and apply the Local PHA UA on all units in the building, HOME

and non-HOME units. If the HOME loan was funded after August 23, 2013, and the owner wishes to

utilize the PBV UA issued by the Local PHA, the owner may request a waiver from their local HUD

office. The waiver approval must be obtained by HUD before applying the local PHA UA when a

building has HOME units. A project specific methodology [Agency Estimate] is also allowed by the

HOME program as an optional utility allowance method but is not allowed in California.

C. Other Buildings - Buildings without RHS or HUD Assistance, if a building is neither an

RHS-assisted nor a HUD-regulated building, and no tenant in the building receives RHS

tenant assistance, the applicable utility allowance for rent-restricted units in the building is

determined under the following methods:

1. Tenants receiving Project-based vouchers or other HUD rental

assistance/individual vouchers, (issued by the Local PHA and funded by HUD Office

of Public and Indian Housing) The applicable utility allowance for any rent-restricted

units occupied by tenants receiving HUD rental assistance payments (HUD tenant

voucher or PBV) is the applicable Public Housing Authority (PHA) utility allowance

established for the Section 8 Existing Housing Program.

D. Tax Credit Only Buildings - If the project does not have RD or HUD Funding (regulated

or voucher) the following utility allowances are applicable for LIHTC rent-restricted units:

1. Local Public Housing Authority (PHA) – the owner may elect to obtain an estimate

of utilities from the local Public Housing Authority (PHA) administering the assistance

for those tenants only. The estimate used should be based on the building type (i.e,

Garden, Townhouse, Condo, etc,)

i. Energy Efficiency Based Utility Allowance (EEBUA) –This is an estimate

provided by the PHA using a calculation that takes into account general energy

efficiency measures. To ensure the proper use of the EEBUA, housing

authorities rely on a home energy rater (HERS) to verify the project meets the

policy’s energy efficiency requirements. This schedule is provided to Tax Credit

Projects that meet or exceed the California Energy Commission Title 24

standards by 15% for new construction development and rehab projects with a

20% improvement over existing conditions.

*CTCAC reserves the right to request that project owners obtain a letter from the local Public

Housing Authority on PHA letterhead certifying the project was reviewed by a HERS (Home

Energy Ratings System) specialist and that the project meets or exceeds Title 24 standards for

Energy Efficiency.

CA Tax Credit Allocation Committee 29 April 2023

2. Local Utility Company Estimate - if a local utility company estimate is obtained for

any unit in the building in accordance, that estimate becomes the appropriate utility

allowance for all rent-restricted units of similar size and construction in the building.

The owner may request the utility company’s estimated utility cost for each unit of

similar size and construction in the building’s geographic area. Such an estimate must

be in writing for the current year, signed by a local utility company official, prepared on

the utility company’s letterhead, and maintained in the file for the project. Use of the

actual utility rates, whether higher or lower, is required once they have been requested

and must be updated annually.

The new regulation requires that the written local estimate should include all

“component deregulated charges” for providing the utility service. In 2008 the

regulations were updated to state that if there are multiple utility companies that service

the development, a written estimate is needed from only one of the providers. However,

the estimate must come from a provider that offers services to the building.

i. The owner must retain the original document showing the utility company

estimate and must furnish a copy to CTCAC when requested.

ii. The owner must make copies of the original document showing the utility

company estimate available to residents in the building.

3. Energy Consumption Model (California Utility Allowance Calculator) – In these

regulations the IRS established the authority for CTCAC to authorize the use of an

energy consumption software model to determine project-specific utility allowances.

“The utility consumption estimate must be calculated by either a properly

licensed engineer or a qualified professional approved by the Agency that has

jurisdiction over the building (together qualified individuals) and the qualified

professional and the building owner must not be related within the meaning of

section 267 (b) or 707 (b).”

CTCAC has adopted the California Utility Allowance Calculator (CUAC) as the energy

consumption model software for California. This calculator can be used for New

Construction properties awarded an Allocation of Tax Credits beginning with the 1st

funding round of 2009 going forward. CTCAC will require a Certified Energy Plan

Examiner (CEPE) and either a Plans Examiner (PE) or (HERS) rater to review and

certify that the Utility Allowance Amounts generated by the CUAC model meets the

requirements as specified under Treasury Regulation 1.42-10 (E).

All projects intending to use the CUAC option must obtain written approval from

CTCAC prior to implementing the CUAC at their property. Once approved, the CUAC

requires the owner to submit annual reports for review and approval in order to

continue using it. Please note - once the 8609s are issued, the CUAC can no longer be

requested. Please see the website noted below for a Memo with submission guidelines

for proper use of the CUAC:

https://www.treasurer.ca.gov/ctcac/cuac/index.asp

CA Tax Credit Allocation Committee 30 April 2023

4. HUD Utility Schedule Model (HUSM) - A building owner may contract with a 3

Party Energy Analyst or a qualified 3

party with at least 3 years of experience

reviewing and inputting data in the model for affordable multifamily housing

developments; in depth understanding of the LIHTC program and utility schedules to

be used, including assessing and gathering key data for correct unit energy output under

the HUSM.

i. The owner may implement the HUSM UA approved by the 3

party reviewer

once proper notification of the change (90 days) has been given to the residents.

5. Agency Estimate – Please note: This option is not available in California.

E. Per Building Requirement

Per the IRS, only one Utility Allowance source is allowed per building in most

circumstances. Projects that have differently subsidized units (i.e. HUD Project Based

Rental Assistance, HOME assisted units, Rural Development (RD)) must use the required

UA for all units in the building including any tax credit units that otherwise would not be

subject to that requirement. For buildings where there is only a fraction of units that have

additional financing (such as HOME units), the limits required by the additional financing

should be applied to all units in that building, not just the fraction of units.

Example #1 – Project with HOME units:

Vista del Sol is a 60 unit property that has 4 buildings, is 100% tax credit, and

placed in service in 2008. 20% of the units also have HOME funding on them.

These are spread evenly across all 4 buildings. HOME funding requires that the

owner follow HUD specific guidance for HOME assisted units - the HUD Utility

Schedule Model (HUSM), Multifamily Housing Utility Housing (MHUA), Local

Utility Company, or the Energy Consumption Model- the California Utility

Allowance Calculator (CUAC).

Example #2 – Project with HOME units and Project Based Vouchers:

(PBV issued by the Local PHA and funded by HUD Office of Public and Indian Housing):

Casa del Sol is a 60 unit property that has 4 buildings, is 100% tax credit, and

placed in service in 2018. 20% of the units also have HOME funding on them AND

project based vouchers. These 2 funding sources (HOME And PBV) are spread

evenly across all 4 buildings. Since this is a HUD regulated Building, the HUD UA

will supercede, so owners will apply the HOME UA on all units in the building.

HOME funding requires that the owner follow HUD specific guidance for HOME

assisted units - the HUD Utility Schedule Model (HUSM), or Multifamily Housing

Utility Housing (MHUA), or Local Utility Company, or the Energy Consumption

Model- the California Utility Allowance Calculator (CUAC).

• Please note – if the owner wishes to utilize the Local PHA UA on all

units within the building, a waiver from HUD must be obtained.

CA Tax Credit Allocation Committee 31 April 2023

Example #3 – Project with HOME units and HUD Project Based Rental

Assistance, issued and funded by HUD Office of Multifamily Assistance:

Garden Village is a 60 unit property that has 4 buildings, is 100% tax credit, and

placed in service in 2018. 20% of the units also have HOME assisted units spread

evenly across all 4 buildings and is a HUD PBRA. Since each building is HUD

regulated, the HUD UA will apply to all buildings - the HUD UA schedule for the

HUD PBRA program. This specific UA from HUD also complies with HOME UA

guidelines.

Example #4 – Project RD funding and Project Based Vouchers:

(PBV issued by the Local PHA and funded by HUD Office of Public and Indian Housing)

Happy Place Apartments is a 100% tax credit 80 unit 5 building property with PBV

funds on 25% of the units for a total of 20 PBV units. The project is RHS financed.

For all RD projects, the UA to be applied is the applicable RHS utility allowance

Example #5 – Project RD funding and HUD Project Based Rental Assistance:

(issued and funded by HUD Office of Multifamily Assistance):

Sunny Place Apartments is a 100% tax credit 80 unit 5 building property with HUD

PBRA. The project is RHS financed. For all RD projects, the UA to be applied is

the applicable RHS utility allowance, even though there is HUD PBRA on the

property.

See Chapter 3 Exhibit A for a Chart of Utility Allowance Options

F. Maintaining Compliance with Utility Allowances

To remain in compliance, owners must utilize the correct and current Utility Allowance

source/schedule in order to properly determine unit rents. An increase in the Utility

Allowance will increase the gross rent and may cause the rent to be greater than the

maximum allowable rent, in which case the tenant’s rent must be lowered. When a Utility

Allowance changes, rents must be recalculated within ninety (90) days of the effective date

of the change to avoid violating the gross rent limitations of Section 42(g)(2). However, an

owner is not required to implement a new utility allowance until the building has achieved

90% occupancy for a period of 90 days or by the end of the 1

year of the credit period,

whichever is earlier.

Utility Allowances should be reviewed and updated as follows:

• When the rents for a project or building are changed or there is a change in who

pays the utilities.

• Within 90 days of an update by HUD, RHS, PHA, or local utility supplier. The

Utility Allowance must be updated at least once annually, however, must always

use the current utility allowance in place, (implemented, 90 days from the effective

CA Tax Credit Allocation Committee 32 April 2023

date)

• Within 90 days of a change in the applicable allowance (e.g., a new tenant is

receiving a Project Based Voucher)

• Annually for projects or buildings with documentation from a utility company.

CTCAC requires that the tenant files include documentation on how utility amounts are

determined annually. The Utility Allowance used in the calculation for the property must

be obtained/updated at least once a year and kept in a location that is accessible by tenants.

Contact the appropriate agency to request current utility allowance information. The

LIHTC Section at CTCAC does not maintain the various utility allowances

G. Utility Allowance (Sub-metering)

On March 5, 2009, the IRS released Regulation 2009-44, which allows for individual sub-

metering of units in a building. IRS Regulation 2009-44 allows for a sub-metering system

within the Utility Allowance calculation methods that was not originally addressed in the

initial Treasury Decision and is retroactive to the Final Regulations of July 29, 2008. To

clarify it was determined utility costs paid by a tenant based on actual consumption in a

sub-metered rent-restricted unit are treated as paid directly by the tenant for purposes of

IRC §42(g)(2)(B)(ii), which requires that the rent for low-income units include a utility

allowance if the tenant pays the utilities

On March 3, 2016 the IRS extended the principles of these submetering rules to situations

in which a building owner sells to tenants energy that is produced from a renewable source

and that is not delivered by a local utility company. The final and temporary regulations

affect owners of low-income housing projects that claim the credit, the tenants in those

low-income housing projects, and State and local housing credit agencies.

The breakdown of the regulation is as follows:

Sub-metering is defined as a measurement of the tenant’s actual utility consumption and

the tenants pay for the utilities they use. A sub-metering system usually has 2 parts.

• A master meter, which is owned or controlled by the Utility Company and from which

the Utility Company bills the overall utility consumption to the owner.

• Individual unit-based meters which show the breakdown of utility costs per unit

measured and whose combined total is part of the overall consumption costs.

In a sub-metering system the owner receives and should retain the bill of the property

consumption with a breakdown of the resident utility consumption (master bill). The owner

then prepares a bill for each residential unit based off of their actual consumption, and the

tenant receives the documentation of the utility costs as specified in the lease. A sub-

metered rent restricted unit is treated as a utility paid directly by the tenant, and not by the

owner.

For purposes of computing the utility allowance when a building is sub-metered as

described above:

CA Tax Credit Allocation Committee 33 April 2023

• For RHS-assisted buildings, buildings with RHS tenant assistance, HUD regulated

buildings and rent-restricted units in other buildings occupied by tenants receiving

HUD rental assistance, the applicable RHS or HUD rules apply.

• For all other rent-restricted units in other buildings, this includes tax credits:

o The utility rates charged to each tenant in each sub-metered unit must be

limited to the utility company rates incurred by the building owners.

o The owners may charge a “reasonable fee” not to exceed $5 per month to

cover administrative costs of sub-metering. This fee is not considered in the

Gross Rent calculation

o If the cost of sewer is included in / combined on the same bill as the water

costs, then the sewerage costs are treated as paid directly by the tenants for

purposes of Utility Allowance calculations.

CTCAC monitoring requirements for sub-metered units:

• CTCAC will look for specific language in the Lease stating the units are sub-metered

and the billing will be based on actual consumption.

• CTCAC will look for language that Owner is charging a $5 Administrative fee

• CTCAC will require a copy of the Master Bill (with the breakdown by units) be

available either prior to the inspection or on the day of the inspection.

H. Ratio Utility Billing Systems (RUBS)

A Ratio Utility Billing System is where the owner of a LIHTC project receives a master

bill for the utilities on the property (gas and/or electric) and then pro-rates the amount of

the bill across the different bedroom sizes of each unit rather than billing each household

based on the individual consumption of the unit. Prior to 2022, CTCAC did not allow

RUBS to be used at LIHTC properties. Starting in 2023, CTCAC will allow the use of a

Ratio Utility Billing System if the common space areas are paid for by the owner, the total

pro-rated amount for all units does not exceed the amount of the master bill, and the total

amount including the RUBS does not exceed the maximum gross rent.

Please note – the owner will still need to provide a utility allowance for the tenants, as the

tenants are paying directly for utilities. By using RUBS, the tenants are paying utilities

directly to the owner who pays the utility provider rather than the tenants paying the third

party provider directly.

Example (part 1):

Sunny Valley Apartments has 2 buildings and 65 LIHTC units – 5 four bedroom

units, 15 three bedroom units, 25 two bedroom units, and 20 one bedroom units.

The owner has installed a new solar electric system on the property and has elected

to receive a single master bill for all the electricity charges on the property, rather

than having tenants pay for their electricity individually to the electric company.

The owner determines that the common space areas of the property (Community

Room, offices, outdoor lighting) account for 15% of the total electric bill each

month. They want to use RUBS to pro-rate the remainder of the bill to all the units.

CA Tax Credit Allocation Committee 34 April 2023

The 1

full month bill (April 2022) from the electric utility provider is $3,956. To

calculate the amount charged to each household the owner would need to determine

the following:

• Common Space: $593.40 ($3,956 x 15%)

• Total number of bedrooms on the property: 20 + 45 + 50 + 20 = 135

bedrooms

• Total tenant amount paid via a RUBS: $3362.60

• Amount charged per bedroom: $24.91 ($3362.60/135 units)

Based on the above, the owner would add $24.91 per bedroom size to the rent calculation

for the household. This would be:

• 1 bedroom - $24.91

• 2 bedroom - $49.82

• 3 bedroom - $74.73

• 4 bedroom - $99.64

Example (part 2):

The owner of Sunny Valley Apartments received the electricity bill for the month of

April 2022 and determined that the pro-rated amount per bedroom size is $24.91.

Now they must determine the total rental amount to charge each unit for the next

month.

The local PHA has approved the use of an Energy Efficient Utility Allowance for

the property, as the owner provided information showing solar was installed. Based

on that information, the PHA determined that the utility allowance per bedroom size

is:

• 1 bedroom - $45

• 2 bedroom - $60

• 3 bedroom - $75

• 4 bedroom - $90

The current LIHTC maximum gross rent is:

• 1 bedroom - $950

• 2 bedroom - $1200

• 3 bedroom - $1500

• 4 bedroom - $1800

The owner is currently charging the following rent:

• 1 bedroom - $900

• 2 bedroom - $1100

• 3 bedroom - $1400

• 4 bedroom - $1700

CA Tax Credit Allocation Committee 35 April 2023

The total rental charge to the tenant (rent + RUBS), would be:

• 1 bedroom - $900 + $24.91 = $924.91

• 2 bedroom - $1100 + $49.82 = $1149.82

• 3 bedroom - $1400 + $74.73 = $1474.73

• 4 bedroom - $1700 + 99.64 = $1799.64

Please note: for the 4 bedroom unit, the amount of rent + RUBS is very close to the

maximum gross rent limit. If the pro-rated amount were to increase the following month

based on a change in the master bill, the owner would need to either reduce the rent or

reduce the pro-rated utility amount to remain under the limit. Overcharged rents due to

RUBS are reportable to the IRS on Form 8823, even if later corrected.

Part 3.5 Rules Governing the Eligibility of Particular Residential Units.

Following is a partial listing of rules governing the eligibility of a unit to be counted as a low-

income housing tax credit unit. For more information regarding unit eligibility, consult Section 42

of the IRS Code or a LIHTC textbook or guide.

A. Unit Vacancy Rule

If a low-income unit becomes vacant during the year, reasonable attempts must be made to

rent that unit or the next available unit of comparable or smaller size to qualifying tenants

before ANY units of comparable or smaller size in the project are rented to non-qualifying

tenants. Units that have never been occupied cannot be counted as “low-income”, but must

be included in the “total units” figure for purposes of determining the applicable

percentage.

Units that are vacant at the end of the initial tax year which previously were qualified as

low-income units can be considered “low-income” for purposes of determining the amount

of credits claimed only if the units were occupied for a minimum of one month by an

eligible low-income tenant.

In order to be eligible to continue claiming units while the unit is vacant, it must be in turn-

key ready condition and be actively marketed. Units that are being held vacant due to the

owner having a contract with a social services agency or other funding restrictions where

applicants are directed to the property from a third party/outside agency, may be out of

compliance if the vacancy exceeds 60 days and no marketing efforts are being made to fill

the units by the general public.

B. When a Unit Must Remain Vacant

If the required percentage of tax credit units has not been met, the remaining number of

qualified units must be held vacant for eligible tenants. Units cannot be left permanently

vacant and still satisfy the requirements of the tax credit program. The owner or manager

must be able to document attempts to rent the vacant units to eligible tenants.

CA Tax Credit Allocation Committee 36 April 2023

C. Identification

It is standard industry practice to require and review photo identification documents before

approving a household for occupancy. Acceptable forms of photo identification for

CTCAC are:

1. State Issued ID Card

2. State Issued Driver’s License

3. Passport

4. Green Card or Residency Card

5. Military ID

6. Foreign Government Identification Card

Social Security Cards are not required by the LIHTC Program or CTCAC as the Section 42

Program has no requirement for citizenship in the United States to be eligible to occupy a

LIHTC unit. Additionally, a Social Security card alone does not have an identifying

picture, and thus cannot solely be used to verify a tenant’s identity.

D. 140% Next Available Unit Rule (NAUR)

If the income of the occupants of a qualifying unit increases to more than 140% of the

applicable income limitation, the unit may continue to be counted as a low income unit if

the unit continues to be rent-restricted and the next unit of comparable or smaller size is

occupied by a qualified low-income tenant.

Please note: The 140% calculation is based off of the Federal set-aside of either 40/60,

20/50, or AIT elected by the owner of the property. It is not used with any State required

deeper targeting requirements stipulated in the Regulatory Agreement for the property. See

Section IV Part 4.3(D) for specific requirements for the NAUR on AIT projects.

E. Totem Pole Rule

A household will continue to be considered tax credit eligible as long as there is at least one

original household member residing in the unit. Children who were minors at the time the

household originally moved in who were on the TIC but did not sign the initial lease are

still considered original household members. If at any point there are no original household

members in the unit, the current household members must qualify under the current income

limit in order for the unit to retain the ability to get credits. This must be done as soon as no

original members occupy the unit, it cannot be done at the next recertification.

Example: Rose Smith and her 16 year old daughter Kristina move into Happy Place

Apartments. Rose signs the initial lease, but Kristina does not because she is still a

minor. Four years after they move-in, Rose moves out and Kristina moves in her

best friend Jen. Jen and Kristina live together for 3 more years and then Kristina

moves out. Jen decides she wants to add her boyfriend to the unit.

As soon as Kristina moves out, you must income qualify Jen to see if she is eligible

CA Tax Credit Allocation Committee 37 April 2023

under the current income limits. If there is a gap between when Jen is occupying the

unit alone and when she intends to add her boyfriend, Jen would need to qualify as

a one person household. If Jen is moving in her boyfriend at the same time Kristina

is moving out, you would need to income qualify both Jen and her boyfriend as a

two person household.

F. Transfer of Existing Tenants – 100% Tax Credit Property

Should an existing household desire to move to a different rent-restricted unit in a different

building, this is acceptable provided that the current income of the tenants does not exceed

140%, and the owner has elected “yes” to the Line 8b on the IRS Form 8609, indicating the

property is considered a multi-building project. All application, certification, and

verification procedures for the transferring resident(s), including the income and asset

verifications transfer with the household. The units then swap status.

1. If the owner has elected “no” to the Line 8b on the IRS Form 8609, this indicates that

each building is to be considered its own project for tax purposes and the household

must re-qualify under the 20/50 or 40/60 set-aside to be able to transfer to a different

building. The household is treated as a complete move-out and complete move-in. The

income documentation for the previous unit should not remain in the file. If the transfer

is within the same building, the units swap status, and a new move-out/move-in is not

necessary for 100% Tax Credit projects. Mixed Income projects must follow the

NAUR. See Section III Part 3.5 (D) and Section VII Part 7.8 (B).

2. Unit transfers within the same building do not require an interim

certification/recertification be completed. A Note of Clarification should be in the file

indicating the household has transferred units, but the change in unit number on the

required documentation (TIC, TICQ, etc.) may be noted at the household’s next annual

recertification. The file must include the income documentation for the initial move-in

certification and 1

recertification verifying income eligibility for the household. The

annual recertification date remains the same.

3. For 100% tax credit projects utilizing the THIF form, it is not necessary to do a full

income and asset certification prior to transferring a household as long as the initial

income and 1

year recertifications remain in the file to show eligibility.

4. Section 42 is silent on whether “unit transfer fees” may be required for transfers

throughout a property. CTCAC does not have a policy either “for or against" charging a

transfer fee, however, after researching this topic the determination is most major

owner/management agents do not charge a transfer fee.

In the absence of specific regulation, it is assumed the owner may charge a reasonable

transfer fee. However, transfer “fees” may not be incurred for any reasonable

accommodation request. Additionally, CTCAC reserves the ability to require specific

documentation if excessive or unreasonable fees are determined to be charged of a

household wishing to transfer to another unit.

CA Tax Credit Allocation Committee 38 April 2023

G. Exempt / Resident Manager’s Unit

The exempt/resident manager’s unit may be considered in one of two ways listed below:

1. The exempt/manager’s unit can be considered a common area or other special facility

reasonably required within a rental project that supports and/or is reserved for the

benefit of all the rental units. Under this interpretation, the unit is included in eligible

basis, but excluded from the low-income occupancy calculation. The unit can be used

by the manager without concern as to the effective rent being charged to or the income

level of the manager:

For example:

The project contains one building. This building has 25 units, one of which is a

manager’s unit. At the end of the first year of the credit period, all units are rented

except the manager’s unit that remains unoccupied. The building’s applicable

fraction would be 96% (24/25 assuming all units are the same size). Therefore, if

the building’s eligible basis is $700,000, its qualified basis would be only $672,000.

If the exempt/manager’s unit were considered as common area, it would not be

included in either the numerator or the denominator in calculating the applicable

fraction. If not included, the building’s applicable fraction would be 100% (24/24)

and its qualified basis would be $700,000.

2. If the owner determines the exempt/manager’s unit is not going to be occupied by a

manager or maintenance person, then it may be treated as a rental unit provided the

owner has prior approval from TCAC. Approval may be granted if the owner can

demonstrate there is not an immediate need for a management agent to be onsite due a

24 hour desk clerk available or that there are more exempt/manager’s units required

than are needed for the day to day functioning of the property. Failure to obtain

approval from CTCAC of the change from an exempt/manager’s unit to a LIHTC rental

unit, will result in a monthly fine being assessed to the property until the unit is either

approved or it is occupied by qualified personnel.

In a project that is 100% tax credit, changes may be permitted by the Tax Credit

Allocation Committee (CTCAC) to the size or location of the approved managers

unit(s) noted in the recorded Regulatory Agreement. CTCAC will review each owner

request after performing due diligence and will approve each individual request for

changing the exempt/managers unit size or location based on the circumstances around

the change. Written request must be made by the owner to CTCAC and sent to the

attention of Stephen Bellotti – Special Projects Analyst, before making any changes to

the exempt/managers unit. Changes to the exempt unit will not be approved unless a

minimum of two years have passed since any prior requests.

If the exempt/manager’s unit is a single unit attached to the common room, pool area,

or any other common space that where a BIN is not assigned to the building, the unit

cannot be changed and a qualified household cannot occupy that unit in lieu of treating

it as an exempt/manager’s unit.

CA Tax Credit Allocation Committee 39 April 2023

In a mixed-income tax credit project (tax credit with conventional market rate units),

the owner elects the unit size and the location of the on-site managers unit. Once this

election is made, the on-site managers unit may never change size or location in the

project. Making such a change in size or location can impact and affect both the

applicable fraction and the qualified basis on which the credit was calculated. Such

changes can result in placing the project in noncompliance and is reportable to the IRS

on Form 8823. CTCAC can never approve a change to an on-site managers unit in a

mixed-income tax credit property.

For all project types where the manager’s unit is included in eligible basis, the unit is

required to be occupied by the onsite manager, assistant manager, or maintenance

personnel who work primarily at the property which the unit is located in order to

qualify for purposes of Section 42. Employees occupying the manager’s unit but

working primarily at a different property is not a qualified use of the manager’s unit

and will be reported to the IRS on Form 8823.

Please note: If the owner is treating the exempt/manager’s unit as a tax credit unit

(income and rent restricted) and the unit is occupied by an income eligible employee

of the management company, the owner cannot evict or remove the tenant solely

because they no longer work for the management company.

H. Waitlist(s)

Section 42 of the IRC does not outline provisions for waitlists in the tax credit program,

therefore CTCAC does not monitor for waitlist maintenance. However, proper

management of waitlist(s) is necessary under Fair Housing and Employment. Please

consult with your Fair Housing attorneys if questions or concern arise regarding your

waitlist policy.

Part 3.6 Rules Governing the Eligibility of Particular Tenants and Uses

Following is a partial listing of rules governing the eligibility of certain tenants. For more

information on tenant eligibility, consult Section 42 of the Code or a LIHTC textbook or guide.

A. Student Eligibility

The applicable definition of student is a full-time student at an educational organization

with regular facilities, faculty, curriculum, and enrolled body of students. Section 42 of the

IRC requires that households comprised entirely of full-time students meet certain

requirements. See Section IV Part 4.7 for more information on students.

B. Manager or Employees as Tenants

It is permissible for a manager, assistant manager, or other employee of the owner to reside

in a unit within a project. The manager or employee may also be an eligible tenant if

income qualified*. If, however, the manager or employee receives free rent or a rental

CA Tax Credit Allocation Committee 40 April 2023

credit, the imputed value of the rent or credit must be counted as income. Additionally, the

employee cannot be required to leave the property or be evicted solely because of a

termination of employment with the management company. For additional information

regarding the manager’s unit, see Section III, Part 3.5 (G).

*If an employee of the management company is determined to be a qualified tenant and subsequently leaves

or is terminated from employment at the management company, they cannot be evicted from or the lease non-

renewed from their unit solely because they no longer work for the management company.

C. Live-in Care Attendants

A live-in care attendant for a tax credit tenant should not be counted as a household

member for purposes of determining the eligible income and rent limits. The need for a

live-in care attendant must be certified with documentation included in the Tenant/Unit File

(see Section IV, Part 4.8). HUD’s definition for a live-in aide requires that the aide is in the

unit solely for the care of the tenant. If the qualified tenant vacates the unit, the attendant

must vacate as well. If an attendant would like to be certified as a qualified tenant and

remain in the unit, normal certification procedures must be performed and the individual

must meet the applicable eligibility requirements of the program.

In July 2009, HUD released revision 3 to the 4350 Handbook. This revision clarified the

requirements for a live-in attendant in a Tax Credit property. Chapter 3 of the HUD

handbook defines a live-in aide as:

1. A person who resides with one or more elderly persons, near elderly persons, or persons

with disabilities, and who;

a. Is determined to be essential to the care and well-being of the person(s)

b. Is not obligated for the support of the person(s) and will not contribute

materially to the household; and

c. Would not be living in the unit except to provide the necessary supportive

services to the person(s)

2. Regarding a live-in aide;

a. The owner must verify the need for a live-in aide. Verification must be

obtained from the person’s physician, psychiatrist, other medical practitioner,

or heath care provider.

b. The owner must approve a live-in aide as a reasonable accommodation

request in accordance with 24 CFR part 8. However, the owner should only

document/verify the need for a live-in attendant and cannot require access to

confidential medical records or require a physical examination be performed.

c. The live-in aide qualifies for occupancy only as long as the individual needing

the supportive services requires the aide’s services and remains a tenant. The

live-in aid may not qualify the household as a remaining family member.

d. A spouse cannot be a live-in aide for a person as a spouse is legally obligated

for the support of the other person.

e. The determination if a live-in aide can bring in additional family members is

up to the owner to approve. CTCAC strongly suggests consulting with a Fair

CA Tax Credit Allocation Committee 41 April 2023

Housing and/or Tax Credit attorney in each circumstance.

3. The income of a live-in aide is excluded from annual income

4. Multiple Aides are allowed if the Doctor’s verification indicates the need for multiple

aides (quadriplegic, amputee, etc.).

5. Live-in Aide Verification Form – In January of 2012, CTCAC released a third party

Live-in Aide Verification Form to be used for all households requesting a Live-In Aide.

This will be a required “as needed” form beginning in January 2012. In addition to the

form, CTCAC strongly recommends the use of a “Live-in Aide Lease Addendum” that

outlines the requirement for an aide, denies occupancy to the live-in aide if for any

reason the tenant vacates the unit, and gives the owner the right to evict a live-in aide

who violates the house rules. Properties that are also Project Based Section 8 and have

completed HUD’s Live-in Aide Verification form may substitute that form for the

required Tax Credit form. A copy must be available in the Tax Credit file.

In January of 2017, CTCAC updated the Live-in Aide Verification form to include a

question if the disability is permanent and not subject to change. As of that date, if the

third party practitioner completing the form indicates that the disability that requires the

services of the live-in aid is permanent, then CTCAC will only require the Live-in Aide

to be completed at move-in. If the third party practitioner completing the form indicates

that the need is temporary, then the Verification should be completed at each

recertification. Please note that this policy is in effect from February 1, 2017 onwards

and is not retroactive.

D. Unborn Children

The IRS allows that unborn children may be included in the total household count for

determining eligibility provided the child(ren) will be occupying the unit at birth. CTCAC

requires a self-certification of pregnancy be in the file to document unborn children at

initial move-in.

The IRS has confirmed that an unborn child, counted as a household member for

determining the income and rent limits, can also be used to qualify a full-time student

status household, provided they otherwise meet the requirements of the exception. See

Section IV Part 4.7(B). CTCAC requires a self-certification of pregnancy be in the file to

document a currently unborn child will be occupying the unit at birth.

E. Foster Children and Foster Adults

Foster child(ren) under the age of 18 and foster adults over the age of 18 are considered

temporary household members and should not be counted for purposes of determining the

eligible income and rent limits. Any income received for the care of foster child(ren) or

adults is excluded from income calculations. Any unearned income (such as SSA or SSI)

received by foster child(ren) or foster adults would be counted as part of the household’s

income.

CA Tax Credit Allocation Committee 42 April 2023

If a foster child exits the foster care system, either by formal adoption or by turning 18,

they would no longer be considered a temporary household member and should be treated

as a regular household member at the household’s next recertification.

F. Non-transient Occupancy

Under program requirements, a unit cannot be tax credit eligible if it is used on a transient

basis. A unit is deemed to be transient if the initial lease term is less than six months. There

is an exception to this rule for single-room-occupancy (SRO) developments assisted under

the Stewart B. McKinney Act.

Single-room-occupancy (SRO) housing must have a minimum lease term of one month.

Federal rules allow for month-by-month leases for the following types of housing:

• SRO units in projects receiving McKinney Act and Section 8 Moderate

Rehabilitation Assistance.

• SRO units intended as permanent housing and not receiving McKinney Act

assistance.

• Units intended as transitional housing that are operated by a governmental or

nonprofit entity and providing certain supportive services.

G. Transitional Homeless Properties

As stated above, certain types of Single Room Occupancy (SRO) housing may be

designated for transitioning homeless and un-housed peoples to permanent supportive

housing. Projects receiving awards of credits with this housing-type are subject to

additional Service Amenities and Requirements (as noted in their Regulatory Agreement)

and must follow all other LIHTC and Section 42 requirements. Such as:

• General Partner and/or Management should be working with a State, City, or

County Agency under a government program

• If a Social Services Agency is providing applicants, they must follow all

LIHTC rules and eligibility requirements including income verification

requirements and CTCAC required forms

o If LIHTC units are held vacant for more than 60 days waiting for an

applicant, the property may be in violation of the Vacant Unit rule and

subject to submission of an uncorrected Form 8823

• Units cannot be master leased. Income eligibility is based on the household

members and a master lease often requires the Agency providing assistance be

included on the lease or to be noted as a household member

In all transitional homeless properties, all CTCAC required Forms, income eligibility

documentation, household determinations, federal and state regulations continue to apply.

CA Tax Credit Allocation Committee 43 April 2023

H. Ineligible Facilities

No hospital, nursing home, sanitarium, life-care facility, retirement home providing

significant services other than housing, dormitory, or trailer park is eligible to be a low-

income housing tax credit project.

Commercial space within a tax credit development is not tax credit eligible.

Part 3.7 Other Federal Regulations

A. Physical Requirements of Units

1. Qualified units rented to, or reserved for, eligible tenants:

2. Must have substantially the same equipment and amenities (excluding luxury amenities

such as a fireplace) as other units in the project; and

3. Cannot be geographically segregated from the other units in the project.

Units intended for eligible tenants must be comparable in size, location, and quality to

those rented to other tenants. In the event a residential unit in a project which is rented to an

eligible tenant is above the average quality standards of the units rented to eligible tenants,

then the basis in the project which is used to determine the amount of tax credits must be

reduced by the portion which is attributable to the excess costs of the above standard units.

B. Discrimination Prohibited in Project

The owner or agents of the owner shall not discriminate in the provision of housing on the

basis of race, color, sex, national origin, religion, marital status, age, familial status, sexual

orientation, source of income, or handicap. Additionally, owners cannot refuse to accept a

prospective tenant based solely on the fact that the applicant holds a Section 8 rental

voucher or certificate. All owners, managers, and staff members should be familiar with

both state and federal civil rights and fair housing laws.

C. General Public Requirements

Under program requirements, tax credit units must be available for use by the general

public. Owners are allowed to establish preferences for certain population groups (e.g.

homeless individuals, persons with disabilities, etc.). These preferences, however, must not

violate HUD’s anti-discrimination policies.

The revised Guide to IRS Form 8823, published in September 2009, indicates that a

qualified low-income project does not fail to meet the general public use requirement solely

because of occupancy restrictions or preferences that favor tenants (1) with special needs,

(2) who are members of a specified group under a Federal program or state program or

policy that supports housing for such a specified group, or (3) who are involved in artistic

CA Tax Credit Allocation Committee 44 April 2023

or literary activities.

D. General Occupancy Guidelines/Family Size

There are no current tax credit requirements governing minimum or maximum household

size for a particular unit; however, owners must comply with all applicable local laws,

regulations and/or financing requirements (e.g. if RHS, use RHS regulations).

CTCAC advises all owners or agents to be consistent when accepting or rejecting

applications. Occupancy guidelines or requirements should be incorporated into the

development’s management plan. Management should be aware of occupancy standards set

by federal, state, HUD, PHA, civil rights laws, tenant/landlord laws, and municipal code

that may establish a maximum or minimum number of persons per unit and should be able

to adequately address questions and concerns of potential applicants including denial of

application. CTCAC will not mediate in disputes regarding income eligibility of applicants.

E. Good Cause Eviction

On July 29, 2004, IRS issued Revenue Ruling 2004-82 which requires all Extended Use

Agreements (Regulatory Agreements) for Housing Tax Credit properties to include, a

prohibition against evicting or terminating tenancy of tenants in low-income housing units

for other than good cause. This prohibition must extend throughout the duration of the

entire extended use period.

The Regulatory Agreement for your project requires your compliance with all conditions to

tax credit eligibility under Section 42 of the Internal Revenue Code (Code). In accordance

with Revenue Ruling 2004-82, effective July 30, 2004, no low-income resident of any

Housing Tax Credit project may be evicted other than for good cause. The reason for the

“good cause” eviction must be provided to the tenant in writing. Housing Tax Credit unit

occupants have the right to specifically enforce this prohibition in State court. Generally,

“good cause” is defined as “the serious or repeated violations of a material term of the

lease”, as that definition is applied with respect to federal public housing. CTCAC will not

mediate in disputes between the tenant and the owner/management regarding evictions.

In 2009, The IRS modified the 8823 Guide to remove the language regarding non-renewal

in the good cause eviction section. However, the requirement for the owner to be able to

demonstrate in a court of law the reason for the non-renewal still stands. (See also Section

II Part 2.2 (B))

Part 3.8 Qualified Allocation Plan

The federal low-income housing tax credit program requires allocating agencies to allocate low

income housing tax credits pursuant to a Qualified Allocation Plan (QAP or Plan). CTCAC is the

state agency responsible for implementing the federal and state low income housing tax credit

programs in California. The specific provisions of the qualified allocation plans, are set forth in

subsections of IRC Section 42 and can be found here:

CA Tax Credit Allocation Committee 45 April 2023

http://www.treasurer.ca.gov/ctcac/programreg/regulations.asp

Part 3.9 Statutory Set-Asides (State)

The legislature of the State of California has statutorily created certain “set-asides” based on the

housing needs within the state. A percentage of the state’s total credit ceiling each year is set aside

for the following:

• Large Family

• Senior

• Qualified nonprofit organizations pursuant to Section 42 of the Internal Revenue

o Preemptive priority to Homeless Assistance Projects Code.

• At-Risk

• Rural Set-aside

o RHS/HOME Financed projects

o Native American Apportionment

• Special Needs / SRO

• Supplemental

A. Qualified Nonprofit Organization

For projects receiving allocations under the Qualified Nonprofit set-aside, documentation

must be provided indicating that the nonprofit organization is materially participating in the

ongoing management and operation of the projects.

Documentation that should be retained in the owner’s file is as follows:

• IRS documentation of designation as a 501(c)(3) or 501(c)(4) corporation

• Proof of designation as a non-profit corporation under Health and Safety Code

Section 50091

• Proof that one of the exempt purposes of the corporation is to provide low-income

housing a detailed description of the nonprofit participation in the development and

ongoing operations of the proposed project, as well as an agreement to provide

CTCAC with annual certifications verifying current involvement, a third party legal

opinion verifying the nonprofit organization is not affiliated with, controlled by, or

party to interlocking directorates with an Related Party of a for-profit organization

including the basis for said determination and a third party legal opinion certifying

that the applicant us eligible for the Nonprofit Set-Aside pursuant to IRC Section 42

(h)(5)

Part 3.10 Adopted State Regulations

These regulations establish procedures for the reservation, allocation and compliance monitoring

of the Federal and State Low-Income Housing Tax Credit Programs and establish policies and

procedures for use of the Tax Credits. Section 42 provides for state administration of the Federal

CA Tax Credit Allocation Committee 46 April 2023

Program. California Tax Credit Allocation Committee is the Housing Credit Agency to administer

both the Federal and State Housing Tax Credit programs in California and determines the

regulations as set forth by the policies and procedures noted in IRS Section 42. In addition to these

regulations, program participants shall comply with any other statutory or regulatory requirements

noted by the Committee or California Legislature. Both current and previous year’s regulations can

be found at:

http://www.treasurer.ca.gov/ctcac/programreg/regulations.asp

Part 3.11 Transfer Events

Transfer events include the Sale, Transfer, Refinance, or Disposition of the Project after the

Placed-in-Service Date including changes to either the Limited Partnership or the General

Partnership. Generally, any change in ownership of a building or a partnership interest during the

Federal Compliance period has the potential to be a recapture event if not processed correctly or if

the new ownership entity fails to remain in compliance with IRS regulations. Recapture can

possibly be avoided if the IRS determines that the project is expected to remain in compliance for

the balance of the Compliance Period (including Extended Use period). Changes in ownership

occurring in the Extended Use period are closely monitored to make sure the project remains in

compliance for the full term of the Regulatory Agreement.

To determine if a project remains in compliance with IRS regulations prior to the approval of a

Transfer Event, CTCAC staff will review the results from the most recent CTCAC compliance

inspection, the last AOC package submitted to the Committee, and the performance of the newly

proposed owner or management agent. The entity replacing a party or acquiring ownership or Tax

Credits will be subject to a “qualification review” by the Committee to determine if sufficient

project development and management experience is present for owning and operating a tax credit

project. For projects awarded 9% tax credits, CTCAC regulations require the new owner or

management agent to possess equivalent experience as the current owner or management agent

(see TCAC regulation section 10320(b)(1)(B)). For projects given 4% tax credits with bonds,

TCAC regulations require that the incoming management agent to qualify for at least 2

management company experience points or obtain training and certification in fair housing law,

Section 42 program requirements, project operations, and attend a Owner/Management Training

Class conducted by CTCAC (Section 10325(c)(1)(B)(iii)).

In October of 2015, CTCAC published regulations regarding the definition and requirements of

Transfer Events. At the same time a Questionnaire for Ownership Transfers and Transfer Events

was posted to the CTCAC website to facilitate the process and clearly indicate the required

documentation to be submitted to the committee. The Questionnaire for Ownership Transfers and

Transfer Events can be found at:

http://www.treasurer.ca.gov/ctcac/compliance/covenant/questionnaire.pdf

Certain transfer events (including re-financing) that occur after October 9, 2015 are required to

submit a Capital Needs Assessment and enter into a 15 year Capital Needs Agreement unless they

meet one of several exceptions:

CA Tax Credit Allocation Committee 47 April 2023

A. The project consists of less than 50% Tax Credit units

B. A transfer of the project or a partnership or membership interest in a project owner

in which the debt encumbering the project is not increased, refinanced or otherwise

modified.

C. A refinancing of project debt which does not increase the outstanding principal

balance of the debt other than in the amount of the closing costs and fees paid to the

project lender and third parties as transaction costs.

D. A replacement of a general partner by the limited partner upon the occurrence of a

default by a general partner in accordance with the partnership agreement of the

project owner.

E. A transfer pursuant to a foreclosure or deed in lieu of foreclosure to a non-related

party.

F. A project that is subject to a Capital Needs Agreement and is now being transferred

in connection with a new reservation of 9% or 4% tax credits (i.e., resyndication).

G. A transfer of the ownership of a project subject to an existing tax credit regulatory

agreement with a remaining term of five (5) or less years that is made in connection

with a new reservation of 9% or 4% tax credits (i.e., resyndication).

H. A sale of a project, or the sale or assignment of a partnership interest in a project

owner, to an unrelated party for which the parties entered into a purchase agreement

prior to October 9, 2015.

In addition to the above, CTCAC may require any or all of the following based on responses to the

Questionnaire for Ownership Transfers and Transfer Events:

• Letter from current owner of record notifying CTCAC of the proposed sale of existing tax

credit project including CTCAC project name and number

• A copy of the Purchase/Sales Agreement

• An Assignment and Assumption Agreement (buyer assumes CTCAC regulatory

agreement)

• A copy of the filing of the newly formed ownership entity with the California Secretary of

State's Office

• IRS letter which shows the federal taxpayer identification number for the new ownership

entity

• Organization Chart showing the newly proposed ownership structure

• A completed CTCAC Project Ownership Profile Form (POP), identifying the new

ownership entity and property management (PM) agent

• Property Management Agreement for project (if applicable)

• CTCAC Stand Still Agreement if the acquisition is being financed

• Financial statements for new ownership entity including General Partner(GP) or

Administrative General Partner (AGP)

• Completed CTCAC application attachments 21 and 22 evidencing GP, AGP and PM

experience

• Completed Project Status Report (PSR)

CA Tax Credit Allocation Committee 48 April 2023

• A statement of how much will rents increase after the transfer of ownership interests

occurs.

• Confirmation letter from current owner confirming that seller will transfer tenant records

and all tenant demographic data collected up to the date the sale closes escrow to the buyer

and their property management agent

• Completed CTCAC Annual Owner Certification (AOC) Form and CTCAC Annual

Operating Expense (AOE) reports

• Copy of a written letter stating whether the project will be applying for a re-syndication of

tax credits

• IRS tax filing Form 990 for non-profit organization (if applicable)

• A copy of the Sources and Uses worksheet

In September 2018, CTCAC updated the Transfer Memo to require that transfer events that include

properties that received 4% tax credits in conjunction with a bond allocation notify the CA Debt

Limitation Allocation Committee (CDLAC) of the intent to transfer the property, and added two

additional items to the documentation that is to be submitted. These are:

• Sources and Uses Worksheet showing net equity distribution to the seller

• Reserve Certification indicating all expended funds in the project reserve funds associated

with the project will remain with the project.

In March 2019, CTCAC revised the Questionnaire for Ownership Transfers and Transfer Events to

a more user friendly layout which separates the main types of Transfer Events received and has an

easy check box system.

CTCAC must give approval to the transfer event prior to its occurrence. Failure to gain approval

prior to completing a transfer event may result in fines. Due to the high number of requests that are

submitted for approval, the approval process can take up to 3-4 weeks to complete February

through October and 4-6 weeks to complete November through January. CTCAC strongly suggests

submitting any documentation for a Transfer Event 45+ days prior to the closing date to ensure

sufficient review and processing time.

Transfer Event requests can be submitted via email to Compliance Program Manager David

McDaniels [email protected]

Part 3.12 End of Compliance Period

Some LIHTC projects that were awarded credits from 1991 through 2003, were subject to a total

Regulatory period of either 30 or 55 years depending on the type of credits received. All projects

awarded credits from 2004 on are subject to a Regulatory period of 55 years. See Section I Part

1.3. Starting in 2023, for projects that are exiting the Regulatory period, CTCAC will require the

following:

1. Owner/Management Agent notify all tenants of the end of the Regulatory period a

minimum of 6 months prior to the end date of the Regulatory Agreement. The Notification

should outline any intended changes to rental amounts and make tenants aware of the

CA Tax Credit Allocation Committee 49 April 2023

provisions of AB 1482 the CA Tenant Protection Act of 2019.

2. CTCAC will require that any initial rent increases due to the property exiting the program

be no more than 10% or twice the change in Cost-of-Living, whichever is lower.

3. The Regulatory Agreement provisions automatically end at the end of the Regulatory

Period. If the owner wishes a formal Termination of the Regulatory Agreement recorded

against title, the owner will need to contact either of the CTCAC Compliance Section

Chiefs – Elizabeth Gutierrez-Ramos or Shannon Nardinelli. Formal Terminations may take

6-8 weeks to process.

CA Tax Credit Allocation Committee 50 April 2023

Section III Exhibit A – Utility Allowance Chart

HUD

Regulated

Funding

Source

More than

Allowance

per

Building?

Utility

Allowance

Additional Information

Yes

HUD Project-

Based Section

(PBRA)

- HUD Rent and

U/A Schedule

- CUAC

PBRA funded through the Office of

Multifamily Assistance. The entire project

is subsidized and all units have rental

subsidy tied to the property. Often posted

as a HUD Rent Schedule with the U/A

amount attached.

Housing

Choice

Voucher

(HCV)

Project Based

Voucher

(PBV)

Yes

- Local Public

Housing

Authority

(PHA)

The HCV Program’s Project Based

Vouchers funded through the Office of

Public and Indian Housing. Tied to a

specific unit at a property. Some or all of

the units may have subsidy.

Housing

Choice

Voucher

(HCV)

Tenant Based

Vouchers

Yes

- Local Public

Housing

Authority (PHA)

The HCV Program’s Tenant Based

Vouchers funded through the Office of

Public and Indian Housing. Tenant based

vouchers stay with the tenant and are not

accounted in application funding or

amounted for in CTCAC reports.

The owner must use the local PHA U/A for

HCV units, while non-HCV units may use

any available LIHTC option.

Yes

HOME funded

Projects

Prior to 8/23/13

- Local PHA

allowed

Post 8/23/13

- Local PHA

allowed only

with a waiver

Other

Approved

Sources:

- HUD Utility

Schedule Model

(HUSM)

- Multifamily

Housing U/A

HOME assisted units must follow the HUD

guidance in Homefires Volume 13, No. 2.

It is the owner’s responsibility to keep

updated on future HUD guidance.

Current guidance - If the HOME loan was

funded prior to August 23, 2013, the

owners may use the Local PHA UA on

HOME assisted units and apply the Local

PHA UA on all units in the building

(HOME and Non-Home Units).

If the HOME loan was funded after August

23, 2013 and the owner wishes to utilize

the PBV UA issued by the local PHA, the

owner may request a waiver from HUD.

The waiver must be obtained by HUD

CA Tax Credit Allocation Committee 51 April 2023

(MHUA)

- Local Utility

Company

Estimate

- CUAC

before applying the local PHA UA.

Rural Housing

Service (RHS)

or Rural

Development

(RD)

- RHS or RD

approved 3

Party U/A

- CUAC

If the building or any tenant in the building

receives assistance from the Rural Housing

Service (RHS-assisted) then they are

considered an RHS or RD building.

If the building is receiving Rental

assistance payments from both the

Department of Housing and Urban

Development and RHS, the applicable

RHS approved utility allowance will

supersede.

LIHTC/Tax

Credit Only*

(no other

federal funding

source)

- Local Public

Housing

Authority (PHA)

- CA Utility

Allowance

Calculator

(CUAC)

- Local Utility

Company

Estimate

- HUD Utility

Schedule Model

(HUSM)

The IRS allows for a 5th option called

Agency Estimate. However, the Agency

Estimate is not an option for LIHTC

Projects in California, as CTCAC staff

does not have the resources or training to

produce an accurate estimate of Utility

Allowances at each project.

*IRS has clarified that tax credit projects may only use one utility allowance per building except for those properties

with Project Based Vouchers meeting specific criteria

Sources:

HUD PBRA - https://www.hud.gov/sites/dfiles/OCHCO/documents/92458.pdf

HUD HCV - https://www.hud.gov/sites/dfiles/OCHCO/documents/52530Bpt1.pdf

HOME Funded - https://www.hud.gov/sites/dfiles/CPD/documents/HOMEfires-Vol-13-No2-

Guidance-on-How-to-Establish-Utility-Allowances-for-HOME-Assisted-Rental-Units.pdf

CA Tax Credit Allocation Committee 52 April 2023

SECTION IV – QUALIFYING TENANTS FOR LIHTC UNITS

Potential tenants for low-income, rent-restricted units should be advised early in the application

process that there are income limits that apply to these units. Management should explain to

potential tenants that the projected gross income of all adult persons expecting to occupy the unit

must be included and verified on a Tenant Income Certification (TIC) form prior to occupancy

and, then, annually recertified for continued eligibility in mixed-use Tax Credit properties or for

one additional income recertification for 100% Tax Credit properties.

Part 4.1 The Tenant Application, Lease, and Lease Riders/Addendums

A. Application - A fully completed application is critical to an accurate determination of

tenant eligibility. The information furnished on the application should be used as a tool to

determine all sources of income, including total assets and income from assets.

At the time of the application, it is the management agent’s responsibility to obtain

sufficient information on all prospective tenants to completely process the application and

complete the Tenant Income Certification.

CTCAC requires criteria that should be captured in the tenant application. The application

should include:

1. The name and age of each person that will occupy the unit (legal name should be

given just as it will appear on the lease and tenant income certification).

2. All sources and amounts of current and known projected annual income expected

to be derived during the twelve month certification period. Include assets currently

owned and indicate if household members disposed of assets during the previous

two years.

3. The current and anticipated student status of each applicant during the twelve

month certification period.

4. The signature of the applicant and the date the application was completed. It may

be necessary to explain to the applicant that all information provided is considered

confidential and will be handled accordingly.

5. Housing history for the past two years.

6. Optional: A screening process, for example, previous landlord’s credit information.

Owners should ask applicants whether the family assistance or tenancy in a

subsidized housing program has ever been terminated for fraud, nonpayment of

rent or failure to cooperate with recertification procedures.

B. Lease - All residents occupying tax credit units must be certified and under lease no later

than the time a tenant moves into the unit. Leasing guidelines are listed below.

At a minimum, the lease should include (but is not limited to):

- The legal name of all parties to the agreement and all other occupants.

- A description of the unit to be rented.

- The date the lease becomes effective.

- The term of the lease.

CA Tax Credit Allocation Committee 53 April 2023

- The rental amount.

- Any mandatory charges to the tenants

- The use of the premises.

1. Rents on the tax credit units may not exceed the amounts allowed by Section 42 of the

Code or stated in the project’s Regulatory Agreement (Gross Rent).

2. There must be an initial lease term of at least 6 months on all tax credit units (except

for housing for the homeless and single-room-occupancy). Succeeding leases are not

subject to a minimum lease period.

3. It is important for the lease to reflect the correct date of move-in, or the date the tenant

takes possession of the unit. This date should match the move-in date reflected on the

initial move-in Tenant Income Certification (TIC)

C. Section 42 Lease Language, Rider or Addendum

In addition to the lease there should be language in the lease or a lease rider/addendum that

outlines all of the LIHTC requirements per IRS Section 42 such as; the rights and

obligations of the parties, including income requirements and the obligation of the tenant

to certify income annually, as well as, language which addresses income, utility allowance

increase/decrease, income limit increase, rent changes, student restrictions and exceptions,

household composition change or any other change that may impact the tenant’s rent or

eligibility for the program. Please note – the HUD Affordable Housing Rider cannot be

used in lieu of the Section 42 Lease Rider/Addendum.

In March of 2021, CTCAC released a CTCAC Section 42 Lease Rider in lieu of including

separate language in the lease or an Addendum created by the owner/management

company. This CTCAC Required Section 42 Lease Rider will be used to maintain

consistency across all properties and management companies to clearly state the provisions

of the LIHTC Program. This form is required for all new move-ins starting January 1,

2023.

D. CTCAC Required Lease Rider (Good Cause Eviction Rider)

The CTCAC Good Cause Eviction Lease Rider became a CTCAC requirement 2005, and

must be executed by new tax credit households. The Good Cause Eviction Lease Rider is

separate from the Section 42 language/lease rider/addendum noted above. The Good Cause

Eviction Lease Rider must be included with leases for all new tax credit households at

initial leasing only. The Lease Rider is posted on CTCAC’s website. The Lease Rider

informs tax credit households that they may not be evicted by the owner or management

agent unless there is “Good Cause” to do so. Once signed, it is not necessary to re-sign a

new lease rider at every recertification. If there are any new additions to a household, or a

child reaches his or her majority, then the “new” tenant should sign the existing waiver

with the current date. (See also Section II Part 2.2(B) and Section III Part 3.7(E))

In 2021, the name of the form changed from Low Income Housing Tax Credit Lease Rider

to LIHTC Good Cause Eviction Lease Rider to minimize confusion with the requirement

CA Tax Credit Allocation Committee 54 April 2023

for the LIHTC Section 42 Lease Rider noted in Section IV Part 4.1 (C)

E. Violence Against Women Act (VAWA) HUD Lease Rider

In 2013, Congress passed legislation that added LIHTC properties to the list of federal

housing programs protected by the Violence Against Women Act (VAWA). No formal

guidance has been given from the IRS regarding this legislation. In December of 2017,

CTCAC put out guidance regarding VAWA and started requiring the HUD – 91067 Form

(HUD VAWA Lease Rider) be in the file for all Tax Credit properties. For tax credit

purposes, one VAWA Lease Rider form may be signed by all adult household members

and new additions to a household or minors that reach their majority, may sign the existing

VAWA form with the current date.

The CTCAC Guidance Memo regarding VAWA compliance can be found at:

https://www.treasurer.ca.gov/ctcac/compliance/memos/vawa.pdf

Part 4.2 Determining Maximum Income and Rent Limits

CTCAC publishes Income and Rent Tables based on limits released by HUD annually (See

Section III Part 3.3 (E). The income limits reflect household sizes for up to 8 persons. CTCAC

calculates the 60% income limit the 4 person household as 132% above the HUD very low limit

of 50%.

The Income and rent tables can be found at:

https://www.treasurer.ca.gov/ctcac/compliance.asp

On occasion it may be necessary to determine the limit for a household size over eight people. To

do so, please use the following calculation: Take the income limit for a family of four, add 8 to the

4-person percentage for each additional person in the household (for a 9-person that would be 132

+ 8 = 140% or 1.4, for a 10 it would be 132 + 16 = 148% or 1.48). Then multiply the 4 person

limit by that %.

Example:

9 person calculation:

Sacramento County 60% limit for a family of 4 = $42,600

60% limit = 132%

Add 8 = 140%

Multiply 4 person limit by 140% = $59,640

9 person limit for a 60% unit in Sacramento County = $59,640

The Rent tables published by CTCAC follows the guidelines for occupancy as determined by

HUD using the maximum income limits and the following person/bedroom ratio – 1 person per

unit for a Studio/SRO or Efficiency unit and 1.5 persons per bedroom size. Maximum allowable

rent equals 30 percent of the project’s income limit for the imputed family size. The maximum

allowable rent for:

• A studio/efficiency is 30 percent of a project’s one person income limit.

CA Tax Credit Allocation Committee 55 April 2023

• A one-bedroom unit is 30 percent of a project’s income limit for 1.5 persons, calculated by

averaging the one and two person income limits.

• A two-bedroom unit is 30 percent of a project’s three person income limit. (2 bedrooms x

1.5 persons = 3 persons)

• A three-bedroom unit is 30 percent of a project’s income limit for 4.5 persons, calculated

by averaging the four and five person income limits. (3 bedrooms x 1.5 persons = 4.5

persons)

• A four-bedroom unit is 30 percent of a project’s six person income limit. (4 bedrooms x

1.5 persons = 6 persons)

• A five-bedroom unit is 30 percent of a project’s income limit for 7.5 persons, calculated by

averaging the seven person and eight person income limits. (5 bedrooms x 1.5 persons =

7.5 persons)

Maximum Rent Example

40% @ 60% minimum set aside

1 bedroom unit

Utility allowance = $65

1-person 60% income limit = $22.500

2-person 60% income limit = $24,300

($22,500 + $24,300)/2 = $46,800

$46,800/2 = $23,400

$23,400 = 60% income limit for 1.5 Persons

$23,400 x 30% = $7,020

$7,020/12 months = $585 (rounded down)

$585 – $65 = max tenant rent of $520

For all Rent Calculations the rental amount is based on the Area Median Income as released

by HUD annually not on the tenant’s annual income.

Part 4.3 Determining the Average Income Test (AIT) Set-Aside

On October 7, 2022, the IRS released the Section 42, Low Income Housing Average Income Test

Regulations. These regulations constitute the final guidance from the IRS for the Average Income

Test (AIT) set-aside for low-income housing. CTCAC will adhere to the final guidance and will

continue to require more restrictive standards (as allowed for in the final regulation) on some

aspects as currently noted in the current State Regulations (Qualified Allocation Plan or QAP).

A. Minimum Requirements

The IRS states that a project meets the minimum requirement of AIT if 40% or more of the

residential units in the project are both rent restricted and occupied by tenants whose

income does not exceed an average of 60% of Area Median Gross Income (AMGI). Units

may be designated at 20%, 30%, 40%, 50%, 60%, 70%, or 80% of AMGI. In California:

CA Tax Credit Allocation Committee 56 April 2023

a) For projects seeking a competitive allocation of credits (9%) – the overall average

of the project may not exceed 50% of AMI, rather than the 60% allowed in the

federal legislation. This requirement keeps reporting requirements consistent at the

State level with those competitive projects that choose a 40/60 or 20/50 set-aside.

b) For projects seeking a non-competitive allocation of credits (4%) - the overall

average of the project may not exceed 59% of AMI, rather than the 60% allowed in

the federal legislation. In 2020, this State regulation was modified to the IRS

requirement of 60%.

B. Irrevocable Election

Under Section 42(g), once a taxpayer elects a set-aside, the election is irrevocable. If a

taxpayer previously elected to use a 20/50 or 40/60 set-aside, they may not subsequently

elect to use AIT.

C. Designated Units

Section 42(g)(1)(C)(ii)(I) requires the taxpayer to designate each unit’s imputed income

limitation to determine the overall average of the property. The final regulation revises the

timing of the designation from the end of the 1

year of the credit period to when a unit is

first occupied as a low-income unit.

The IRS Final guidance does provide guidance for changing unit designations under certain

circumstances:

1. In accordance with any procedures established by the IRS in forms, instructions, or

published guidance

2. In accordance with an Agency’s (CTCAC’s) publicly available written procedures

available to all AIT projects

3. To enhance protections of ADA, Fair Housing, VAWA, or any other State, Federal,

or local law or program that protects tenants and that is identified by either the IRS

or Agency (CTCAC). These protections do not necessarily have to have a specific

connection to Section 42

4. To allow an existing qualified resident to transfer to a different unit within the

project and keep the same income limitation and gross rent

5. To restore the required average income limitation to identify the qualified group

used in conjunction with satisfying the minimum set-aside or applicable fraction

CTCAC will require that the initial designations determined at Placed in Service and noted

in the Regulatory Agreement for the property, remain throughout the full 55 year

compliance period. Owners may swap the status of units as needed and described above,

but the number of units designated at each of the percentages (20% - 80%) must remain as

noted in the Regulatory Agreement.

D. Next Available Unit Rule (NAUR) – AIT

For AIT units that are designated at 20% - 60%, the NAUR determination is calculated at

140% of the current 60% AMGI. For AIT units that are designated at 70% or 80%, the

calculation is based on 140% of the current AMGI for that designation. The NAUR states

CA Tax Credit Allocation Committee 57 April 2023

that if an existing tax credit household exceeds the current AMGI by 140% or more, then

the next unit of equal or smaller size must be rented to a qualified household.

For AIT projects, the taxpayer must limit the designation on the next unit in a way that will

not cause the average of the project to exceed 60% of AMGI. In the case of AIT projects

with multiple units exceeding the 140%, the IRS clarified that there is not a specific order

in which units must be occupied, however, the order in which the groups are occupied may

affect the qualified group used for determining the applicable fraction.

For more information about the Next Available Unit rule for 40/60 and 20/50 projects, see

Section III Part 3.5(D).

E. Applicable Fraction

Under the final regulations, the group of units used to determine the applicable fraction

follows the same approach as determining the AIT set-aside. If a unit designated at a higher

percentage causes the average of an otherwise qualified group to exceed 60% of AMGI,

that unit must be excluded from the applicable fraction calculation. If a unit loses low-

income status, it may impact the other units within the group, and the taxpayer may have to

exclude one or more additional units to retain an average that does not exceed 60% of

AMGI.

Additionally, the final regulations require that the taxpayer separately identify the units

used to satisfy the AIT set-aside and the qualified group of units noted for determining the

applicable fraction. These should be documented in the taxpayer’s books and records and

communicated to CTCAC annually.

F. Required Reporting

Taxpayers are required to report specific information to CTCAC and maintain detailed

records establishing the accuracy of the project’s set-aside, applicable fraction, and

compliance with Section 42 regulations. Currently CTCAC requires the Annual Owner

Certification package be completed by March for the previous year. Starting in 2023,

CTCAC will be adding an additional informational report for projects that have elected an

AIT set-aside to comply with the tracking requirements of the IRS final regulations.

G. Applicability Date

The final regulations apply to taxable years beginning after December 31, 2022. For

taxable years prior to the implementation of the final regulations (2018-2022), taxpayers

may rely on the interpretation of the Statute by the allocating agency (CTCAC) for those

years to which the regulations did not apply.

Part 4.4 Tenant Income Verification

IRS Revenue Notice 88-80 (Appendix 3) states that determination of annual income of individuals

and area median gross income adjusted for household size must be made in a manner consistent

CA Tax Credit Allocation Committee 58 April 2023

with HUD Section 8 Income definitions and guidelines. HUD Handbook 4350.3 REV-3,

Occupancy Requirements of Subsidized Multifamily Housing Programs, can be used as reference

guide and is included in Appendix 2. However, please keep in mind that the allocating agency

(CTCAC) can impose stricter requirements for determining income eligibility beyond what

HUD Handbook 4350.3 REV-3 requires.

“The accurate determination of a household’s income is a fundamental requirement of the IRC

Section 42 Low-Income Housing Credit program. Not only is it necessary for identifying

households most in need of housing, but the determination must be adequately documented in

order for the owner to claim credits.” – IRS.

The income of every prospective occupant of the unit over the age of 18 and any unearned income

from persons under 18 (such as Social Security benefits) must be verified. All regular sources of

income including income from assets must be verified. Verifications must be received by the

management agent prior to the execution of the Tenant Income Certification and actual move-in.

Verifications must contain complete and detailed information and include, at a minimum, direct

written verification from all sources of regular income and income from assets. It is the burden of

the owner to perform adequate due diligence in obtaining verifiable information. Information that

is not verifiable or is unclear, may be questioned by CTCAC during an audit, and may result in

reportable noncompliance to the IRS.

A. Effective Term of Verification

Third-party verifications of income are valid for 120 days prior to move-in. If after 120

days the tenant has not yet moved in, a new written verification must be obtained.

B. Methods of Verification

1. Written Verification

Written, third party verification is required. Any request for income verification must:

(a) State the reason for the request;

(b) Include a release statement signed and dated by the prospective tenant;

hire date, current anticipated gross annual income or rate of pay, number of hours worked,

income YTD including when the annual pay period began, and frequency of pay.

Bonuses, tips, commissions and any other additional income sources such as uniform

allowance or mileage must be included. Spaces should also be available for a signature,

job title, phone number, and date.

(d) Probability and effective date of any increase during the next twelve (12) months.

(e) CTCAC requires three months of consecutive pay stubs at initial move-in on addition

to the Verification of Employment (VOE) for wage earners only.

2. Verbal Verification

Although verbal verification is acceptable in HUD Handbook 4350 Rev-3, as of

January 1, 2009, verbal verification of income and assets will not be permitted by

CTCAC due to the significant risk of Tax Credit noncompliance.

CA Tax Credit Allocation Committee 59 April 2023

Verbal telephone clarifications of existing written documentation will still be allowed for

minor issues relating to dates or blanks. However, if the verbal clarification would reduce

the income calculation used to determine eligibility, third party clarification must be

obtained.

3. Electronic Verifications

Electronic verifications may include copies of printouts from government websites such as

Social Security, EDD, and the IRS, and may be used in lieu of separate 3

party

verifications or award letters, if the name of the account holder is visible, if the tenant is

unable to get a copy of the award information. For App-based verifications such as

Venmo, Cryptocurrency, and Uber/Lyft, a screenshot of the required information may be

used as long as the name of the account holder is visible in the image. CTCAC will not

accept photos or screenshots of CTCAC required forms.

4. Verification Requests

Income verification requests must be sent directly to the source of income by the owner or

management agent and returned by the source to the owner or management agent. Under

no circumstances should the applicant or resident be allowed to send or deliver the

verification form to the third party source. CTCAC does not require that a self-addressed,

stamped envelope be included with the request for verification, however, many investors

or management companies have made it a policy to do so, to ensure a timely and

documented response.

All tenant income verifications should be date stamped as they are received. However,

CTCAC will determine time validity of the verification based on when the source of

income signed and dated the verification (120 days).

5. Acceptable Forms of Income Verification

For information concerning acceptable forms of income verification for Employment

Income, Self-Employment Income, Social Security/Pensions/Supplemental Security

Income (SSI)/Disability Income; Unemployment Compensation, Alimony or Child

Support Payments; Recurring Contributions and Gifts; Scholarships, Grants, Veteran’s

Administration Benefits; etc., see Section VII Part 7.2(B)(C), HUD 4350.3 Chapter 5

(REV 2) and the IRS Guide to Form 8823 Chapter 4.

In addition to the Tax Credit requirements, an owner or management company may

impose more restrictive standards on documentation or ask for additional documentation

not required by CTCAC (ex. bank statements).

C. Discrepancies in Reported Income

The management agent should give the applicant the opportunity to explain any significant

differences between the amounts reported on the application and amounts reported on

third-party verifications in order to determine actual income. Discrepancies noted between

CA Tax Credit Allocation Committee 60 April 2023

the VOE and the paystubs may require third party clarification.

D. Electronic Signatures

In 2015, CTCAC started allowing the use of electronic signatures on the application only.

In 2020, due to the COVID-19 Pandemic, CTCAC allowed the use of electronic signatures

through the vendor Docusign for all documents to mitigate in-person contact. Starting in

2021, CTCAC will allow electronic signatures on all CTCAC required documents

(Application, Lease, CTCAC Forms) through a legitimate 3

party vendor, provided the

signature was obtained by a secure log-in process directly from the 3

party vendor that

initially verifies ID, and preferably with the electronic signature created by the tenant

“writing” their name using a mouse or electronic pen with the current date.

Numeric “PIN only” signatures or signatures using Adobe or other 3

party software that

does not have a secure ID verification system to track and document identity will not be

accepted.

E. Assets

Assets are items of value, other than necessary personal items. Income from assets

must be taken into consideration when determining the eligibility of a household.

Asset information (asset value and income from the asset) should be obtained at the

time of application.

Third party verification of assets is required when the combined value of assets exceeds

$5,000. Owners of tax credit projects will not have to obtain third-party verification of

income from assets if the tenant submits to the owner a signed, sworn statement that the

value of their combined assets is less than $5,000. The tenant’s income from the net

household assets that are less than $5,000 must be included in the calculation of the annual

income amount when initially qualifying a household and upon recertification.

For information regarding how CTCAC determines the value of and income from assets,

see Section VII Part 7.2 D.

F. Real Estate

All real estate currently owned by the household or sold by the household member within

the prior two years, must be accounted for in determining asset income for the household.

Determining the value of the real estate property can be done one of two ways:

1. Actual value - third party appraisal or sale documents

2. Estimated value – three online estimations from realty websites, such as Zillow,

Redfin, Realtor.com. The highest estimate should be circled and used to determine

the basis for the asset calculation.

Once the value of the property has been determined, calculation of the asset can be done

the following ways:

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1. Normal Sale of Real Estate

To determine the asset value of real estate that has been sold at market value-

management must calculate both the actual cash value of the property and if the value

is over $5000, the imputed value of the property, and take the higher of the two

amounts. To do this, take the value of the property, subtract the costs of any

outstanding mortgages, and subtract the closing costs for the property. The interest on

the cash amount received for a home would be zero, unless the proceeds were put into

an interest bearing account like a savings or CD.

Example 1: Mr. Smith just sold his house and is moving into a tax credit property. The

House sold for $325,000. Mr. Smith owed $150,000 on his mortgage. Closing costs for

the property were $32,500. All of the proceeds for the sale of the home are currently in

a CD earning 3.8% interest. The values of the property are:

$325,000 - $150,000 - $32,500 = $142,500

Imputed Value: $142,500 x .06% = $85.50

Cash Value: $142,500 x 3.8% = $5415 would be noted on the TIC as an asset.

Example 2: Ms. Jones just sold her condo and is moving into a tax credit property. The

condo sold for $125,000. Ms. Jones owed $90,000 on her mortgage. Closing costs for

the property were $12,500. She paid off a few bills and put the rest of the proceeds

from the sale of her condo into a checking account that does not earn any interest. The

values of the property are:

$125,000 - $90,000 - $12,500 = $22,500

Imputed Value: $22,500 x .06% = $13.50

Cash Value: $22,500 x 0% = $0*

*You would also need to take the imputed value of the Checking account (6 month

average)

2. Real Estate used as a Rental Property

For real estate that is used as a rental property, two calculations must be completed and

then compared. The first calculation is the same as the normal sale of real estate, noted

above. The second calculation is the amount of monthly income from the rent,

subtracting any mortgage or maintenance amounts. The final income amount that

needs to be listed on the TIC is the higher of the two.

3. Foreclosure

A foreclosure is essentially to be treated as a zero asset, as the tenant will not be

receiving any monies from the foreclosure. However, until the final foreclosure

documents are provided, the house is resold at auction, or the title transfers ownership

to an outside party, a tenant has the option to pay off the remaining balance and re-

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claim the house. CTCAC will require copies of the final foreclosure documents to be

in the file. Notices of Foreclosure will not be accepted as valid documentation.

4. Short Sale

A short sale is essentially to be treated as a zero asset, as the tenant will not generally

be receiving any monies from the short sale. However, if there is a difference in the

sale in favor of the tenant it must be 3

party verified if it is over $5000. The

documentation that is required in the file is:

• 1099-C showing the amount and the final debt forgiveness

If the tenant has not received the 1099-C, the following information needs to be 3

party verified and in the file:

• Market Value (as determined by the bank and the tenant agreeing to a transaction)

• Minus, Costs of the Transaction (commission, closing costs, etc.)

• Minus, Loan Balance owed on Property

= Equals, Equity / Cash Proceeds from the Transaction

5. Reverse Mortgages

Management Companies should look closely into applicants who apply for a tax credit

unit and claim to have a reverse mortgage on their home. Financial Institutions often

require the owner of the home to live in the home in order to qualify for a reverse

mortgage. If a prospective tenant applies for a tax credit unit, the management

company needs to obtain 3

party verification from the Reverse Mortgage lending

institution stating the applicant does not need to live in the home full-time. If the

verification shows that the applicant can live outside their home with a reverse

mortgage, then the income from the reverse mortgage is considered an asset. To

determine the value of the house, subtract the principal balance due on the reverse

mortgage from the home’s market value to determine its cash value.

G. Computing the Total Household Income

After all income and asset information has been obtained and calculated, all qualified

sources of income are added to derive the total household income. In order for the

household to qualify for a tax credit unit, the total household income must be less than or

equal to the maximum allowable qualifying income for household size in effect at the time

of tenant certification. If the total household income is greater than the maximum

allowable qualifying income, the household cannot be certified for a tax credit unit.

H. Anticipated Income

Generally, CTCAC does not calculate anticipated wages into income calculations, unless a

salaried or definitive offer of employment has been made and a start date is set. Instead,

CTCAC asks that the Zero-Income Certification form be filled out for the tenant, stating

CA Tax Credit Allocation Committee 63 April 2023

how he, she, or they will be paying the rent and/or other bills.

Example 1: Karen Johnson is applying at your property. She is not currently

working but has applied at several locations. Based on her previous work history

she anticipates that she will find a job earning $15 an hour for 20-30 hours a week

and she signs an Anticipated Income Form that the management company has

created to show minimum income eligibility.

In this situation, CTCAC would not count the anticipated income amount of $15 an

hour x 20-30 hours a week for Karen, as neither the amount nor the hours are

guaranteed and there is no information as to when the anticipated income would

start.

Example 2: Ben Smith is applying at your property and wants to move in on

August 1

. They were recently hired for a new position, but the job won’t start

until after they move into your property. They have a hire letter from their new

company that states they will be starting on August 15

and will be earning a

salary of $43,250 a year.

In this situation, CTCAC would count the anticipated income, as there is an offer

of salaried employment with a start date. CTCAC would pro-rate the earnings to

reflect the start date 15 days after move-in.

Hire letters that indicate an hourly wage and start date but only have an approximate

number of hours (ie: 20-30 hours a week) are not considered definitive and cannot be

accepted as there is no defined number of hours that the applicant will be given.

Employment that occurs later within the 1st year of tenancy will generally not be an issue

for CTCAC. However, if at 1st recertification (for both 100% and Mixed-use properties)

the VOE indicates that new employment began within the 1st month of the lease term,

CTCAC may request further documentation inquiring about the start date and the date the

job was offered to determine income eligibility.

Please Note - If no tenant in the household is earning wages nor has a different source of

income, CTCAC will question how the bills are being paid and an anticipated wage

statement will not be sufficient documentation as there is no guarantee of wages.

I. Cash Payments

As of June 2004, in addition to the Verification of Employment (VOE) CTCAC requires 3

months of current consecutive paystubs at move-in. If the tenant is claiming that they do

not receive paystubs as they are paid in cash, the IRS has determined that those individuals

are considered “independent contractors” and as such should file a 1040 tax return.

CTCAC will require a copy of the 1040 filing for the tenant and a third party statement

from the employer on company letterhead, indicating the name of the tenant, the position

title, and how much the employer pays the tenant in cash each week.

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If the tenant is claiming that he/she does not file tax returns, CTCAC will require a copy of

completed Form 4506-C indicating the tenant did not file taxes with the IRS in place of the

1040 Return. The statement from the employer will still be required in addition to the

4506-C.

If management is having difficulty obtaining the 4506-C Form, the tenant may obtain

copies of their transcripts directly by contacting the IRS at:

www.irs.gov/individuals/get-transcript

Transcripts obtained by the tenant through this website may be used in place of the 4506-C

Form.

CTCAC will question patterns of excessive use of Cash Wages statements in the 20%

audit sample and may request additional information or a larger audit sample.

J. Other Payments

1. California Climate Credit - The California Climate Credit is a bill credit that is

part of California's efforts to fight climate change. Residential households and

small businesses automatically receive the California Climate Credit if they are

purchasing utilities through an investor owned utility company (such as PG&E,

San Diego Gas & Electric, Southern California Edison, etc.) or through a

Community Choice Aggregator (CCA). The Credit is applied twice per year – in

the spring and fall. As this is a credit to the tenant’s bill and not funds that the

tenant has access to, it is not considered income for Tax Credit purposes and

should be excluded when determining income eligibility.

2. Kin-GAP Payment - The Kin-GAP Program offers a subsidy to children who

leave the juvenile court system to live with a related legal guardian. The intent of

the legislation is to provide an option in a continuum of choices for the related

caregiver, the agency, and the courts in order to allow the most appropriate

permanency plan for dependent and delinquent children. In mid-2019, HUD

provided guidance that they do not consider Kin-GAP payments as income for a

household, CTCAC will also exclude Kin-Gap payments as a source of income

for the household.

3. Flex Benefit Payments - Flex Benefit plans allow employees to choose the

benefits they want or need from a package of programs offered by an employer.

Flexible employee benefit plans may include health insurance, retirement benefits

such as 401(k) plans, and reimbursement accounts that employees can use to pay

for out-of-pocket health or dependent care expenses. In a flexible benefit plan,

employees contribute to the cost of these benefits through a payroll deduction of

their before-tax income, reducing the employer's contribution. Since the amounts

in the Flex Benefit account are the pre-tax funds from the wages of the employee

and not a benefit in addition to wages, it is not considered income for Tax Credit

purposes and should be excluded when determining income eligibility.

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4. ABLE Accounts – ABLE accounts are tax-advantaged savings accounts for

individuals with disabilities. The beneficiary of the account is the account owner

and contributions to the account may be made by the owner, a trust, family or any

other person up to a maximum annual contribution of $15,000. The funds in this

account must be used for certain qualified disability expenses that help improve

the quality of life for the beneficiary. In April of 2019, HUD provided guidance

that ABLE accounts are excluded from the calculation of income and assets. As of

that guidance, CTCAC will also exclude ABLE accounts as a source of asset

income for the household.

K. Electronic Banking Cards (EBT), Debit Visa or MasterCard

For household that receive payment for programs such as Social Security, EDD, or

employer payroll on a EBT/Debit Visa or MasterCard, CTCAC will continue to verify the

source information for the card (Social Security Award Letter, EDD Award Letter, VOE

and pay stubs). Any balance amount remaining on the card at time of move-in or

recertification is treated like any other asset and if under $5000 should be noted on the

Under $5000 Asset Verification Form. If over $5000, then a statement or receipt should be

in the file, the balance should be imputed at the current HUD passbook rate of .06% and

added to the total household income.

L. Mobile Payment Service (Venmo, Zelle, Paypal, CashApp, etc.)

For any mobile payment service CTCAC will treat any held balance similarly to a savings

account with zero interest. We will require a printout of the current balance and the use of

the HUD Passbook rate to determine the value if the total household asset value is over

$5000. If the total household assets are under $5000, it should just be noted on the Under

$5000 Asset Form.

M. Cryptocurrency (Bitcoin, Ether, Ripple, etc.)

For households that have crypto-currency, if the households total assets are over $5000,

CTCAC will require a printout of the current balance and the average percentage of

fluctuation for the last 3 month period to determine the value. If the household’s total

assets are under $5000, note the current value on the Under $5000 Asset Certification

Form, and CTCAC will allow the HUD passbook rate of .06% to be used on the current

value of the cryptocurrency instead of a 3 month average.

Example: Jack Ableson has $10,000 in a savings account and owns some partial

shares in Bitcoin. The current value of the shares are $1326. Over the last 3

months, the currency fluctuations of the cryptocurrency average out to 2.6%. To

determine the asset value of the cryptocurrency, management should multiply the

current value ($1326) by the average change in the fluctuations (2.6%). $1326 x

2.6% = an asset value of $34.48

If the average fluctuation of the cryptocurrency is negative, the asset is treated as having a

zero average, and the HUD Passbook rate of .06% should be used.

CA Tax Credit Allocation Committee 66 April 2023

Example: Jack Ableson has $10,000 in a savings account and owns some partial

shares in Bitcoin. The current value of the shares are $1326. Over the last 3

months, the currency fluctuations of the cryptocurrency average out to -2.6%.

Normally, to determine the asset value of the cryptocurrency, management should

multiply the current value ($1326) by the average change in the fluctuations (-

2.6%). However, since the average change in the fluctuations is negative, the HUD

Passbook rate of .06% should be used instead. $1326 x .06% = an asset value of

$0.80.

Part 4.5 Initial Tenant Income Certification Guidelines

The initial move-in certification guidelines for 100% and Mixed-use Tax Credit Properties are as

follows:

A. Each adult tenant must sign the following:

• Lease

• LIHTC Good Cause Eviction Lease Rider

• LIHTC Section 42 Lease addendum (or have language in the lease or separate

addendum prior to 2022)

• Application

• Tenant Income Certification (TIC)

B. Each adult tenant must complete the required CTCAC forms:

• Tenant Income Certification Questionnaire (TICQ)*

• Child/Spousal Support Affidavit

C. If Applicable, each adult must also complete the following required CTCAC forms:

• Under $5000 Asset Verification (one for each adult, unless married and have joint

asset accounts)

• Zero Income Certification

• Student Affidavit

• Foster Care Affidavit

• Single Parent Full-time Student Affidavit

• Financial Aide Verification

• Live-in Aide Verification

• Separated or Estranged Status Affidavit

D. Once all the income and asset information has been obtained and calculated, prepare the

required CTCAC Tenant Income Certification for each household. The following

guidelines apply:

1. Upon receipt of all verifications, owners or managers should review all documentation

and calculations, as necessary. If all requirements for eligibility are met, the applicant can

be considered as qualified.

2. Execute a lease agreement with a minimum of a 6 month term (SRO properties may

CA Tax Credit Allocation Committee 67 April 2023

issue a month-to-month lease). No one may live in a tax credit eligible unit in the project

unless he/she is certified and under lease or noted on the TIC as a temporary household

member (live-in aide, foster child/ren).

3. Management should instruct the prospective tenant(s) to sign the lease exactly as the

name appears on the form.

4. It is preferred that the lease be executed on the date of move-in.

5. All adult members of the household must sign and date the lease.

*Please note that CTCAC requires a completed TIC Questionnaire for each adult member

of a household.

Part 4.6 Income Recertification Requirements

With the passage of federal legislation known as The Housing Economic Recovery Act (HERA)

of 2008 (HR 3221), on July 30, 2008, the requirement for continuance of annual income

recertifications beyond initial move-in certification was abolished for 100% tax credit properties.

However, CTCAC implemented final Regulations on February 25, 2009 which require one

additional income annual recertification after initial move-in (1st income recertification) for all

100% Tax Credit projects.

Failure of 100% Tax Credit properties to perform the mandated 1

income recertification for all

files, will put the property out of compliance and at risk of Negative Points/Fines given to both the

Ownership and/or Management Company.

For Mixed-Income Properties – Complete 3

party income and asset recertifications must

continue to be performed on an annual basis on the anniversary/effective date. A copy of all

recertifications must be available to CTCAC staff at a monitoring inspection.

1. CTCAC monitors recertification on the anniversary date of move-in or the industry

standard of the 1

day of the anniversary month for the household.

2. Student Status must still be verified annually, to determine if the household met one of

the five IRS student exceptions. Applies to both 100% and Mixed-Use Projects.

3. In the event a new member is added to a qualifying household within the 1

year of

move-in, the following steps must be taken at 1

income recertification:

a. If the addition was within the first 6 months of move-in - The additional

tenant’s income should be added to the current household’s previously

certified income. The combined household income must be compared to the

maximum allowable income limit in effect at the time and based on actual

household size.

b. If the addition was after the first 6 months of move-in – documentation

CA Tax Credit Allocation Committee 68 April 2023

showing the addition would be captured at the 1

recertification. If the

property is Mixed Income, then the combined total of the household must

not exceed 140% of the limit in effect at recertification.

c. if at any point all original household members vacate the unit, the Totem

Pole Rule goes into effect. See Section III Part 3.5 (E)

Example:

Joan Diaz is a qualified tenant living alone in a one-bedroom unit. Her income at

initial certification was $20,500. Eight months after Joan moves into the project,

she informs management that her partner Darcy Jacobs will be moving into the unit

in a month. Before moving in, Darcy is certified as earning $12,900. The

household’s combined income will be $33,400.

1 person household income limit = $25,000

2 person household income limit = $28,000

140% of 2 person income limit = $35,000

The house will still qualify since it is below the 140% limit of $35,000. If the

combined income of both Joan and Darcy would exceed 140% of the current

income limit, the next available unit rule may go into effect.

4. If tenants in a previously qualified household become full-time students, the

household can only be considered as a qualified tax credit household if at least one of

the student criteria is met as described in Section III, Part 3.6 (A) and Section IV Part

4.7 of this manual.

5. In the event that a tenant occupies a unit in a building prior to the Placed In Service

date of the building (as shown on the project’s IRS Form(s) 8609), and the verification

of the tenant’s income was performed more than 120 days prior to the Placed In

Service date, the tenant must be recertified on the Placed-In-Service date.

6. In the event the household composition changes in any way (i.e., birth, death,

marriage, divorce, or a household member vacates the unit) the household must notify

management of the changes throughout their tenancy. Management should keep a

record of the reason for the changes in the tenant’s file.

6. For Section 8 recertification, follow the HUD Guidelines.

A. Mass Recertification - For 100% Tax Credit properties, if after the 1

recertification, the

owner wishes to move the household to a mass recertification cycle to align it with another

program’s certification cycle, it is not an issue for CTCAC, provided that less than 12

months has passed since the last recertification.

Example: The Geoffrey household moves into Garden Valley Apartments on April

23, 2016. Their 1

recertification is a full income and asset certification and is

completed on April 1

, 2017. Garden Valley Apartments has Project Based Section

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8 in addition to Tax Credits. The recertification cycle for Section 8 for the property

is October. After the 1

recertification in April 2017, the owner may elect to move

the Geoffrey household to the mass recertification date of October. This would

have to be completed within 12 months of the anniversary date (before April 2018).

The property would be considered out of compliance if the owner waited until

October 2018 because more than 12 months had passed since the last

recertification in April 2017.

For recordkeeping purposes, if the file is archived due to becoming too large, please

keep either the recertification for the year the mass recertification occurred or put a

clarification record in the file that indicates when the unit was moved to a mass

recertification cycle.

B. Recertification Procedure

1. Notify tenant that recertification is due.

2. Interview tenant and obtain information on income, assets and household composition.

3. Every tenant age 18 or over must complete the recertification documentation.

4. Verify each tenant’s income and assets. Supporting documentation (third-party

income verification, employment verification, child support affidavit, etc.) must be

reviewed and added to the Tenant/Unit File each year. (See Maintain a Development

File, Section IV, Part 4.8.)

5. Complete a Tenant Income Certification.

6. Review the income and asset verifications and the Tenant Income Certification to

determine the tenant’s eligibility for an LIHTC unit.

7. A renewal lease may be executed at the time all required forms are signed and

approved but is not required by CTCAC.

8. Notify tenants of any rent increase resulting from the recertification.

C. Annual Recertification Waiver (pre-2008)

With the enactment of Housing Bill HR 3221, the Annual Recertification Waiver program

is no longer relevant and CTCAC’s review of the feasibility of implementation has ceased.

Part 4.7 Students

Section 42 requires that households comprised entirely of full-time students meet certain

requirements in order for the household to retain its eligibility. Student status is a continuous

monitoring requirement that can change at any time during the household’s occupancy of the unit

or throughout the full regulatory period. Households that are comprised of a mix of non-students,

part-time students, and full time students, are not considered to be a household comprised entirely

of full-time students and do not have to provide Student Status Verification for CTCAC purposes.

A. Part-Time Student

CTCAC has no restrictions on the number of part-time students occupying an apartment as

long as there is third party documentation from the school in the file, showing the tenant as

CA Tax Credit Allocation Committee 70 April 2023

part-time only. This should be updated regularly (each semester/quarter) as student status

can change and cause a household to become ineligible.

B. Full-time Student (including K-12 and adult dependents) -

In order for a household of full-time students to be considered eligible, they must meet one

of the following criteria:

• Any member of the household is married and either files or is entitled to file a joint

tax return.

• The household consists of a least one single parent and his or her minor children,

and neither the parent nor child is claimed as a dependent of a third party. Any

children may be claimed as a dependent of either parent, regardless of tenancy in

unit. CTCAC will require a copy of the Tax return showing dependent status or the

Single Parent Full-Time Student Form if custody is shared between parents.

• At least one member of the household receives assistance under Title IV of the

Social Security Act. (AFDC, TANF, CalWORKS, etc. – Not SSA or SSI)

• At least one member is enrolled in a job training program receiving assistance

under the Work Investment Act (WIA) formerly known as the Job Training

Partnership Act, or similar federal, state or local laws

• At least one member of the household is under age 24 and has exited the Foster

Care system within the previous 6 years.

C. $480 Student Income

Under special circumstances, HUD Handbook 4350.3 REV-2, allows only $480 of a full-

time student’s income to be counted toward income eligibility. To be eligible all of the

following criteria must be met:

• Student cannot be listed as Head, Co-head, or Spouse of Household

• The students full-time status must be 3rd party verified with their school/college

• The students wages must also be 3rd party verified with their employer

Additionally, CTCAC requires that to be eligible under this rule, all the following criteria

must also be met and owner must include in the tenant file evidence of such:

• Student must be claimed as a dependent on the Head, Co-Head or Spouse’s tax

return

OR:

 On student’s tax filings he/she must show that he/she is a dependent

D. Financial Aid Verification

In February 2006, HUD announced changes to income calculations to include all forms

(except loans) of Financial Aid above the cost of tuition (as determined by the school)

unless the household meets one of two exceptions. This change applies to both full and

part-time students. These exceptions are:

1. The student is over the age of 23 with dependent children, or

2. The student is living with his or her parents who are applying for, or

receiving, Section 8 assistance.

CA Tax Credit Allocation Committee 71 April 2023

In July of 2006, CTCAC started to require the Financial Aid Verification form for

households with students in addition to the Student Status Verification form.

In Chapter 4 of the Revised IRS Guide to Form 8823 dated September 2011, the IRS states

the treatment of educational scholarships or grants is dependent on whether the student is

receiving Section 8 assistance.

CTCAC will no longer calculate any financial aid income for qualified students, except in

the instances where Section 8 assistance is received. If Section 8 assistance is received,

then the guidelines and exceptions noted in HUD Handbook 4350 Rev. 3, Chapter 5 will

be in effect.

Part 4.8 The Tenant/Unit File

The Tenant/Unit File must contain the following:

A. Initial Application. This must include a minimum of a two-year housing history

B. Tenant Income Certification. This certification should detail the annual income of

each resident in the household, applicable area median income limit, and must be signed

and dated by all adult household members.

C. Third Party Verifications. Documentation verifying all income and assets of the

household for each certification, and each annual recertification. At move-in, employment

verification must be accompanied by three months of pay stubs for each employed adult or

the alternative paystub calculation (See Section V Part 5.5(F)).

D. Section 42 Lease Language and/or Addendum. The initial lease term for all Section

42 residents must be a minimum of six months in length unless the unit is a qualified

Single-Room-Occupancy (SRO) Unit. It must also include documentation showing the

property is monitored under the provisions of IRS Regulation Section 42, and must include

information regarding recertification, rent restriction, and student requirements. See

Section IV Part 4.1 (C).

E. All CTCAC Required Forms. These include the TICQ, Child/Spousal Support

Affidavit, and the “if applicable” forms including Zero Income Certification, Under $5000

Asset Verification, Child/Spousal Support Verification Form, Separated or Estranged

Status Affidavit, Student Verification, Single Parent Full-time Student Self-Affidavit,

Foster Care Verification, Financial Aid Verification, and Live-in Aide Verification.

F. Applicable Housing and Financing Requirements specific to the Unit. If other

housing or financing programs govern the development, the applicable documentation

reflecting compliance to its requirements should also be in the resident’s file. These

programs may include: HOME Investment Partnership, Tax Exempt Bond Financing,

HUD or Rural Housing and Community Development Services (formerly Farmer’s Home

Administration).

CA Tax Credit Allocation Committee 72 April 2023

G. A Release of Information Consent form signed by each adult member of the

household.

H. Other Documents. These include any optional contract items that the tenant pays for

and is not contained in the lease (parking, pets, etc.), or base rent; change in unit

occupancy (increase or decrease in household); income and asset certification for all new

adult residents.

I. If the project was funded as a designated senior property, documentation that the

tenant and household is eligible as a “senior” person

Annual Recertification (See Section IV Part 4.6):

For 100% properties – one income recertification is required on the 1st anniversary of

move in. Subsequent years must have either the Tenant Household Information Form

(THIF) or owners may elect to continue with full recertifications. Owners may choose to

make the anniversary/effective date the first day of the month the recertification is due or

they may keep the actual anniversary date. The effective date cannot be pushed back until

the next month.

For mixed-income properties – annual income recertifications must be done on a yearly

basis on the anniversary date of move-in. IRS regulations do not permit mass

recertifications or short form recertifications of mixed-income tax credit properties.

Part 4.9 Qualifying Section 8 Tenants for LIHTC Units

An owner’s management agent may substitute a completed, executed copy of the HUD 50059

form in lieu of the completed Tenant Income Certification (TIC). A blank TIC signed by all adult

household members that includes the following information must accompany the HUD 50059:

street address, Building Identification Number (BIN) where the unit is located written at the top.

The substitution of this form does not waive the requirement for the owner to maintain supporting

income documentation. The income verification procedures outlined in Section IV Part 4.4, and

the supporting documentation outlined in Section IV Part 4.8, must be followed when certifying

the eligibility of Section 8 certificate and/or voucher holders, and tenants in Section 8 project-

based developments.

The HUD 50059 with supporting documentation replaces only the items outlined in the paragraph

above. No other substitution of forms or certification procedures will be permitted. ALL other

initial certification and recertification procedures outlined in Section IV, Parts 4.4, and 4.8 and

throughout this manual must be followed. ALL of the annual certification requirements, outlined

in Section V, Part 5.6, must be completed and submitted to CTCAC as described. All other tax

credit policies and guidelines outlined in this manual and in federal and state regulations apply to

Section 8 projects, except as noted therein.

The Tenant/Unit File must contain a HUD 50059 with supporting documentation for the initial

certification and an updated HUD 50059 for every annual recertification. The Tenant/Unit File

CA Tax Credit Allocation Committee 73 April 2023

must contain all other documentation outlined in this section, including, but not limited to, an

application and lease agreement.

If a HUD 50059 or updates cannot be obtained by the owner/management agent or the tenant

discontinues participation in the Section 8 program, all of the initial certification and/or interim

and annual recertification procedures must be followed.

Using the HUD 50059 to Qualify Tenants for LIHTC Units

Use lines 90-92 from the HUD 50059 to compare to the appropriate area median gross

income limit as adjusted for household size. Tax credit income limits are based on the

gross annual income of a household, not adjusted annual income.

Use line 111, Total Tenant Payment, to compare to the maximum allowable tax credit rent.

Tax credit rent limits are based on the tenant-paid portion of the rent and tenant-paid

utilities and do not include any subsidy payments.

In order to maintain Section 42 compliance, it is strongly recommended that owner’s

maintain a section of the tenant file with all required CTCAC verification requirements

and mandated forms separate from the section containing the HUD paperwork. CTCAC

does not require the use of separate files for HUD and Tax Credit. However, if HUD

requires separate files from Tax Credit, copies of employment verifications, leases, or

other income documentation required by CTCAC may be included in a tax credit file if the

originals are required to be in the HUD file. Failure to maintain third party verification of

supporting income documentation can result in an issue of noncompliance.

Tax Credit and the Enterprise Income Verification (EIV) System

CTCAC is not authorized to see any income or asset information obtained by using the

EIV or TRACS system as required by HUD. Management companies operating project-

based Section 8 properties layered with tax credits or those properties with Section 8

voucher holders will have to 3

party verify income and assets separately following the

standard CTCAC procedure.

Part 4.10 Qualifying Tenants in RHS Projects for LIHTC Units

An owner/management agent of a project financed by the Rural Economic and Community

Development (RHS, formerly Farmers Home Administration) may substitute a completed RD

3560-8 form in lieu of the completed TIC. A blank TIC that includes the following information

must accompany the RD Form 3560-8: the address, number of bedrooms in the units, the date

household moved into the particular unit including the BIN the unit is located in written at the top

of the TIC.

The substitution of this form does not waive the requirement for the owner to maintain

supporting income documentation. All other initial certification procedures outline in Section

IV, Parts 4.4, 4.5, 4.7, and throughout this manual must be followed.

CA Tax Credit Allocation Committee 74 April 2023

A. A worksheet calculating net household assets, detailing:

1. For each type of asset, the following information:

a. the type of asset (cash, real estate property, stocks, etc.).

b. the cash value of the asset.

c. the actual yearly income from the asset.

2. The combined total cash value of all assets

3. The combined total actual yearly income from all assets.

4. For households with assets with a total cash value exceeding $5,000 the imputed

income from assets based on the HUD approved passbook rate.

B. The following written or typed at the top of the RD Form 3560-8:

1. The number of bedrooms in the unit;

2. The street address and BIN number of the building in which the unit is located

3. The date the tenant moved into the unit.

The RHS 1944-8 replaces only the Tenant Income Certification. No other substitution of forms or

certification procedures will be permitted. All other initial certification and recertification

procedures outlined in Section IV, Parts 4.4, and 4.6, and throughout this manual must be

followed. All of the annual certification requirements, outlined in Section V, Part 5.6, must be

completed and submitted to CTCAC as described. All other tax credit policies and guidelines

outlined in this manual and in federal and state regulations apply to RHS projects.

The Tenant/Unit File must contain a RD Form 3560-8 for the initial certification and an updated

RHS 1944-8 for every annual recertification. The Tenant/Unit File must contain all of the other

documentation outlined in Section IV, Part 4.8, including, but not limited to, third party

verifications and lease agreement.

If an RD Form 3560-8 is not completed, all of the initial certification and annual recertification

requirements and procedures must be followed.

Using the RHS Forms to Determine Rent and Income

Use Line 18f, from the RD Form 3560-8 to compare to the appropriate area median gross

income limit as adjusted for household size. Tax credit income limits are based on a

household’s gross annual income, not adjusted annual income.

Use Line 33 the Final Net Tenant Contribution, to compare to the maximum allowable tax

credit rent. Tax credit rents are based on the tenant-paid portion of the rent and tenant-paid

utilities and do not include any subsidy payments.

In order to maintain Section 42 compliance, it is strongly recommended that owners

maintain a section of the tenant file with all required CTCAC verification requirements

and mandated forms separate from the section containing the RHS paperwork.

Part 4.11 Acquisition and Rehabilitation

An Acquisition and Rehabilitation (Acq/Rehab) property is an existing property that has never had

CA Tax Credit Allocation Committee 75 April 2023

an allocation of Tax Credits and is coming in for LIHTC funding. In January of 2007, the IRS

released the Guide to Completing Form 8823. Within the guide, Chapter 4 contains a section on

Income Certifications when completing an Acquisition / Rehab property. The chapter states that a

unit occupied before the beginning of the credit period will be considered to be a low-income unit

at the beginning of the credit period, even if the household income exceeds the income limit at the

beginning of the first year of the credit period, if two conditions related to income qualifications

are met and the units remain rent restricted:

• The household must be income qualified at the time of Acquisition or the date the

household started occupying the unit, whichever is later.

• The owner must maintain documentation of the income qualification.

If a household is already occupying a unit at the time of Acquisition, the initial Income

Certification should be completed within 120 days before or after the date of the Acquisition using

the current limits in effect on the day of Acquisition. Although a household may already be

occupying the unit, they were not under the LIHTC program so the “move-in” or initial

“effective” date for the Tax Credit certification would be the date of Acquisition. Do not use the

date the household originally moved into the unit before the property became Tax Credit.

All CTCAC required documentation must be in the file as well as an updated Application showing

the current household composition. However, CTCAC will not require a new lease to be signed,

providing there is already a valid lease in effect and a copy of that lease is in the file.

If a household is already occupying a unit at the time of acquisition, but the Income Certification

is completed more than 120 days from the Acquisition date, the household must be treated as a

completely new move-in. A new lease and all required CTCAC documentation must show the

household is income eligible. The owner would use the income limits in effect at the time of

certification, and the effective date would be the date the last adult household member signs the

TIC.

Section 42 requires that the Applicable Fraction for the first year of the credit period be calculated

based on a month-to-month accounting of units or floor space occupied by income qualified

households. For Acquisition/Rehab projects there are two separate allocations of credits – one for

Acquisition, one for Rehabilitation. However, there does not need to be a separate calculation for

the applicable fraction of both credit allocations. The IRS mandates that the Applicable Fraction

for the Rehabilitation will be the same as the Acquisition.

Households that are eligible for the Applicable Fraction calculation are:

• Units that are occupied before the beginning of the credit period providing they are

income qualified at the start of the credit period.

• Units that become occupied by a qualified household after the beginning of the credit

period (regardless of rehabilitation costs)

• Units that are occupied by a qualified house that transferred from another unit in the

project. Please note – a household can only be used to qualify a unit once in the 1st

year period. If, during the 1st year period, a household transfers from one unit to a

vacant unit that had never been occupied, the units swap status. (see IRS Guide to

CA Tax Credit Allocation Committee 76 April 2023

Form 8823 for rules on tenant transfers)

• Vacant units that are suitable for occupancy AND were previously occupied by an

income qualified household.

Households that are not eligible for the Applicable Fraction calculation are:

• Units occupied by nonqualified households

• Vacant unit last occupied by a nonqualified household

• Units not suitable for occupancy – including units that are undergoing Rehabilitation

CTCAC strongly recommends keeping a chart or spreadsheet that summarizes the

current status of each unit during the Rehabilitation process.

Part 4.12 Re-Syndication

Re-syndication occurs when an existing tax credit property with a recorded Tax Credit Regulatory

Agreement comes in for a new allocation of credits. For a resyndication - CTCAC will give the

application a new CTCAC Project Number beginning with the current allocation year to note the

new regulations the project falls under, but the old number, BINs, and provisions of the recorded

Regulatory Agreement remain in effect. Prior to 2017, resyndications were allocated new Building

Identification Numbers (BINs) to correspond with the new Allocation number. As of January

2017, all resyndications are allocated a new Tax Credit number to reflect the allocation year for

the resyndication credits but the original allocation BINs will remain unchanged. Additionally,

until the resyndicated project is placed in service, the project is considered to be under the original

Project Number and may be monitored under the provisions of the existing regulatory agreement.

If the project is on the current year monitoring rotation under the Extended Use

requirements of the prior Regulatory Agreement while it is in preliminary reservation for a

new resyndication of credits, CTCAC will perform a monitoring visit even if it is undergoing

rehabilitation.

Once the property places in service, the provisions of the prior Regulatory Agreement will be

incorporated into the new agreement. The strictest regulatory provisions from both Regulatory

Agreements will be the provisions applicable to the newly resyndicated property going forward.

Please Note – with a new Placed in Service Date, the newly resyndicated tax credit property

might have different applicable Rent and Income Limits from those that were applicable

under the old allocation of tax credits. Any new household occupying a unit in a resyndicated

tax credit property must income qualify under the current federal maximum income limits for

family size for the new allocation.

CTCAC will require the owner to perform a full income and asset certification of all existing

households when property is resyndicated. This certification may be completed either at the

tenant’s next normal recertification date OR the owner may elect to select a date after the award of

the new allocation (usually coinciding with the start of the new credit period) to certify all

households*.

The date the certification is completed becomes the new “move-in/effective” date for the

household and starts the recertification cycle over under the new allocation. Starting in 2017,

CA Tax Credit Allocation Committee 77 April 2023

TCAC will require the owner to create a new file for each newly resyndicated household.

*Please note - The “120 day before/after Acquisition date” guidance that applies for certifying households

in Acq/Rehab projects that have never had tax credits does not apply to resyndication properties.

A. Creating a New Tenant File (Re-syndication Only):

1. CTCAC requires the owner or their management agent create a new tax credit file

for all tenants.

2. For households where the tenants qualify under the Income limits for the new

allocation, treat the date the household is certified as the new “move-in/initial” date for

the resyndication allocation.

• Future annual recertification requirements for the household would be based off

this date.

• No clarification form is needed.

3. For households where the certification determines the household is over the current

income limits for the new allocation, CTCAC will require a copy of the Re-syndication

Clarification Form and a copy of a previous certification showing the household was

eligible under the prior allocation, be in the file to prove eligibility to be grandfathered.

• For each grandfathered household - the file must include the certification

showing the household is over the current income limit at certification.

• The Resyndication Clarification Form should be printed on colored paper

and be located behind the certification showing the over-income household.

Additionally, there must be documentation of the original qualifying

certification for the household that clearly shows income eligibility under the

old allocation of credits.

• The date of the certification will be the new “move-in certification” for the

resyndication allocation. Future annual recertification requirements for the

household would be based off this date.

4. The owner/management agent needs to check for and ensure full-time student

requirements are met, if the household is comprised of all full-time students at the time

of the resyndication, even if they can be grandfathered in for income purposes:

• They must meet one of the 5 IRS Full-time Student Exceptions, or the unit will

not qualify for tax credits.

5. These properties are back in the 15-year Federal Compliance Period and will be

monitored as such with any noncompliance reportable to the IRS on Form 8823.

6. If the project was on a 5-year monitoring rotation, it will be placed back on a 3-

year monitoring rotation.

B. Authority for Grandfathering of Existing Residents (Re-syndication Only):

1. The initial Tax Credit Regulatory Agreement is the authority that prohibits the eviction

without good cause of any previously income qualified households that are over-

income at current applicable income limits.

• Households determined to be income qualified during the initial 15-year

compliance period are considered concurrently income qualified for the

purposes of the Extended Use period.

• Any household determined to be income eligible at the time of move-in for

purpose of the extended use agreement is a qualified household for any

subsequent allocation of credits.

CA Tax Credit Allocation Committee 78 April 2023

• The existing first regulatory agreement “protects” these households from

eviction and allows the owner to continue to claim credits on the over-income

households.

• Owner can give incentives to once qualified tax credit over-income households

to vacate their units, but if the tenant(s) do not want to leave, they cannot be

forced to move.

• Each unit will remain tax credit eligible as long as the owner provides complete

certification paperwork to show the household was income eligible under the

prior allocation.

• CTCAC prefers that this documentation be the original move-in

certification but will accept any subsequent complete certification

that clearly shows income eligibility.

• CTCAC requires the use of our “Resyndication Clarification Form”

for all households determined to be over-income at the

resyndication certification.

C. Mixed Income Re-syndication

The same process as noted above for creating a file applies for the resyndication of a Mixed

Income property. However, please note the following additional restrictions:

1. If the existing tax credit property is mixed-income property, and applies as a 100% tax

credit restrictive property under the new resyndication, the market rate households

cannot be grandfathered in.

• Those households were never protected under the Tax Credit regulatory

agreement and therefore must meet the current maximum tax credit income

limits per family size.

2. If the Resyndicated property will remain mixed-income:

• no mass recertification’s are permitted by IRS,

• the 140% next available unit rule must be tracked correctly by annually

recertifying households on their anniversary date.

• The move-in date will be the existing anniversary date of the household.

3. These properties are back in the 15-year Federal Compliance Period and will be

monitored as such with any noncompliance reportable to the IRS on Form 8823.

4. If the project was on a 5-year monitoring rotation, it will be placed back on a 3-year

monitoring rotation.

D. Reducing Rents (if Applicable)

Due to the HERA legislation of 2008 which changed the criteria that the Income and Rent

limits were based on from county to project, the Income and Rent limits for a newly

resyndicated project may be less than the prior allocation.

1. For all projects – if the newly applicable Federal Set aside limit of 40/60, 20/50, or

AIT is less than the prior limit, then the rents must be reduced to the current limit no

later than the Rehab Placed in Service date for all 60% units in a 40/60 project or 50%

units in a 20/50 project. Projects that are electing AIT at resyndication must have

households that meet the average requirement of the AIT set-aside. See Section IV Part

4.3.

2. For projects with State Deeper Targeting – If the prior allocation had additional State

CA Tax Credit Allocation Committee 79 April 2023

driven deeper targeted rents (30%, 45%, 40%, etc.) then CTCAC will allow those

deeper target units to be held harmless under the prior allocation’s income limits until

those limits reach the current deeper targeted amount, at which point they will then

follow the limits applicable to the current award.

Part 4.13 Existing Tax Credit Properties without a Regulatory Agreement (Re-

Application):

Several properties with very early allocation of tax credits in years 1987, 1988, 1989 and 1990,

only had a 15-Year Federal compliance period. Because the owner never entered into a Tax Credit

Regulatory Agreement with the allocating agency after the expiration of the 15-Year Federal

compliance period, the properties were no longer monitored and were considered to have exited

the Tax Credit program.

For these projects:

• The project will be considered a new allocation

• The lack of a recorded Regulatory Agreement and end of the Compliance Period

means the grandfathering provisions do not apply and households that are over-

income cannot be grandfathered in.

• When coming back for a new allocation of tax credits all households must income qualify

at the current maximum income limits for family size.

• Households comprised of all Full-time students must meet one of the 5 IRS Full-time

Student Rule Exceptions.

• The Placed in Service Date will dictate which rent and income limits are applicable.

CA Tax Credit Allocation Committee 80 April 2023

Certification Requirements

- Owner must complete a new complete full income and

asset certification for households under the new allocation

limits (CA Requirement)

- This certification can be completed at any time after the

new allocation of credits has been awarded. The new

“move-in” / effective date for the household is the date of

certification

- If the household does not meet the current limit for the

new allocation, the household may be “grandfathered”.

Please put a copy of the CTCAC Resyndication

Clarification form in the file with a copy of a certification

from the previous allocation showing the household was

income eligible under the prior allocation

- Certification may be either a “line in the sand” date (as

determined by the owner or investor) or completed at the

tenant’s next annual certification date

- Documentation and verifications must be within 120

days of the Certification/Effective date

Section IV Exhibit B – Acq/Rehab, Resyndication, Re-Application Flow Chart

Does the Property have or

has the property ever had

an award of Tax Credits?

YES!

NO!

Is the Property still in the Regulatory

Period of up to 55 Years?

Yes!

No!

This Property is a standard

Acq/ Rehab Property

This is Property is a

Resyndication

This Property is a Re-Application

It is treated like a property that has never

been awarded prior tax credits

Certification Requirements

- Owner has 120 days before or after the

Acquisition Date to certify households for

income eligibility with the Tax Credit

Program

- If the certification is completed within

the 240 day window, the “move-in” /

effective date is the Acquisition Date.

- If after the 240 day window the “move-

in” / effective date is the date the

household is certified as income eligible

- Documentation and verifications must be

within 120 days of the TIC signature date

CA Tax Credit Allocation Committee 81 April 2023

SECTION V – COMPLIANCE MONITORING PROCEDURES

This section of the manual outlines CTCAC’s procedures for monitoring all projects receiving

credit. Monitoring is designed to determine if the owner is in compliance with federal and state

laws, regulations, and policies. Compliance is solely the responsibility of the owner and is

necessary to retain and use the credit, and to avoid recapture of credit already claimed. Also, refer

to Committee Regulations Section 10337, which details the compliance requirements.

Monitoring each project is an ongoing activity that extends throughout the initial 15 year Federal

Credit Compliance Period, as well as the Extended Use period. CTCAC is required by law to

conduct compliance monitoring and inform the IRS of noncompliance, or the failure of an owner

to certify to compliance. CTCAC will report to the IRS no later than 45 days after the period of

time allowed for correction. Notification to the IRS by CTCAC is required whether or not the

noncompliance has been corrected.

Part 5.1 The Compliance Manual

In May of 2007, CTCAC converted the Compliance Manual to an openly accessible online

format. The manual describes the compliance monitoring procedures that the owner and

management agent must follow. Updates will be provided by CTCAC as changes to the law

and/or procedures occur and will be available on our website

www.treasurer.ca.gov/ctcac/compliance/manual.asp

The appendices to the Compliance Manual also contain samples of the required reporting and

certification forms that must be completed and submitted to CTCAC, sample tenant eligibility

forms, Section 42 of the Code, the HUD Handbook 4350 Chapter 5, the IRS Guide to Completing

Form 8823, completed compliance monitoring regulations as published in the Federal Register,

and other pertinent IRS notices and rulings.

Part 5.2 Compliance Training Workshops

CTCAC conducts periodic compliance training workshops, open to professionals who own,

consult, or manage tax credit properties. Although attendance is not mandatory, it is highly

recommended that personnel directly involved in the ownership or management of the project

attend a workshop as soon as is practical either prior to or immediately following the date the

project is Placed in Service. The purpose of workshops is to provide instruction on:

A sampling of the basic Code compliance requirements; IRS final regulations for compliance

monitoring; CTCAC policy and procedures for compliance reporting; CTCAC policy and

procedures for tenant file reviews; equal housing opportunity and fair housing regulations and

policies.

The Basic Compliance Workshop is designed for onsite management personnel and lower-level

CA Tax Credit Allocation Committee 82 April 2023

compliance staff. It will provide specific information on the following low-income tenant

eligibility requirements:

Income and rent limits; definitions of income and assets; certification of tenant income

and assets; verification of tenant income and assets; leases; student eligibility; reporting

violations of the tax credit program; other owner responsibilities, including notifying

CTCAC of any change in management or ownership of the project.

As need arises, CTCAC will provide Advanced Compliance Workshops for higher-level

compliance staff including Asset Managers, Regional Directors, Occupancy Specialists and

Owners. These workshops will provide specific information about legislative changes, IRS

rulings, and any other information that directly impacts the LIHTC program.

Announcements as to the specific date, time, and location of workshops will always be posted on

our webpage at www.treasurer.ca.gov/ctcac/compliance.asp. In 2020 and 2021, due to the

COVID-19 pandemic, CTCAC modified the physical Compliance Workshop format to a Virtual

Compliance Workshop format. Any future workshops may be in either format as determined to be

necessary.

All in-person workshops will be limited to 2-3 persons from a specific company per location

unless prior arrangements have been made with CTCAC, or the workshop brochure states

differently. All virtual Compliance Workshops are filled on a first-come basis.

Part 5.3 CTCAC Required Training

Under certain circumstances CTCAC may require owners, investors, asset managers, developers,

and management agents to attend specific training as a condition of a tax credit award, ownership

transfer, or to address consistent reoccurring noncompliance in a company’s portfolio. These

trainings will be held 2-3 times a year and will be in a virtual format like Zoom or Microsoft

Teams. These Owner/Management Training Classes will be held in 4 sessions over the course of

two days and attendance at all four sessions is required to received a Certificate of Completion.

CTCAC staff will alert all relevant parties when this training will be required.

Part 5.4 Compliance Files and Records

The following compliance files and records must be maintained by the owner and made available

to CTCAC upon request:

A. Owner Record-keeping and Record Retention Requirements. See Section II, Parts 2.1 (J)

and 2.2 (I), (J), and (K).

B. Tenant/Unit File. See Section IV, Part 4.8.

C. Service Provider Contracts. If a project’s Regulatory Agreement stipulates a Service

CA Tax Credit Allocation Committee 83 April 2023

Provider contract, the owner must provide and maintain a contract for the required Site

and Service Amenities as noted in the Regulatory Agreement Exhibit A for the property.

Part 5.5 CTCAC Forms

The following list contains the forms created and used by CTCAC to determine the eligibility of

households at a LIHTC project. A sample of required forms is located on our website at

http://www.treasurer.ca.gov/ctcac/compliance.asp

For all forms listed below – CTCAC requires our version of the form be in the file. Changes or

modifications to the forms must be approved by CTCAC prior to implementation. In order to

maintain consistency among the projects in the portfolio, all forms that were previously granted

approval prior to 2021 should stop usage as of December 31, 2022. CTCAC will start noting the

use of forms that do not match the CTCAC required form as noncompliance starting in 2023.

A. Annual Owner Certification

This form is used to certify continuing compliance with Section 42 and is completed by

the owner on an annual basis. The Project Ownership Profile (POP) and the Annual

Operating Expense Report (AOE) are included with the Annual Owner Certification

(AOC) form. See Section II Part 2.2 (F) for detail.

B. Project Status Report

This form is used to detail the move-in income amounts, utility allowances, and gross rent

charges for all low-income units in the development and is completed by the owner and/or

management agent upon request by CTCAC, for compliance monitoring purposes. The

form is submitted electronically and is available on the CTCAC website at

www.treasurer.ca.gov/ctcac/compliance.asp

Please note: Only the current PSR that is on the CTCAC website will download into our

database. Any changes, modifications, or use of a similar form from an outside vendor

(such as Yardi, RealPage, or Boston Post) will not download and will not be accepted.

CTCAC will require the information to be completed only on the current PSR form

located on our website. Repeated failures to provide the information in the format

specified may result in the issuance of Form 8823 for failure to comply with monitoring

inspection requirements.

Starting in 2019, for projects that elect an Average Income Set-aside on their 8609 forms,

CTCAC will have a separate PSR from the one used by projects with 40/60 or 20/50 set

asides.

CA Tax Credit Allocation Committee 84 April 2023

C. Utility Allowance

At the time of inspection, CTCAC will require the owner submit a copy of the Utility

Allowance that is currently used on the property. Please see Section III Part 3.4 for more

detail on the Utility Allowance Methods that are eligible to be used on LIHTC properties.

D. Tenant Income Certification (TIC) and Supplemental Information Form (SIF)

This form summarizes the household composition, income and asset amounts for a

particular unit, and the tenant demographics of the unit. It is used to certify the eligibility

of a tenant to reside in a LIHTC unit and is completed and signed by the owner /

management agent and signed and dated by all adults residing in the unit.

E. Tenant Income Certification Questionnaire (TICQ)

This form serves as a worksheet to list all of the sources of income and types of assets

held by the applicant. One form should be completed by each adult applicant.

F. CTCAC Paystub Policy:

In June 2004, CTCAC started requiring three months’ worth of current and consecutive

pay stubs for all wage earning new move-ins. This requirement was in addition to the

Verification of Employment and was not considered a substitute for the VOE or any other

verifiable third party documentation.

Starting in January 2019, CTCAC will continue the current policy of requiring three

months’ worth of current and consecutive pay stubs for all new tenants who have been

employed at the same job for more than three months.

For tenants with less than 3 months’ worth of pay stubs due to recently starting a job,

CTCAC will allow the paystubs that have been issued prior to move-in to be used instead

of the full three months as long as the following criteria have been met:

1. The total income calculation for the household based on both the VOE and

paystub(s) is less than 75% of the current maximum limit for household size.

2. There is at least one full pay period accounted for in the paystubs that were

submitted. A single partial pay period paystub will not be accepted.

Example: Kelsey Cooper is applying at your property. She just started a new job at

Claire’s Boutique as a sales clerk a little over a month prior to applying. She will

be making $10 an hour and working 32 hours a week according to her VOE. She

has 3 paystubs – 1 partial and 2 full stubs. The partial paystub is disregarded as it

does not account for a full pay period. The average of the 2 full stubs comes out to

62 hours for a 2 week period. The maximum income limit for a 1 person household

is $23,000.

VOE - $10 x 32 hours x 52 weeks = $16,640

CA Tax Credit Allocation Committee 85 April 2023

Average from 2 pay stubs - $10 x 62 hours x 26 weeks = $16,120

Income Limit: $23,000

75% of income limit: $17,250

This household’s tenant file would not have an issue of noncompliance during a

CTCAC audit for having less than 3 months of current and consecutive paystubs,

as the calculations used to determine eligibility are below the 75% threshold and

there was at least one full pay period used in the calculation.

For tenants where the pay stubs issued prior to move-in show an income that is lower than

the maximum limit for the household, but greater than the 75% threshold noted above,

CTCAC will defer to the owner of the project to determine if they want to move in the

applicant and continue to collect the additional paystubs until a total of three months’

worth of stubs have been received. In the event that the pay stubs obtained after move-in

show income over the limit for any deeper targeted unit (30%, 40%, etc.) but below the

maximum federal limit (50% or 60%), CTCAC will not issue negative points or fines as

long as the owner meets the deeper targeting requirement with the next available vacant

unit. For households that exceed the federal threshold (50%, 60%, AIT), CTCAC will

report the unit as over-income to the IRS on Form 8823 during the federal compliance

period or issue either negative points or fines in the Extended Use period.

Example: Kara Zorell is applying at Summer Shores Apartments. She just started a

new job at Starbucks as a barista two months ago. She is making $12.50 an hour

and working 35 hours a week according to her VOE. She has 5 paystubs – 1

partial and 4 full stubs. The partial paystub is disregarded as it does not account

for a full pay period. The average of the 4 remaining full stubs comes out to 72

hours for a 2 week period. The maximum income limit for a 1 person household is

$27,000.

VOE - $12.50 x 35 hours x 52 weeks = $22,750

Average from 4 pay stubs - $12.50 x 72 hours x 26 weeks = $23,400

Income Limit: $27,000

75% of income limit: $20,250

Since this household is over the 75% threshold, the owner may continue to collect

paystubs until there are 3 months’ worth in the file. If the additional paystubs show

that she remains income eligible, then this file would be in compliance for tax

credit income purposes. If the inclusion of additional paystubs into the calculation

puts the household over the federal income limit of $27,000 then CTCAC will

report the household as over-income to the IRS on Form 8823.

If an applicant is returning from a medical, maternity/paternity, or disability leave into the

same job that they were doing prior to the leave and the Verification of Employment

(VOE) clearly indicates that they were continuously employed during their leave period,

CA Tax Credit Allocation Committee 86 April 2023

CTCAC will accept a lesser amount of paystubs or a W-2 for the applicant as long as the

paystub income provided reflects the wage amounts noted on the VOE.

CTCAC only requires paystubs in the initial move-in file/certification. For all subsequent

recertifications, CTCAC will require a Verification of Employment (VOE) to document

wages. If at recertification, the owner is unable to obtain a completed VOE after 3

reasonable attempts, documented and spaced at minimum 5 days apart, then 3 months of

paystubs and documentation of the start date for the tenant may suffice.

Please note – if the sample audit size shows patterns of owners not getting the VOE’s

returned, CTCAC may elect to expand the audit sample up to a 100% file audit.

G. Negative Verifications

CTCAC only requires the use of Negative Verifications, such as a Negative Verification

of Employment, when documentation in the file indicates that the applicant may have had

additional income as of the move-in date (or annual recertification date in mixed use

properties).

Example: Jacob King is applying at Garden Valley Apartments. On his application

he notes that he works part time for Home Depot and part time for Ace Hardware.

When he becomes reachable on the waitlist and management is preparing the

documentation for determining his income eligibility, Jacob says that he is now

just working full-time at Home Depot. Management should obtain a Negative

Verification of Employment for Ace Hardware to verify his end date.

H. The Work Number and other Employment Verification Services

At initial move-in into a tax credit unit, CTCAC policy require all tenant files must

contain 3rd party verification for all wage earners in the form of a Verification of

Employment (VOE) along with the pay stubs.

Beginning in June 2010 forward, CTCAC will require that for all initial applicants whose

wage earnings can only be verified via The Work Number or another third party

employment verification service, the owner of the project may pass on the cost of the

verification to the applicant. This will ensure there is a VOE and paystubs for all wage

earners at initial move-in, in the tenant files as requested by CTCAC. The requirement to

pass the cost for the VOE is only at initial move-in year. At first year anniversary move-in

date during the CTCAC mandatory 1

recertification, the owner or their management

agent no longer have to supply a VOE from The Work Number, as long as 3 months of

consecutive paystubs are included in the file.

For projects layered with HUD financing and tax credits, and where the owner is

prohibited from passing on the cost of a verification to the applicant, for the cost of The

Work Number, the owner must pay for the cost to obtain The Work Number verification

for the file and include the required 3 months of paystubs as well. This will be a one-time

expense at initial move-in only, as the owner may revert to using only the paystubs at the

CA Tax Credit Allocation Committee 87 April 2023

required 1

anniversary move-in date during the CTCAC mandatory 1

recertification.

Please note this policy is only for those files where obtaining The Work Number

verification is an issue, for all other wage earners at initial move-in the file must contain a

VOE form directly from the employer plus the required paystubs. *

*The owner must provide documentation of a minimum of 3 reasonable attempts at obtaining the

Verification of Employment, spaced at minimum 5 days apart. If the owner is unable to obtain a

completed VOE after 3 reasonable attempts, then 3 months of paystubs and documentation of the

start date for the tenant may suffice. Please note – if the sample audit size shows patterns of

owners not getting the VOE’s returned, CTCAC may elect to expand the audit sample up to a

100% file audit.

I. Child Support and/or Spousal Support Release form

The Child Support Affidavit form is required as of June 2004. It is used to document any

form of child support including personal and court ordered. It was updated in July of 2007

to include spousal support. The Child/Spousal Support Affidavit should be completed by

all adult household members at all full income and asset recertifications. If the Affidavit

indicates that child or spousal support is being received, 3

party documentation or the

Child/Spousal Verification form should be completed in addition to the Affidavit.

J. Separated or Estranged Status Affidavit

In 2019, CTCAC removed the Marital Separation Status Form from the website due to

conflicting guidance on how to treat the income of an applicant who has recently

separated from a spouse and has not obtained a legal separation or divorce. The IRS has

given CTCAC further clarification and has stated that if the estranged spouse does not

have access to the other spouse’s income, then it does not need to be counted as a source

of income for the tenant, provided the spouse does not move into the household and any

pre-arranged payments or spousal support payments are accounted for. If the spouse is

added to the unit within 1 year of move-in, the total household income should be

recalculated to include the spouse’s income and then compared to the income limit at

move-in. If the addition of the spouse’s income puts the household over the income limit,

it would be considered an over-income household.

In May 2020, CTCAC created and posted to the Compliance website the Separated or

Estranged Status Affidavit to document those situations where there has not been a legal

separation or divorce.

K. Certification of Zero Income (Zero Income Certification)

The Zero Income Certification is used when there are no eligible income or asset sources

for a household member. The tenant would complete the Zero Income Certification and

indicate the source used to pay for rent and other necessities.

CA Tax Credit Allocation Committee 88 April 2023

L. Under $5000 Asset Verification Form

This form is used for households where the combined net assets of the household do not

exceed $5000. For these households, CTCAC does not require any additional

documentation (such as bank statements), but other funding sources on the property, or

owner, investor, or management company policies may require additional documentation

to support the Under $5000 Asset verification form.

M. Student Verification

For households comprised entirely of students, CTCAC will require verification from the

educational institution the student is attending to show the status (part-time or full-time) of

each member of the household, to determine if the household meets one of the 5 IRS

Student Exceptions (See Section IV Part 4.7)

N. Financial Aid Verification Form

This form is used for households that are full-time students, receiving Section 8 assistance,

and do not meet the Section 8 exceptions. It should be sent to the Financial Aid office of

the educational institution the tenant is attending to verify the amount of financial aid

determined to be counted as income for the household. For more detail on Financial Aid

requirements see Section IV Part 4.7 (D).

O. Single Parent Full-Time Student Status Form

This form is used to track the dependent status of the child(ren) in a full-time student

household. For full-time student households that meet the following exception – single

parent with a dependent child and neither are claimed as dependent of a third party, the

IRS has clarified that as long as custody arrangements allow for shared or alternating

dependency for tax purposes and remains between the parents of the child(ren), a

household is not out of compliance for the year the dependency is with the other parent.

P. Foster Care Verification Form

This form is used to verify previous participation in the Foster Care system for purposes of

determining eligibility for a household comprised entirely of full-time students. It should

be sent to the Agency that monitors the Foster Care program the household member exited

from.

Q. Tenant Household Information Form

This form can be used at 100% Tax Credit Projects after Year 2, to document required

household information for properties that do not require full income and asset

certifications to be completed.

CA Tax Credit Allocation Committee 89 April 2023

R. Live-in Aide Verification

This form should be sent directly to the doctor, medical practitioner, social agency, or

other 3

party non-related professional who is actively treating the household member for

verification that a Live-in Care Attendant is essential for the household. For more

information on Live-in Care Attendants see Section III Part 3.6 (C).

S. Resyndication Clarification Form

CTCAC requires that at resyndication a full income and asset certification be completed

for all households at the new income and rent limits for the new allocation. If the

household is income eligible under the new limits, no additional documentation is needed.

If the household is over the new limits, the Resyndication Clarification Form should be

used in conjunction with a previous certification, to document the continuing eligibility

from the previous allocation. The Resyndication Clarification Form should be printed on

colored paper to easily identify it in the file. For more information on Resyndication see

Section IV Part 4.12.

Part 5.6 Annual Certification with Section 42

Annual compliance information must be reported by the owner for existing tax credit

projects when requested by CTCAC, beginning with the year for which credit was first

claimed.

The annual compliance requirements are as follows:

A. Annual Owner Certification (AOC)

Failure to supply legible and thoroughly complete Owner Certifications when due will

be considered noncompliance and is reportable on IRS Form 8823. The forms will be

posted on the CTCAC web site page in January of each year. The AOC’s are due the third

Monday of March each year. See the CTCAC website for specific dates.

B. The Project Ownership Profile (POP) is considered part of the AOC.

For more information regarding the AOC, see Section II, Part 2.2(F)(1).

C. Annual Operating Expense Report (AOE)

Failure to supply legible and thoroughly complete Annual Operating Expense Reports

(AOE) when due will be considered noncompliance. The forms will be posted on the

CTCAC web site page in April of each year. The AOE‘s are due at the end of May each

year. See the CTCAC website for specific dates. For more information regarding the

AOE, see Section II, Part 2.2(F)(3).

CA Tax Credit Allocation Committee 90 April 2023

D. Lender Report

For more information regarding the Lender Report, see Section II, Part 2.2(F)(4).

E. Written Request to Amend Support Service Requirement

Projects that received an allocation of credits in 2010 or later may not change their service

plans without prior written approval from TCAC. Request for approval to make this

change must be sent to the attention of the Compliance Senior Program Managers.

Part 5.7 CTCAC Tenant/Unit File Review and On-site Project Inspections

As provided in IRS compliance monitoring regulations, CTCAC is required to review a project’s

Tenant/Unit Files, Development File, and recordkeeping and record retention files.

Beginning in 2001 and pursuant to new IRS Regulations, the Committee or its agent will conduct

file and on-site physical inspections for all projects no later than the end of the second calendar

year following the year the last building in the project is Placed In Service, and once every three

years thereafter. In 2022, based on final regulation from the IRS adjusting the required number of

physical units to be inspected, CTCAC will inspect at least:

• 20% of the low-income units in projects with 150 LIHTC units or less,

• at least 15% of the low-income units in projects with 151 – 300 LIHTC units,

• and at least 10% of the low-income units in projects with more than 301+ LIHTC units.

The tenant file reviews will also follow the same breakdown, but may be conducted either on-site

or off-site via a desk audit. Each year the Committee shall select projects for which site

inspections will be conducted. The projects shall be selected using guidelines established by the

Executive Director for such purpose, while the units and tenant records to be inspected shall be

randomly selected. Advance notice shall not be given of the Committee’s selection process, or of

which tenant records and units will be inspected at selected projects; however, an owner shall be

given reasonable notice prior to a project inspection date. Per IRS regulation, the notification

window shall be 15 days from the scheduled audit date.

In 2009, CTCAC implemented a policy of posting on the website a list of all the properties that

were scheduled for inspection in that year (both PIS project and those in the extended use period).

The lists can be found at

http://www.treasurer.ca.gov/ctcac/compliance.asp

A. When performing an on-site review, CTCAC will:

• Notify the owner and management agent 15 days in advance of the intended site

visit. NOTE: Physical inspection will be of the project grounds, common

amenities, and occupied units. CTCAC Staff will inspect any units vacant for more

CA Tax Credit Allocation Committee 91 April 2023

than 30 days and inquire as to the reason for and duration of the vacancy if they

have been vacant for more than 60 days.

• Inform the management agent on the day of the review which units and unit files

will be inspected.

• Inform the owner of any findings of noncompliance with regard to such review.

• Inform the owner of a timeline to respond to CTCAC with correction of any

noncompliance. CTCAC may extend the correction period up to six months, but

only if the Authority/Committee determines there is good cause for granting the

extension.

• Report all instances of noncompliance to the IRS whether or not the

noncompliance has been corrected.

• Require original documentation whenever possible. Copies of certain documents

may be in the LIHTC file if HUD requires originals to be in the HUD file.

• Require that the review of the files and units will occur at the project site. If tenant

files are kept at a central management office, they must be brought to the property

on the date of the monitoring inspection. Exceptions may be made on a case-by-

case basis at the discretion of the Analyst conducting the inspection, prior to the

inspection date.

B. When performing a desk audit review. CTCAC will:

• Notify the owner in writing 15 days before the scheduled audit that they have been

selected for a desk audit.

• Request that the owner submit a predetermined number of files and documentation

to CTCAC through a secure file transfer system. CTCAC will provide the unit

numbers for the files to be submitted.

 For projects with up to 150 LIHTC units – 20% + 5 additional files

 For projects with 151 – 300 LIHTC units – 15% + 10 additional files

 For projects with 301+ LIHTC units – 10% + 10 additional files

• Give a time frame in which the tenant file documentation must be submitted.

• Inform the owner of any findings of noncompliance with regard to such review.

• Allow the owner a timeline to notify and respond to CTCAC for any correction of

noncompliance.

• Schedule a physical audit at the property at a later date.

• Report all instances of noncompliance to the IRS whether or not the

noncompliance has been corrected.

Part 5.8 Extended Use Portfolio Monitoring

In 2009, CTCAC began monitoring those projects that were out of the 15 year federal compliance

period and were in the extended-use period as noted in the Regulatory Agreement or for each

property. Extended Use projects will be seen in a 5 year monitoring rotation. CTCAC will

monitor approximately 20% of the total extended-use portfolio of tax credit projects each year,

and will choose a random 10% sample to audit for file and units; 100% of the common areas will

be inspected. CTCAC reserves the right to perform an onsite inspection of any property in the

CA Tax Credit Allocation Committee 92 April 2023

Extended Use period at any time.

When performing an extended use review, CTCAC will:

• Notify the owner and management agent in advance of the intended audit date.

Extended use audit/inspections may me completed either in-person or via the desk

audit process.

• For in-person audits - Inform the management agent on the day of the review

which units and unit files will be inspected. A 10% random sample list will be

provided, however CTCAC reserves the right to expand the audit sample if

necessary.

• For desk audits - Request that the owner submit a predetermined number of files

and documentation to CTCAC through a secure file transfer system. CTCAC will

provide the unit numbers for the files to be submitted.

 For projects under 150 LIHTC units – 10% + 5 additional files

 For projects over 151+ units – 10% + 10 additional files

• Inform the owner in writing of any findings of noncompliance with regard to such

review.

• Inform the owner of a timeline to respond to CTCAC with correction of any

noncompliance. CTCAC may extend the correction period up to six months, but

only if the Authority/Committee determines there is good cause for granting the

extension.

• Schedule a physical audit at the property at a later date. Please note: Physical

inspection will be of the project grounds, common amenities, and occupied units.

CTCAC Staff will ask to see vacant units and inquire as to the reason for and

duration of the vacancy if they have been vacant for more than 60 days.

• Require original documentation whenever possible. Copies of certain documents

may be in the LIHTC file if HUD requires originals to be in the HUD file.

• Require that the review of the files and units will occur at the project site unless a

desk audit is conducted. If tenant files are kept at a central management office,

they must be brought to the property on the date of the monitoring inspection.

Exceptions may be made on a case-by-case basis at the discretion of the Analyst

conducting the inspection.

Part 5.9 Electronic Copy of Files

In February 2022, CTCAC released guidance that in order to maintain efficiency, reduce waste,

and keep up with changing technological innovation, CTCAC would require an electronic copy of

all resident files for all existing households or newly moved in households on or after February 1,

2022. These electronic copies were to be created by December 31, 2023.

In September 2022, CTCAC updated the guidance – reducing some of the documents required to

be stored and extending the deadline for completion for large projects (over 160 LIHTC units)

and Mixed Income properties with both conventional market rate units and LIHTC units.

CA Tax Credit Allocation Committee 93 April 2023

The final guidance is:

1. For 100% Tax Credit Properties – required an electronic copy of the initial move-in

certification, 1st recertification, and the most recent recertification available at the time

the file is scanned. Annually thereafter, as the household recertifies, the recertification

should be saved and added in an electronic format to the file. If at any time, CTCAC

needs to review the recertifications that weren’t initially saved, an electronic copy of

the paper recertification must then be created and submitted to CTCAC for review.

2. For Mixed Use Properties with conventional units in addition to tax credit units –

the IRS and Section 42 require the 140% Next Available Unit Rule (NAUR) to be

tracked annually, therefore it is not possible to reduce the requirement of an electronic

copy of every recertification for the household.

The initial timeline of 23 months (February 2022 – December 2023) to provide an electronic copy

of the files was modified to:

1. For 100% Tax Credit Properties with 160 or less LIHTC units – the initial deadline

will remain December 31, 2023.

2. For large 100% Tax Credit Properties with greater than 161 LIHTC Units or Mixed

Use properties with conventional and tax credit units – the deadline will be extended

to December 31, 2024.

To ease the burden of scanning physical hard copy, the items required to be electronically stored

will be reduced from the entire file to the following:

1. Initial Application Initial/Move-in Lease and Lease Addendums

2. Any lease addendums signed later than initial move-in

3. Required Recertifications (as noted above)

4. Specific correspondence between the owner/management agent and the tenant

regarding workorders, recertification dates, and tenant concerns. CTCAC does not

need copies of notices given to all residents.

The requirement of creating an electronic copy of the resident file applies only to existing

residents who were in place or moved into the property on or after February 1, 2022. CTCAC

does not need electronic copies of households that vacated the property prior to that date.

Part 5.10 Compliance Monitoring Fees ($410 per unit)

The Committee currently charges a one-time per unit fee to cover the costs associated with

compliance monitoring throughout the Federal Compliance Period and the Extended-Use Period.

Payment of the fee shall be made prior to the issuance of federal and/or state tax forms. Any

alternative timing for payment of the fee, may be approved in the sole discretion of the Executive

Director and shall only be considered where convincing proof of financial hardship to the owner

is provided.

Failure to submit the fee will be considered an act of noncompliance.

CA Tax Credit Allocation Committee 94 April 2023

The per unit lump sum fee must be paid for the manager/employee-occupied unit(s) if this unit(s)

is being counted as a “rental unit” for purposes of determining the low-income occupancy

percentage for the building. If the manager/employee-occupied unit(s) is being considered as

“common space,” no monitoring fee is required for this unit(s). For more information on the

manager’s unit, see Section III, Part 3.5 (G).

Part 5.11 Compliance Period

The compliance monitoring period begins on the date on which the last building in the project is

Placed in Service. However, CTCAC can monitor any tax credit project prior to that date if

needed. For more information regarding the compliance period, see Section I, Part 1.3.

Part 5.12 Amendments to Compliance Monitoring Procedures

The compliance monitoring procedures and requirements set forth herein are issued by CTCAC

pursuant to Federal Regulations. These provisions may be amended by CTCAC, for purposes of

conforming to the Federal Regulations and/or as may otherwise be appropriate, as determined by

CTCAC or the IRS. In the event of any inconsistency or conflict between the terms of these

monitoring procedures and the monitoring procedures set forth in such Regulations, the

provisions set forth in the Regulations shall control.

Part 5.13 Tenant Relations

As the allocating agency for the federal Low Income Tax Credit (LIHTC) Program in the State of

California, CTCAC’s monitoring responsibilities begin after the project has placed in service and

is operating with tenant in place. These responsibilities apply to the period noted on the

Regulatory Agreement and includes both the initial credit period and the extended use period. Our

responsibilities are to audit the owner’s records which include - the tenant files for income

eligibility, verifying that the correct rents are being charged for the units as determined by the

Regulatory Agreement on the property, and to making sure the units are safe, sanitary and in good

repair. CTCAC does not have any monitoring authority over the day-to-day operations of the

property (including rent increases) or of the Resident Selection Plan (RSP) that is used by the

owner/management company to determine the eligibility of the households that are applying to

the property, other than the requirement that all sources of income and/or potential income must

be counted to determine income eligibility. CTCAC also does not mediate in evictions other than

to require that all eviction notices given to tenants state a reason in writing as to why the

household is being given the notice. The CTCAC Good Cause Eviction Lease Rider does state

that there must be “good cause” to evict a household. However, the determination of whether the

reason for the eviction is “good cause” or not is left to court of law and a judge to determine the

outcome. CTCAC has no influence or input into the decision.

In addition to following the regulation of the LIHTC program, the owner and management

CA Tax Credit Allocation Committee 95 April 2023

companies who are operating the property must be aware of Fair Housing and Employment law

and California Tenant/Landlord law. CTCAC strongly recommends that all on-site management

personnel (including maintenance personnel) attend Fair Housing training to reduce the potential

for conflict or concern with tenants.

Properties that have multiple funding sources in addition to Section 42 Tax Credits such as

Section 8 Vouchers, Project-based Section 8 funding, other HUD funding sources, Rural

Development (RD), HOME, CalHFA financing, HCD program financing, et al., need to have on-

site staff that is knowledgeable about the differences in requirements for each funding source,

how one program may differ from the others, and which requirements apply to which funding

source.* This knowledge will benefit the onsite staff in the relations with tenants as they will be

able to completely and concisely explain the requirements of each program.

Questions regarding CTCAC policy with regard to tenant concerns may be directed to Quang Le

– Compliance Program Manager at [email protected]

* If another program requirement directly conflicts with the Tax Credit Program, than the owner must be aware

that by accepting the conflicting funding source as part of the financing and development of the property, they

are accepting the potential repercussions for which they are noncompliant – including the filing of an

uncorrected 8823 to the IRS. The IRS and the LIHTC program does not defer its program regulations, except as

explicitly noted in IRC Section 42.

CA Tax Credit Allocation Committee 96 April 2023

SECTION VI – NONCOMPLIANCE

Noncompliance is defined as a period of time a development, specific building, or unit is

ineligible for tax credit because of failure to satisfy LIHTC Program requirements.

Part 6.1 Types of Noncompliance

Generally, during the Compliance Period a project is out of compliance and recapture may apply

if:

A. A building or an ownership interest in a building is disposed of

B. There has been a change in the applicable fraction or eligible basis that results in a

decrease in the qualified basis of the building from one year to the next; or

C. The building no longer meets the minimum set-aside requirements or Section

42(g)(1), the gross rent requirements of Section 42(g)(2), or the other

requirements for the units which are set-aside; or

D. Failure to submit the annual utility allowance documentation, owner certification,

tenant income and rent report, or compliance monitoring fees, along with any

applicable supporting documentation in a timely manner.

E. Gross rents exceed the tax credit maximum limits per bedroom size.

F. Foreclosure – a property goes into and completes the foreclosure process and is

sold to another entity.

G. Owner is charging fees for the use of common area spaces that were included in

eligible basis. These include (but are not limited to) charging for parking, use of

the community room, washer/dryer hook-ups, storage units, etc.

Part 6.2 Consequences

If the project is out of compliance, a penalty could apply to all units in the project (IRS Form

9861-1). Penalties include (but are not limited to):

In the initial 15 year Federal Credit Period:

A. Recapture of the accelerated portion of the tax credit for prior years;

B. Disallowance of the credit for the entire year in which the noncompliance occurs;

C. Assessment of interest for the recapture year and previous years;

D. Notification to IRS;

E. Negative points on any subsequent LIHTC reservation applications.

F. Fines or other monetary repercussions for state required items

G. Rejection of future applications. Proposals submitted from sponsors that currently

have projects that are out of compliance will not be accepted until the

noncompliance is corrected;

H. Repayment of rent overages; and/or

CA Tax Credit Allocation Committee 97 April 2023

I. De Minimis Errors. On August 10, 1993, Congress passed the Omnibus

Reconciliation Act of 1993 that includes a provision for de minimis errors.

Certain de minimis errors may be exempt from noncompliance or recapture as

determined by the Secretary of the Department of Treasury.

In the State Extended Use (Compliance) Period:

A. Negative points on any subsequent LIHTC reservation applications.

B. Fines or other monetary repercussions

C. Rejection of future applications. Proposals submitted from sponsors that currently

have projects that are out of compliance will not be accepted until the

noncompliance is corrected; and/or

D. Repayment of rent overages;

Part 6.3 Notification of Noncompliance to Owner

CTCAC is required to provide written notice of noncompliance to the owner if:

A. Any required submissions are not received by the due dates;

B. Tenant income certifications, supporting documentation, and rent records are not

submitted when requested by CTCAC; and/or

C. The project is found to be out of compliance through inspection; review, and/or

other means with the provisions of Section 42 of the IRC.

Should any of the submissions required herein, including the Annual Owner Certification, the

Project Status Report, and/or income certifications, supporting documentation, and rent records,

not be submitted in a timely fashion, or should there be omissions, CTCAC shall, within 45

working days, notify the owner in writing, requesting such information. The owner will have 20

working days in which to provide the information, after which CTCAC shall notify the Internal

Revenue Service of the owner’s failure to provide the required information.

Part 6.4 Notification by Owner to CTCAC

If the owner or management company becomes aware of any noncompliance with the LIHTC

program requirements, the CTCAC staff must be notified immediately. This includes any

situations where Casualty Loss (flood, fire, wind, mold, etc) causes one or more units to become

uninhabitable or deferred maintenance causes a unit to be offline and/or uninhabitable for a

period of more than a week.

Part 6.5 Correction Period

Should CTCAC discover, as a result of an inspection or review, or in any other manner, that the

project is not in compliance with Section 42, or that credit has been claimed or will be claimed

CA Tax Credit Allocation Committee 98 April 2023

for units which are ineligible, CTCAC shall notify the owner within 30 working days. The owner

will have a timeline in which to commence appropriate action to cure such noncompliance.

The owner shall be provided a time frame to cure the noncompliance, usually 30 days. In

extraordinary circumstances, and only if CTCAC determines that there is good cause, an

extension of up to 90 days to complete a cure for noncompliance may be granted.

Part 6.6 Reporting Noncompliance to Internal Revenue Service and Recapture

A. Reporting

Actual noncompliance will occur if the potential noncompliance is not corrected within

the correction period given the owner. Potential noncompliance of which the owner or

management agent becomes aware must be reported to the state agency, who will in turn

report it to the IRS. The IRS ultimately determines whether or not there is recapture of

credits.

CTCAC is required to file IRS Form 8823, “Low-income Housing Credit Agencies

Report of Non-Compliance,” with the IRS no later than 45 days after the end of the

correction period (as described above, including extensions) and no earlier than the end

of the correction period, whether or not the noncompliance or failure to certify is

corrected.

CTCAC must explain on IRS Form 8823 the nature of the noncompliance or failure to

certify and indicate whether the owner has corrected the noncompliance or failure to

certify.

If a building is entirely out of compliance and will not be in compliance at any time in the

future, CTCAC will report it on an IRS Form 8823 one time and need not file IRS Form

8823 in subsequent years to report that building’s noncompliance.

B. Recapture

Recapture is defined as an increase in the owner’s tax liability because of a loss in tax

credits due to noncompliance with program requirements.

The IRS will make the determination as to whether or not the owner faces recapture of

tax credits as a result of noncompliance. Please note: CTCAC is never notified of IRS

actions against the owner.

IRS Form 8611 is used by taxpayers who must recapture tax credits previously claimed.

A copy of IRS Form 8611 must be sent to the IRS and CTCAC upon completion by the

owner.

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Part 6.7 Retention of Noncompliance Records by CTCAC

CTCAC will retain records of noncompliance or failure to certify for six years beyond CTCAC’s

filing of the respective IRS Form 8823. In all other cases, CTCAC will retain the certifications

and records described in paragraph (c) of Reg. 1.42-5 for three years from the end of the calendar

year CTCAC receives the certifications and records.

Part 6.8 Liability

Compliance with the requirements of Section 42 is the responsibility of the owner of the building

for which the credit is allowable. CTCAC’s obligation to monitor for compliance with the

requirements of Section 42 does not make the Agency liable for an owner’s noncompliance

(Reg. 1.42-5(g)).

CA Tax Credit Allocation Committee 100 April 2023

SECTION VII – SAMPLE ON-SITE AUDIT

The following area is a sample of what to expect for a CTCAC inspection, from the preliminary

paperwork needed through the completion of the inspection.

Part 7.1 Preliminary Requirements

A. Letter of Notification – Starting January 1, 2023, fifteen (15) days before a scheduled

CTCAC Audit, the owner of the property and the management company contact on file

will receive an email or letter stating the time and date of the inspection. It will also list

the items that need to be returned to the analyst within 4 business days of the date of the

notification letter.

If the necessary pre-inspection documents are not received and the inspection needs to be

cancelled or rescheduled, then CTCAC will issue a Notice of Noncompliance and

reschedule the inspection at a later date. Failure to respond or provide the materials

promptly for the rescheduled audit date will result in an uncorrected 8823 being sent to

the IRS for “Failure to Respond to a Monitoring Agency Request”.

B. Project Status Report (PSR) for 20/50, 40/60 and Average Income Test (AIT)

Properties – Depending on the federal set-aside for the property, one of two PSR forms

must be downloaded from the CTCAC website at

http://www.treasurer.ca.gov/ctcac/compliance.asp. If the property is 20/50 or 40/60, form

“PSR Form” must be downloaded and completed. If the property has an AIT set-aside,

then “PSR Form A.I.T.” must be downloaded and completed. The forms must be filled

out completely and e-mailed to the analyst who will be doing the inspection. This is the

only form CTCAC requires to be in a specific format, as the completed PSR received via

e-mail will be downloaded into a database from which all inspection information will be

produced. Therefore, the PSR form that is submitted must be the most current form

available on the website and may not have any additional cells, data, or worksheets added

into it. If there is a problem with the submitted PSR, the analyst in charge of the

inspection may contact the owner to have the PSR re-submitted in the correct format.

Repeated failure to submit the PSR in the format requested may cause CTCAC to cancel

the inspection and issue an uncorrected Form 8823 to the IRS for failure to comply with

monitoring requirements.

Mixed use properties should not include market-rate tenants on the PSR that is submitted.

It is for LIHTC units only. However, a separate listing showing units containing the

market rate units per building should be submitted.

C. Utility Allowance – A copy of the current Utility Allowance, showing the source (PHA,

HUD, CUAC, etc.) used must be submitted prior to the inspection. The amounts used

should be circled and added at the bottom of the sheet. The bedroom size and amount

used should be easily readable. Please note that CTCAC may question and reject any

Utility Allowance that does not come directly from an approved source. See Section III

Part 3.4 for more information on Utility Allowances.

CA Tax Credit Allocation Committee 101 April 2023

D. Rent Roll – A copy of the current rent roll for the entire property needs to be submitted

prior to the inspection. If the property to be inspected is a mixed use property, please

label the units that are market rate.

E. Copy of Inspection Notice – please submit a copy of the letter used to notify tenants of

the upcoming inspection.

F. Fire System Log – for all properties with a contained Fire System (sprinkler, halon, etc.),

please submit a copy of the most recent inspection report. Inspections must be current

within 1 year of inspection date.

G. Failure to respond to preliminary requirements – If the owner fails to submit the

preliminary documents by the time requested, then the following may occur:

1. A CTCAC analyst may contact the owner via telephone or e-mail to remind

them of the missing documentation and give a new deadline

2. A CTCAC analyst may contact the management agency contact on file via

telephone or e-mail to remind them of the missing documentation and give a new

deadline

3. CTCAC management will notify the Tax Credit Investor

If repeated attempts have failed to produce the required documentation in a timely

manner by all verbal and written due dates, then the analyst may cancel the inspection

and CTCAC will issue an uncorrected Form 8823 to the IRS stating the owner failed to

comply with the monitoring review.

Part 7.2 File Inspection

CTCAC policy has been that the monitoring of file inspections should be performed at the

property site. If the office is not large enough to accommodate the Analyst(s) than a vacant unit

supplied with a table and chairs will be acceptable. If the property does not have an office or is

part of a scattered site project that encompasses several buildings at different locations and the

files are kept at a central location, CTCAC may arrange to meet at the central location as long as

it is within 5 miles of all buildings in the project. This arrangement must be discussed with the

analyst conducting the inspection prior to the inspection date. If the central office is more than 5

miles from the buildings in the project, all files must be transported to a central location (usually

the community room or vacant unit of one of the sites).

Starting in 2020, CTCAC implemented a desk audit process in response to the COVID-19

pandemic. As of January 2022, the desk audit format was permanently included in CTCAC’s

inspection protocols as an alternative to in-person file reviews. Properties that receive a desk

audit will also receive a separate in-person physical inspection of the property. A list of

properties receiving desk audits will be posted to the CTCAC website in January of the calendar

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year in which the desk audit will occur. See Section V Part 5.7 (B) for more information on the

desk audit process.

A. Application

All tenant files must contain a current Application at initial move-in. CTCAC will inspect

the initial application to verify:

1. Minimum of a 2 year housing history

2. Applicants listed match the tenants occupying the units

3. Application indicates all sources of income and assets from wages, pensions,

IRA’s, 401K’s, etc.

4. Employment information is the same as found on the Verification of

Employment

5. Student Status of the household

B. Income Calculation (Wages)

1. Regular Income – CTCAC calculates income three ways and then uses the highest

number to determine eligibility. The three ways are Verification of Employment from

the employer, YTD calculation (off of both the VOE and the paystubs), and average

number of hours/OT as listed on the paystubs. *

If an applicant does not have the required three months of paystubs at move-in, please

see Section V Part 5.5(F) CTCAC Paystub Policy.

*If there is conflicting information between the VOE and the pay stubs, prior to moving in the household, then

there must be 3rd party written documentation from the employer clarifying the discrepancy. Additionally, more

paystubs may be requested to determine eligibility and demonstrate due diligence.

2. Self-Employment – CTCAC looks for the following information to verify self-

employment income:

a. Previous Year’s 1040 Tax Return and Schedule C

OR:

b. IRS Form 4506-C or transcript from IRS stating “no filing” and one of the

following:

a. Profit and Loss Statement

b. Statements from recurring clients

3. Gig Wages – Gig wages are a form of self-employment that is different than

traditional sole-proprietorship style self-employment (home based sales,

housekeeping, etc.). Some self-employed persons may have gig style wages in

addition to or as the sole basis of their income. Gig wage examples include Uber,

Lyft, Door Dash, Musicians, Actors, or any other driver or contract based

employment where the tenant is determined to be an independent contractor for a

larger company which pays a wage per transaction or contract. For gig employment

CA Tax Credit Allocation Committee 103 April 2023

where the tenant has been employed for the period of a taxable year, CTCAC will

require any 1099s, 1099-NECs, Schedule C, and tax returns to be in the file to

determine income eligibility.

For tenants that have recently started gig employment, CTCAC will require a printout

of the weekly income earned, averaged over a 3 month period, and projected forward

for the upcoming year.

4. Day Labor – CTCAC defines Day Labor as a tenant who waits in a specified

location to do various odd jobs and is paid with cash. Day Labor does not usually

have a recurring clientele and can vary dramatically on income or hours. CTCAC

recognizes that in certain cases Day Labor is impossible to 3rd Party verify, and as

such, will accept a Self-Certification of Wages from the tenant. However, this does

not excuse the management company from using all due diligence in processing the

certification for the tenant. Patterns of excessive use of Self-Certifications in the

CTCAC audit sample, may trigger a request for additional information or a larger

audit sample.

5. Anticipated Earnings - CTCAC does not calculate general anticipated earnings,

unless documentation from employer is in the file indicating pending offer of salaried

employment and includes the start date. If the only form of income for a household is

from anticipated wages, CTCAC will question the household's ability to pay for rent,

food and utilities and require management to demonstrate how they will be paid for.

(See Section IV Part 4.4 (H))

6. Cash Wages – As of June 2004, in addition to the Verification of Employment

(VOE) CTCAC requires 3 months of current consecutive paystubs at move-in. If the

tenant is claiming that they do not receive paystubs as they are paid in cash, the IRS

has determined that those individuals are considered “independent contractors” and as

such should file a 1040 tax return. CTCAC will require a copy of the 1040 filing for

the tenant and a third party statement from the employer on company letterhead,

indicating the name of the tenant, the position title, and how much the employer pays

the tenant in cash each week.

Additionally, if a household is claiming they do not file taxes on cash wages, as of

July 1, 2010, CTCAC will require a completed IRS form 4506-T or 4506-C (after

2019), received back from the IRS, to be in the file, verifying non-filing status in

addition to the third party statement from the employer on company letterhead,

indicating the name of the tenant, the position title, and how much the employer pays

the tenant in cash each week.

7. Farm Labor – Farm labor is a unique challenge to verify as the length of time an

applicant/tenant will be employed will vary on the growing season, which is

determined by weather patterns and cannot be precisely predicted. If the tenant is

receiving unemployment assistance during the off season, you only need to calculate

the unemployment received for that layoff period. You would not annualize the

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unemployment benefits for farm labor. To adequately determine income eligibility for

farm labor communities, CTCAC strongly suggests implementing the following

procedures:

1. Maintain a spreadsheet tracking the growing seasons of the farms in the area

around the property. This will give management an historical perspective of

work and lay-off seasons for any new applicants.

2. Obtain a completed VOE showing Lay off period. (required)

3. Obtain a payroll printout (in addition to piece count paystubs) that shows

gross amounts earned per pay period. Please note – the payroll printout must

include at minimum, the name of the applicant/tenant, the farm they work for,

and the pay rate of the employee or it will not be considered a verifiable

document.

8. IHSS – In-Home Supportive Services (Wage Earner) – For tenants who are

employed through California In-Home Supportive Services Program, in 2020 some

CA county offices which previously verified employment redefined their

methodology and determined that IHSS caregivers were to be considered employed

by the person they are providing care for, not directly by the county, therefore the

county would no longer be completing Verifications of Employment requests for

employed IHSS caregivers. To this end, CTCAC will no longer require a VOE to be

completed by the county for IHSS but will accept 3 months of paystubs or the W-2

for the previous year to determine the income eligibility of the tenant.

If a tenant’s income at 1

recertification shows IHSS income that was not indicated at

move-in, CTCAC will require a verification from the county that specifies the start

date of the IHSS income.

9. IHSS – In-Home Supportive Services (Income) – For households receiving IHSS

income for a developmentally disabled household member who is residing in the unit

to offset the cost of services and equipment needed to keep the household member at

home, per HUD 4350, CTCAC will exclude the IHSS wages from the income

calculation for the household.

Please note: this exclusion is specifically for a developmentally disabled household

member receiving IHSS, not for other types of potentially disabled household

members. CTCAC will require a statement from the resident’s doctor, medical

practitioner, or other 3

party agency treating the resident confirming the

developmental disability. CTCAC does not need to know the nature of the disability,

just that it meets the HUD 4350 Exclusion.

C. Income Calculation (other forms of Income)

1. Social Security Income – CTCAC will accept the current year’s Social Security

Award letter in lieu of 3

party documentation for regular Social Security. A printout

from the Social Security Administration’s website is also acceptable if it includes the

name of the resident occupying the unit.

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In 2020, due to difficulties with obtaining information from the Social Security

Office during the COVID-19 pandemic, CTCAC allowed award letters up to 3 years

out of date plus the documented cost of living adjustments (COLA) to be used in lieu

of the current year’s award letter. CTCAC will extend this allowance through

December 31, 2024.

2. Supplemental Security Income (SSI) – Supplemental Security Income (SSI)

awarded by the Social Security Administration is different than regular Social

Security Income in that the award amount is based on the applicant’s annual income.

Therefore, award letters for SSI must be within 120 days of the household

certification date to be valid. A printout from the Social Security Administration’s

website showing the SSI award is also acceptable if it includes the name of the

resident occupying the unit.

For Award Letters that include both regular SSA income and SSI income (combined

letters), the SSI is calculated on the amount of SSA that is being received. In this

instance, since the SSA is calculated at a yearly amount that does not change, the SSI

award will also not change. Combined award letters follow the same guidance as

regular SSA awards and may be considered valid beyond the 120 day window if all

the other parameters are met.

3. EDD and AFDC/TANF Payments – CTCAC will accept the award letter for

AFDC/TANF and/or EDD/Unemployment payments in lieu of 3

party

documentation, dated within 120 days of the move-in effective date.

4. Gifts – CTCAC will accept a signed and dated statement from the person providing

the gift indicating the amount and frequency of the gift. An updated statement must

be in the file at each annual recertification.

5. Periodic Payments – Periodic payments refer to regular reoccurring payments

received by a resident from sources other than those noted above. The most common

sources are (but not limited to) annuity payments, payments from insurance policies,

retirement fund payments, etc. Periodic payments may be received on an annual,

monthly, semi-monthly or weekly basis. CTCAC will accept a formal

statement/letter or the award letter from the entity providing the payment in lieu of

3rd party verification.

6. Unemployment Income – For unemployment where the tenant does not have a

seasonal/recurring job - CTCAC requires that unemployment income to be

annualized for 52 weeks, even if a “max benefit” amount is noted on the verification

letter, since upon reaching the limit, the applicant/tenant may reapply for benefits.

For unemployment where the tenant has a seasonal/recurring job – CTCAC requires

the unemployment benefit only to be calculated during the “lay-off” period.

Example: John Smith works as a cook at Thomas Jefferson Elementary School.

CA Tax Credit Allocation Committee 106 April 2023

He only works during the school year – from the beginning of September until the

end of May. He receives unemployment for the months of June – August. You

would only need to count the unemployment income for June, July and August,

since he will be starting work again in September.

D. Asset Calculations

CTCAC will follow the guidelines set forth in HUD Handbook 4350.3 Chapter 5, Rev. 4

to determine the household’s asset income. To determine the asset income, the owner

should compare the “cash value” or what the earnings on the asset would be worth if

converted to cash, and the “imputed value” using the current HUD Passbook Rate of

.06%. The higher of the two values should be noted on the TIC and included in total

income calculation for the household, if the total household assets are over $5000.

IRS policy requires total household assets over $5000 to be third party verified. For total

household assets under $5000, the residents must complete an Under $5000 Asset

Certification form. CTCAC does not require household assets under $5000 to be third

party verified.

1. Savings Account – To determine the cash value of a savings account, take the current

value of the account and multiply it by the interest rate given by the financial

institution and compare it to the HUD Passbook rate.

Example: Savings Account Balance: $14,523

Interest From Financial Institution: 2.4%

$14,523 x 2.4% = Cash Value of $348.55

$14,523 x .06% Passbook = Imputed Value of $8.71

2. Checking Account* - To determine the cash value of a checking account, take the 6

month average of the account and multiply it by the interest rate (if any) given by the

financial institution and compare it to the HUD Passbook rate.

Example: Checking Account 6 month average: $5,185.67

Interest From Financial Institution: .04%

$5,185.67 x .04% = Cash Value of $2.07

$5,185.67 x .06% Passbook = Imputed Value of $3.11

* Please note: for households with assets over $5000 where the third party

verification from the financial institution for the checking account does not show a 6

month average, the average noted by the institution (generally 3 months) may be used

instead.

3. Certificate of Deposit (CD) – To determine the cash value of a Certificate of

Deposit, take the current value of the account and multiply it by the interest rate given

by the financial institution and compare it to the HUD Passbook rate.

CA Tax Credit Allocation Committee 107 April 2023

Example: CD Balance: $24,879.11

Interest From Financial Institution: 3.2%

$24,879.11 x 3.2% = Cash Value of $796.13

$24,879.11 x .06% Passbook = Imputed Value of $14.93

4. IRA/401K/Money Market Accounts* – To determine the cash value of accounts

such as retirement, 401K, and money market accounts, you will need to deduct any

pre-payment penalties or fees. Interest is not generally included with these types of

accounts, so CTCAC will use the average rate of return or the percentage change in

value over a 3 month period to determine the earnings potential.

Example: 401K Account Balance: $56,275.52

Pre-Payment Penalty of 10%: $5627.55

Balance – Pre-Payment Penalty: $50,647.97

Average rate of return for the last 3 months: .62%

$50,647.97 x .62% = Cash Value of $314.02

$50,647.97 x .06% Passbook = Imputed Value of $30.39

5. Mobile Payment Service Apps – CTCAC will treat any held balances in mobile

payment service apps like Venmo, Zelle, Paypal, and Ca$hApp like a savings account

with a zero percent interest. For households with assets over $5000 use the HUD

Passbook rate of .06% to determine the value of the asset.

Example: PayPal Account Balance: $7,863

$7,863 x .06% Passbook = Imputed Value of $4.72

6. Stocks* – To determine the value of held stocks, CTCAC will take the current value

of the stock and multiply it by the average change in the stock value over the last 3

months.

Example: Value of Stock: $12,503.64

Average change in value for the last 3 months: 1.6%

$12,503.64 x 1.6% = Cash Value of $200.06

$12,503.64 x .06% Passbook = Imputed Value of $7.50

7. Cryptocurrency* – Cryptocurrency values are highly volatile. To determine the

value of Cryptocurrency like Bitcoin, Ethereum, LiteCoin, etc. in units where the total

household assets are over $5000, CTCAC will require a printout of the current

balance and the average percentage fluctuation over the last 3 month period. If the

household’s total assets are under $5000, CTCAC will allow the HUD passbook rate

of .06% to be used on the current value of the cryptocurrency instead of a 3 month

average.

Example: Current value of Cryptocurrency: $17,126.37

Average change in value for the last 3 months: 3.6%

$17,126.37 x 3.6% = Cash Value of $616.55

$17,126.37 x .06% Passbook = Imputed Value of $10.28

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8. Trust – Per HUD 4350, the asset value of a Trust is only determined if the trust is

revocable. Asset income from a nonrevocable Trust is excluded from household

income calculations. If a resident is receiving regular payments from a trust, those

payments would be considered income and the remaining value of the trust would not

be calculated for asset purposes. If the resident holds a trust and is not receiving

payments, the asset value of the trust is the total amount that the resident could

withdraw from the trust.

As the funds in the trust may accrue interest, if a definitive rate (such as with a

savings account) is stated, CTCAC will use that interest rate to determine the value of

the trust. If no definitive interest rate is stated (funds are in stocks, etc.) then CTCAC

will use the average rate of return or the percentage change in value over a 3 month

period to determine the earnings potential.

Example: Trust Account Balance: $212,852

Interest From Financial Institution: 1.8%

$212,852 x 1.8% = Cash Value of $3,831.34

$212,852 x .06% Passbook = Imputed Value of $127.71

*Please Note: For all assets that use an average change in the rate of return or change

in value, if the change results in a negative number, then zero (0%) would be the

multiplying factor not the negative number. As multiplying by zero would equal zero, the

amount used for the cash value of the asset would be the amount determined by the HUD

Passbook Rate.

E. Calculating Asset Change in Value

For assets (like stocks or cryptocurrency) that do not state an interest rate or percentage

change on the award or verification documentation, CTCAC will determine the

percentage asset change in value and use that value to calculate the value of the asset.

To do this, CTCAC will determine the difference between the two numbers, divide the

difference by the original number, and then multiply the number by 100.

Example: Leslie Lee owns 250 shares of stock in Gap Clothing. The current value

of the stock is $10.28 a share. Management looked up the stock’s history and 3

months ago, the value of the stock was $9.53. Management needs to determine the

projected value of the stock for income eligibility purposes.

Current Value: $10.28

Prior Value: $9.53

Difference: $0.75

To determine the percentage change of the asset:

Difference .75 / 10.28 = .073

CA Tax Credit Allocation Committee 109 April 2023

Multiply by 100 = Change in asset value is 7.3%

To determine the projected value of the stock for asset income purposes, multiply

the current value by the change in value.

$10.28 x 7.3% = Cash Value of $0.75

$10.28 x .06% Passbook = Imputed Value of $0.01

F. Questionable Documentation

If during the audit of a file, CTCAC is unable to determine income eligibility for any

reason, the Findings Letter may request additional documentation be provided. Examples

of this additional documentation may include (but is not limited to);

1. Tax Return, W2 filing, or 1099’s for the move-in or recertification year

2. Most current pay stub

3. Clarification on the disposal of an asset

4. Negative Verification of Employment

G. CTCAC Required Forms

The analyst will verify the following items are in the file:

1. Application

2. Lease

3. Good Cause Eviction Lease Rider

4. Section 42 Lease Addendum

5. HUD VAWA 91067 Form

6. Tenant Income Certification (TIC) with Supplemental Information Form

(SIF) or

7. Tenant Household Information Form (THIF) for 100% Tax Credit Properties

in Year 2+

8. Tenant Income Certification Questionnaire (TICQ)

9. Child/Spousal Support Affidavit and/or Verification forms

10. Under $5000 Asset verification form or third party documentation of assets

if over $5000

11. Paystubs – new move-in (if applicable)

12. Verification of Employment (VOE) form (if applicable)

13. Zero Income Certification (if applicable)

14. Student Status (if applicable)

15. Financial Aide Verification form (if applicable)

16. Single Parent Full-time Student Self Certification (if applicable)

17. Former Foster Care Status (if applicable)

18. Live-in Aide Verification Form (if applicable)

19. Separated or Estranged Status Affidavit (if applicable)

20. Re-syndication Clarification Form (if applicable)

CA Tax Credit Allocation Committee 110 April 2023

H. Additional Information

CTCAC will review any supplemental information, telephone clarifications, and/or self

affidavits to determine legitimacy or to aide in the determination of income eligibility of

a tenant. If the file still contains discrepancies, CTCAC will request additional

supplemental information.

I. Rent Ledger

On the day of the inspection, CTCAC will need to see the entire rent ledger history for

the current tenants in the units selected in the audit sample. All charges (excluding HAP

assistance) will be verified against the current tax credit maximum rent limits and Gross

Rent Floor (if applicable).

Part 7.3 Physical Inspection (UPCS)

CTCAC will conduct an onsite physical inspection of the noted audit ratio (see Section V Part

5.7) of randomly selected units on the property based on the Uniform Physical Condition

Standards (UPCS) established by HUD and required by the IRS and regulatory agreement

requirements. UPCS follows the Real Estate Assessment Conditions (REAC) as determined by

HUD, but rather than awarding a project an overall score (like a REAC inspection), UPCS notes

noncompliance individually by unit or area. A comprehensive listing of the UPCS requirements

by inspectable area can be found at:

https://portal.hud.gov/hudportal/documents/huddoc?id=DOC_26481.pdf

The following is a general breakdown of the items that CTCAC inspects. Physical Deficiencies

may be Level 1, 2, or 3 depending on severity. Not all inspectable items have three levels of

deficiency (see link to HUD Comprehensive Listing noted above for additional detail). Health

and Safety Violations are a separate category and do not have Levels assigned to them. Note:

some categories may be both a physical deficiency and a Health and Safety violation.

Inspectable Area: Site

- Fencing and Gates

- Grounds

- Mailboxes / Project Signs

- Market Appeal

- Parking Lots / Driveways / Roads

- Play Areas and Equipment

- Refuse Disposal

- Retaining Walls

- Storm Drainage

- Walkways / Steps

- Health and Safety

o Air Quality

o Electrical Hazards

CA Tax Credit Allocation Committee 111 April 2023

o Flammable Materials

o Garbage and Debris

o Sharp Edges

o Trip Hazards

o Infestation - insects

o Infestation – rats / mice / vermin

Inspectable Area: Building Exterior

- Doors

- Fire Escapes

- Foundations

- Lighting

- Roofs

- Walls

- Windows

- Health and Safety

o Electrical

o Emergency Fire Exits

o Flammable Materials

o Garbage and Debris

o Sharp Edges

o Trip Hazards

o Infestation - insects

o Infestation – rats / mice / vermin

Inspectable Area: Building Systems

- Domestic Water

- Electrical System

- Elevators

- Emergency Power

- Fire Protection

- HVAC

- Roof Exhaust

- Sanitary System

- Health and Safety

o Air Quality

o Electrical Hazards

o Elevator

o Emergency Fire Exits

o Flammable Materials

o Garbage and Debris

o Sharp Edges

o Trip Hazards

o Infestation - insects

o Infestation – rats / mice / vermin

CA Tax Credit Allocation Committee 112 April 2023

Inspectable Area: Common Areas

- Baluster / Side Railings

- Cabinets

- Call for Aid

- Ceiling

- Countertops

- Dishwasher

- Doors

- Dryer Vent

- Electrical

- Floors

- GFI

- Graffiti

- HVAC

- Lavatory Sink

- Lighting

- Mailbox

- Outlets / Switches / Cover Plates

- Pedestrian Wheelchair Ramp

- Plumbing

- Range Hood / Exhaust Fans

- Range / Stove

- Refrigerator

- Restroom Cabinet

- Shower / Tub

- Sink

- Smoke Detector

- Stairs

- Ventilation / Exhaust System

- Walls

- Toilet

- Windows

- Pools

- Fencing

- Trash Chutes

- Health and Safety

o Air Quality

o Electrical Hazards

o Emergency Fire Exits

o Flammable Materials

o Garbage and Debris

o Sharp Edges

o Trip Hazards

o Infestation – insects

o Infestation – rats / mice / vermin

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Inspectable Area: Unit

- Bathroom

o Cabinets

o Sink

o Plumbing

o Shower / Tub

o Ventilation / Exhaust

o Toilet

- Call for Aid

- Ceiling

- Doors

- Electrical System

o Electrical Panel

o Breakers

o Evidence of Leaks / Corrosion

o Frayed Wiring

o GFI

o Missing Breakers / Fuses

o Missing covers

- Floors

- Hot Water Heaters

- HVAC System

- Kitchen

o Cabinets

o Countertops

o Dishwasher / Garbage Disposal

o Plumbing

o Range / Stove

o Range Hood / Exhaust Fan

o Refrigerator

o Sink

- Laundry Area

- Lighting

- Outlets / Switches

- Patio / Porch / Balcony

- Smoke Detector

- Stairs

- Walls

- Windows

- Health and Safety

o Air Quality

o Electrical Hazards

o Elevator

o Emergency Fire Exits

o Flammable Materials

o Garbage and Debris

CA Tax Credit Allocation Committee 114 April 2023

o Sharp Edges

o Trip Hazards

o Infestation – insects

o Infestation – rats / mice / vermin

CTCAC will follow the REAC guidance for the standards for which repairs are completed. Any

Non-Industry Standard repairs will be reported to the IRS on Form 8823.

Part 7.4 National Standards for the Physical Inspection of Real Estate (NSPIRE)

HUD published the National Standards for the Physical Inspection of Real Estate (NSPIRE) in

the Federal Register on June 16, 2022. After a public comment and final review period those

standards will go into effect on October 1, 2023. As the LIHTC program relies on HUD

standards for the inspection protocols per IRS regulation, future physical monitoring on LIHTC

properties in California will change from UPCS to NSPIRE. To ease the burden on property

owners, management, and agency staff, CTCAC will change to the NSPIRE standard on January

1, 2024, unless direct guidance to the contrary is given by the IRS.

Part 7.5 Property Signage

As noted above, the requirement for properties to have visible signage indicating (at minimum)

the name of the property is a UPCS requirement. Any signage must be visible from at least 20

feet from the street leading into the property. Visible signage is required to identify the property

for emergency services as well as for monitoring staff to identify the property. Failure to have

proper signage may result in a finding for CTCAC and/or reporting to the IRS on Form 8823 for

a UPCS violation.

Part 7.6 Findings Letter

The CTCAC Analyst performing the inspection will notify the owner of the results of the

inspection via letter within 30 days of the inspection. The letter will contain an itemized list of

file and/or physical noncompliant issues as well as the date by which the owner must correct the

issues noted.

Due to the COVID-19 pandemic, from April 2020, through December 31, 2023, CTCAC staff

may take 45 days to issue the Findings letter rather than the standard 30 days.

Part 7.7 Correction period and Owner’s Response

The results letter will provide a date when the owner’s response to the issues noted is due. This is

known as the “correction period” and is normally 30 days. Through December 31, 2023, CTCAC

is extending the correction period for all noncompliance from 30 days to 60 days. As of January

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1, 2024, the normal correction period of 30 days will resume.

Unless otherwise indicated, the Owner’s Response due to CTCAC must be sent by either

USPS mail or an electronic Secure File Transfer. CTCAC will not accept e-mailed Owner’s

Response materials, unless specifically arranged prior to receipt. Extensions beyond the date

noted must be made in writing either via letter or e-mail to the analyst who performed the

inspection. Extensions are granted at the discretion of the CTCAC Program Manager only.

Additionally, please note that certain issues even if corrected within the Correction Period, will

automatically generate an IRS Form 8823. These issues include (but are not limited to) any

UPCS violations, over-income households, overcharged-rent issues, and vacant-unit violations.

Part 7.8 Mixed-Income Properties

Properties with both conventional market rate and tax credit units have additional areas that are

monitored in closer detail than properties with 100% LIHTC units. These areas are on a per

building basis rather than a property-wide basis. They are:

A. HERA and Mixed-Income Properties

The passage of the Housing Economic Recovery Act (HERA) Bill of 2008 (HR 3221)

does not impact mixed-income properties. All existing IRS Section 42 and CTCAC

regulations remain including the requirement of annual recertifications.

B. 140% Next Available Unit Rule (NAUR)

If the income of the occupants of a qualifying unit increases to more than 140% of the

applicable income limitation (based on the set-aside for the property - 40/60, 20/50 or

AIT), the unit may continue to be counted as a low income unit as long as the unit

continues to be rent-restricted and the next unit of comparable or smaller size (in the

same building) is occupied by a qualified low-income tenant. Please remember, CTCAC

requires tracking to determine when units exceed the 140% NAUR and can request a

report evidencing compliance with the NAUR.

1. To monitor the Next Available Unit Rule, CTCAC may ask to see a tracking

spreadsheet of the units in the building. The spreadsheet should show the following:

• Number of LIHTC units currently in place;

• Number of Market units currently in place;

• Number of units currently under the NAU rule;

• The date the NAU rule went into effect per unit;

• The move-in dates for all units, market and LIHTC;

• Any marketing used to advertise the next unit as LIHTC.

Tracking the Next Available Unit Rule (NAUR) can only be done by performing a full

income and asset recertification on the anniversary move-in date of each tenant that

occupies a LIHTC unit at a mixed-income project.

CA Tax Credit Allocation Committee 116 April 2023

C. Applicable Fraction / Eligible Basis

The low-income housing credit amount is based on certain costs associated with a

building (eligible basis) and the portion of the building (applicable fraction) that low-

income household occupy. The ratio of LIHTC units to Market-rate units can be found on

the Form Bs submitted by the owner to CTCAC prior to receiving the Forms 8609 for the

property. CTCAC highly recommends management obtain a copy of the Form B per

building from the ownership to maintain the correct Applicable Fraction in the number of

required LIHTC units.

To monitor the Applicable Fraction/Eligible Basis, CTCAC will compare the ratio of

LIHTC units to Market units, by comparing the PSR (Project Status Report), submitted

by the owner as part of the pre-inspection documentation requirements, to the Form Bs

found in the CTCAC File. Additional inquiries may be made on-site if the ratios are

found to be incorrect.

CTCAC requires approval before an Exempt/Manager’s unit may be moved if the change

will result in the unit moving to a different building or a different unit size, as it may

affect the Applicable Fraction of the building(s). To obtain CTCAC’s approval, please

submit a letter from the owner requesting the change to Special Projects Analyst Stephen

Bellotti at step[email protected]. CTCAC staff will review the request, the

Regulatory Agreement, and any others documentation pertinent to the request and send

either an approval or denial letter in response. Average processing time for

Exempt/Manager Unit request changes is 3-4 weeks.

Part 7.9 Service Amenities Verification

For all 9% competitive Projects awarded credits or 4% projects awarded State Credits on or after

2010, as part of the on-site audit, CTCAC staff will verify that supportive services are being

provided in accordance with the owner’s service amenities commitments, as documented in the

Regulatory Agreement. The verification process will include:

• Interview with a services staff person employed by the project sponsor or a partnering

service provider.

• Review of documents verifying the provision of supportive services, such as (but not

limited to):

o Informational materials provided to tenants about available community

resources (e.g. referral binder or handbook)

o Materials provided to tenants about the availability of services provided on-

site (e.g. services brochure, monthly activities calendar, flyers, etc.)

o Sign-up sheets for classes and other group activities

o Sign-up forms or registration forms for afterschool or childcare program

o The record-keeping system for those projects where tenants receive

individualized services, such as case management or health and wellness

services. Note that CTCAC staff will not request to see contents of

CA Tax Credit Allocation Committee 117 April 2023

confidential client files, but instead will verify that there is a system for

maintaining documentation about services provided to clients.

o Up to date contracts and MOUs with service providers (if applicable)

• Inspection of service amenities space (e.g. service staff offices, classroom space,

community room, etc.) to ensure that space is of sufficient size and provides

sufficient, accessibility and privacy to accommodate the services being provided.

CA Tax Credit Allocation Committee 118 April 2023

SECTION VIII – LEGISLATIVE CHANGES

Since the inception of the LIHTC Program in 1986, Congress has enacted a number of legislative

policies that impacted the Low Income Housing Tax Credit (LIHTC) program in substantial

ways. Additionally, the California State Legislature has also enacted several policies that have

impacted the LIHTC program in the state of California.

Part 8.1 Housing Economic Recovery Act of 2008 (HERA) – HR 3221

In July of 2008 Congress enacted federal legislation HR 3221 known as The Housing Economic

Recovery Act of 2008 (HERA). This legislation changed several provisions of the Low Income

Housing Tax Credit Program (LIHTC) including changes to the compliance monitoring practices

of CTCAC.

A. Requirement to Perform Annual Recertifications

HR 3221 changed the requirement for 100% Tax Credit properties to no longer require

annual recertifications beyond the initial move-in. This legislation was enacted on July

30, 2008.

Upon internal review of the legislation by CTCAC it was determined that a minimum of

one additional recertification was needed to accurately determine income eligibility. On

February 25, 2009, CTCAC passed final state regulations requiring 100% Tax Credit

properties in California to complete one additional recertification beyond move-in.

Failure to do so will be noted as noncompliance and both the Owner and Management

Agent will be subject to Negative Points in future tax credit allocation funding rounds, if

the noncompliance is not corrected within the correction period noted in the findings

letter.

For Year 3 and beyond, CTCAC has created the Tenant Household Information Form

(THIF) which speaks to the Student Status and Rent Restrictions for the household. It

does not require any income calculations or third party verifications. If the household is a

qualifying full-time student household, then there must be a Student Status verification

accompanying the THIF form. Additionally, if the project has additional funding layers

beyond Tax Credits (such as RD or HUD), annual recertifications are still required by

those programs. If the property is strictly Tax Credit, the owner/investor may elect to

continue with full recertifications for various reasons including increased knowledge of

tenant population for Deeper Targeting requirements or for Rent increases. CTCAC

strongly recommends checking with all financing sources before discontinuing annual

recertifications.

B. Former Foster Care Student

HR 3221 modified the IRS Full-time Student Rule to allow an additional exception,

bringing the total number of IRS exceptions to five. This fifth exception allows

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Individuals who previously received foster care assistance, if income eligible, to qualify a

tax credit unit.

In California, CTCAC is capping the age limit to those who are ages 18-24 and have

exited the foster care system up to 6 years prior to move-in.

C. HERA Special Income and Rent Limits 2009

Section 3009 (a) of the Housing and Recovery Act of 2008 (HR-3221) included

provisions for increases in the Income Limits and Rents in certain counties impacted by

HUD’s “Hold Harmless” Rule. As a result, HUD published the “HERA Special Income

Limits” for all HUD “hold harmless impacted projects.” In California, only seven

counties were affected by this legislation change. These counties are;

Marin

Nevada

San Francisco

San Mateo

Santa Clara

Solano

Ventura

HERA Special Income limits are applicable to all properties placed in service in those

counties, in which either the 2007 or 2008 HUD Rent and Income limits were held

harmless. It also applied to all properties in the above counties that placed in service in

calendar year 2008.

For all properties that placed in service after January 1, 2009, HUD will release the

MTSP (Multifamily Tax Subsidy Program) income limits as well as HERA limits for

LIHTC properties annually.

D. Rent and Income Limits for 2010 and going forward

On May 14, 2010, the U.S. Department of Housing and Urban Development (HUD)

published 2010 Income Limits applicable to low income housing funded with Low

Income Housing Tax Credits (LIHTC) and projects financed with tax-exempt housing

bonds, both are referred to by HUD as Multifamily Tax Subsidy Projects (MTSPs).

The Housing and Economic Recovery Act (HERA) of 2008 made statutory changes to

how income limits are calculated for MTSPs (LIHTC and bond-financed properties). The

legislation provides for immediate holding harmless of “area median gross income” for

MTSP income limits. As a consequence of this legislation, beginning in 2010, HUD no

longer held its Section 8 income limits harmless.

Impacted and Non-Impacted MTSP projects:

Impacted Project – An Impacted MTSP is any project (including HERA Special) which

CA Tax Credit Allocation Committee 120 April 2023

had area median gross income determined in 2007 or 2008 under the HUD Hold

Harmless policy. These include:

• Any single building project that placed in service on or before 12/31/2008.

• Any multi-building project that had at least one building place in service on or

before 12/31/2008.

• Any acquisition/rehab project that has the date of acquisition on or before

12/31/2008.

Non-Impacted – Non-Impacted MTSPs are projects that were not subject to the HUD

Hold Harmless policy in 2008 or placed in service on or after January 1, 2009.

1. For existing Non-Impacted projects where the placed in service date is

1/1/2009 – 5/13/2010 (eligible for HERA Hold Harmless), you would use the

greater of the 2009 or the 2010 rent limits.

2. For Non-Impacted projects which are placed in service on or after the effective

date of 2010 MTSP income limits - May 14, 2010:

• The Income limits will be the MTSP/Section 8 limits as determined by HUD.

• The Rent limit will be the greater of the current rent limits as published by

HUD or the owner’s gross rent floor election. TCAC will determine the

gross rent floor election to be at carryover allocation for 9% tax credit

projects. The gross rent floor election for 4% tax exempt bond projects will be

determined at preliminary reservation unless specific written notification is

made by the owner to TCAC specifying the gross rent floor election is to be at

placed in service.

Going forward, HUD will allow the Section 8 income limits to fluctuate with the area

median income for each county. However, HUD has established a maximum and

minimum amount that the AMI can change. The income limits issued for the Section 8

and MTSP program will not increase more than 5% or twice the national change in AMI

(whichever is greater), nor will the limits decrease more than 5%.

Each Non-Impacted project will be subject to the current year’s rent and income limits

and will be held harmless at the highest income limit the property has achieved since it

was placed in service should the income limits decrease in following years (HERA Hold

Harmless). HUD will publish historical data on income limits, but each owner should

retain a file evidencing their project’s income limits and rents since placing the project

into service.

Based on the changes enacted by HUD, CTCAC has revised the format of the published

Income and Rent limits to reflect the hold harmless policy as enacted by the 2008 HERA

legislation. Therefore, each subsequent year after 2010 will include a separate set of

income limits based off of Placed in Service date. Please see the CTCAC Compliance

website for a full list of all the current Income and Rent limits:

CA Tax Credit Allocation Committee 121 April 2023

http://www.treasurer.ca.gov/ctcac/compliance.asp

Please see the 2011 Gross Rent Memo for additional guidance on determining the

proper rents with the Gross Rent Floor Election at:

http://www.treasurer.ca.gov/ctcac/compliance/gross.pdf

E. Tenant Collection Data

The HERA legislation added an additional requirement that starting in 2010, all LIHTC

properties were to require the collection of certain race and ethnicity data on an annual

basis. This data would be reported to the state allocating agency, which in turn would

forward the information to HUD.

Annually CTCAC will post on their Compliance Website the updated schedule for

submission for the prior years data:

http://www.treasurer.ca.gov/ctcac/compliance.asp

As of January 1, 2011 all new move-ins were required to use an updated TIC which

included a new section with tenant demographic data. All existing households were

required to complete the Supplemental Demographic Information form at their next

scheduled recertification.

The TIC may be updated as additional information is requested or regulations

change. Please make sure that you are using the most current version of the form.

Part 8.2 American Recovery and Reinvestment Act of 2009 (ARRA)

On February 17, 2009, President Obama signed into law the American Recovery and

Reinvestment Act of 2009. ARRA was designed to be a sweeping economic stimulus bill that

would provide resources to many different programs with the intent of reinvigorating the

nation’s economy. The LIHTC program was one of the programs to receive funds under ARRA

to stimulate the production of affordable housing.

A. Credit Exchange Program (Section 1602)

• Subject to IRS Section 42 Compliance Monitoring Regulations

• Subject to Asset Management fees and Asset Management monitoring

• Designed to be a full exchange of credits for cash or a gap-filler for projects that

have some tax credits and an equity investor

• Offered as a 15 year conditional grant with 0% interest, but with a 55 year

compliance period

• Has a recorded Regulatory Agreement for 55 years

CA Tax Credit Allocation Committee 122 April 2023

B. HUD Tax Credit Assistance Program

In July 2008, the Department of Housing and Urban Development (HUD) created the Tax

Credit Assistance Program (TCAP) to provide additional grant funding for capital

investment in Low Income Housing Tax Credit properties on a formula-based allocation

to the State allocating agencies. These funds are to be distributed competitively.

• Subject to IRS Section 42 Compliance Monitoring Regulations

• Subject to Asset Management fees and Asset Management monitoring

• The projects will retain a minimum of $100 in Federal tax credits

• Subject to Davis-Bacon wage requirements

• Subject to a NEPA environmental review

• Subject to Section 504 monitoring for ADA requirements

• 55 year loan terms

• Has a recorded Regulatory Agreement

For compliance monitoring purposes, all existing CTCAC forms, policies, procedures, and

requirements remain in effect. CTCAC will treat any ARRA funded projects in the same manner

as the regular LIHTC portfolio.

Part 8.3 Consolidated Appropriations Act of 2018 (Average Income)

The Consolidated Appropriations Act, 2018, also known as the omnibus spending bill, made two

significant changes to the Tax Credit program. It increased the volume cap of credit allocation by

12.5 percent over the period of 2018 – 2022 and it created a new federal minimum set-aside

option known as “Average Income Targeting” or AIT. This new federal minimum set aside

allows for units to have incomes and rents up to a maximum of 80% AMI as long as the overall

average of the project remains at or below 60% AMI.

In California, Section 10325(f)(13) of the CTCAC Regulations outlines the requirements for

projects that elect this federal minimum set-aside. Under these regulations, CTCAC will require

that a competitive project (9%) that intends to use this election be restricted so that the average

targeting of the property does not exceed 50% AMI and that non-competitive bond projects (4%)

be restricted so that the average targeting of the property does not exceed 60% AMI.

In addition to the above, CTCAC will require that any multi-building project with an Average

Income federal minimum set-aside elect “yes” on Line 8b of the 8609 form stating that the owner

intends to treat the project as a multi-building project for the purposes of Section 42.

In October 2022, the IRS published Final Regulations in the Federal Register Vol. 87 No. 196

pg. 61489 regarding the Average Income Targeting set-aside. These final regulations defined the

requirements for owners selecting the AIT set-aside.

For CTCAC guidance and implementation of AIT, please see Section IV Part 4.3

CA Tax Credit Allocation Committee 123 April 2023

Part 8.4 California State Law - AB 1920 (Fine Authority)

AB 1920 of 2016 authorizes the California Tax Credit Allocation Committee to levy fines for

non-compliance violations of the Tax Credit Program. Currently, CTCAC reports non-

compliance with federal program requirements to the IRS with a Form 8823 during the 15-year

compliance period, but the IRS does not enforce deeper affordability or other requirements or

commitments applicable to a project during the first 15 years or any requirements after year 15.

With the ability to impose fines through an administrative process for such violations that either

are not or are no longer being regulated by the IRS, CTCAC will ensure the integrity of the Low-

Income Housing Tax Credit Program for the duration of the 55-year regulatory period. In April

of 2021, CTCAC updated the Fine Schedule to more accurately define the monetary value of the

fine and the types of noncompliance that would trigger a fine.

CTCAC will not issue fines for violations reported to the IRS on a Form 8823. Additionally,

CTCAC retains the authority to issue negative points for program violations but will not levy

fines in cases where it imposes negative points. CTCAC will use its discretion to determine the

most appropriate sanction, as applicable to the circumstances, when choosing between fines or

negative points. For smaller violations, the schedule provides a correction period, generally 30

days. For these violations, CTCAC will not impose any fine if the non-compliance is corrected

during the correction period. For more serious violations, an immediate fine will be assessed in

addition to the requirement of correction. If the noncompliance remains uncorrected, additional

fines will be assessed monthly.

All fines are subject to appeal if the owner so chooses. A party may appeal the fine to the

Executive Director at no cost within seven days of the date of the Notification of Fines letter. If

the appeal is denied, a party may appeal to the Committee within seven days of the Executive

Director’s decision. The appeal to the Committee is subject to a non-refundable $500 fee. The

regulations allow the Executive Director to approve a payment plan for any fines. Fine payments

are due within 30 days of assessment or completion of the appeal. In the event that fines assessed

against a property owner are not paid within six months of initial assessment, CTCAC will

provide reasonable notice to the owner and file a lien against the property.

A schedule of the fines and the correction period can be found on our website at:

https://www.treasurer.ca.gov/ctcac/compliance/memos/Schedule.pdf

Part 8.5 California State Law – AB 1482 (Tenant Protection Act)

In October of 2019, the California Legislature passed AB 1482 also known as the Tenant

Protection Act of 2019. While the Act does establish a definition of “Good Cause” for evictions,

eviction protections, and sets maximum caps on how much the rents can be increased annually,

the provisions of the Act specifically exclude:

“…Housing restricted by deed, regulatory restriction, or other recorded document as

affordable housing for persons and families of very low, low, or moderate income, or

subject to an agreement that provides housing subsidies for affordable housing for

CA Tax Credit Allocation Committee 124 April 2023

persons and families of very low, low, and moderate income...”

Therefore, the LIHTC Program is excluded from the provisions of AB 1482 except for the

provision [Section 1947.13 of the Civil Code] that states:

“…The owner of a deed-restricted affordable housing unit or an affordable housing unit a

regulatory restriction contained in an agreement with a government agency limiting rental

rates that is not within an assisted housing development may establish the initial rental

rate for the unit upon the expiration of the restriction. Any subsequent rent increase for

the unit shall be subject to Section 1947.12”

CTCAC will require that all projects ending their regulatory period between 2019 and 2030,

establish the base rent for which all AB 1482 provisions will thereafter apply as no more than the

maximum CTCAC rent for the year the property exits the CTCAC regulatory period per

bedroom size.

Part 8.6 California State Law – AB 701

In October of 2019, the California Legislature passed AB 701 which provided persons who have

been exonerated of a conviction access to specified public services including enrollment in

CalFresh and Medi-Cal. It additionally requires the payment of $5000 to a person who is

exonerated upon release and would entitle the person to receive direct payment or reimbursement

for housing costs for a period of up to 4 years.

For CTCAC purposes, the initial lump sum amount of $5000 would not be considered as income

as it is a one-time payment. Any recurring direct payments for housing would be included as an

income source for the applicant.

Part 8.7 California State Law – SB 329

In October of 2019, the California Legislature passed SB 329 which provided additional

guidance on the prohibition of housing discrimination based on source of income. The bill

incorporated changes to the Fair Housing and Employment Act to mean verifiable income paid

directly to a tenant, to a representative of a tenant, or paid to a housing owner or landlord on

behalf of a tenant, including federal, state, or local public assistance and housing subsidies

including, but not limited to, federal housing assistance vouchers issued under Section 8 of the

United States Housing Act of 1937.

This legislation is intended to prohibit the discrimination of Section 8 or other public voucher

holders from obtaining housing. It does not mean that Section 8 Vouchers are to be included as a

source of income when determining income eligibility for the LIHTC Program. The LIHTC

Program has always required that owners do not discriminate against Section 8 Voucher holders

and will continue to exclude the value of the voucher as income for the household as it is paid

directly to the owner and not to the tenant.

CA Tax Credit Allocation Committee 125 April 2023

Part 8.8 California State Law – AB 2006

In August of 2022, the California Legislature passed AB 2006 which requires that on or before

July 1, 2024, the Department of Housing and Community Development (HCD), the California

Housing Finance Agency (CalHFA), and the California Tax Credit Allocation Committee

(CTCAC), enter into a Memorandum of Understanding to streamline the compliance monitoring

of affordable multifamily rental housing developments that are subject to a regulatory agreement

with more than one of the entities. The MOU must meet the following:

1. Ensure that only one entity conducts physical inspections for a particular project

2. Eliminate the submission of duplicate information

3. Provide for an aligned process to obtain required approvals for reserve draws,

ownership changes, property management changes, operating budgets, and capital

needs assessments

At the time of the writing of this manual, CTCAC, HCD, and CalHFA have entered into

discussions around implementation of this legislation. Final guidance will be released by July 1,

2024.

Part 8.9 California State Law – SB 971

In September of 2022. The California Legislature passed SB 971 which requires any housing

development that is financed on or after January 1, 2023 to allow a resident of the affordable

housing development to own one or more common household pets, subject to applicable state

law and ordinances related to public health, animal control, and animal anticruelty. Additionally,

the bill prohibits the imposition of a monthly fee (pet rent) for the ownership or maintenance of a

pet in those housing developments. A refundable pet deposit, pursuant to Section 1950.5 of the

Civil Code, may still be imposed.

The bill defines “common household pet” as a domesticated animal, including but not limited to,

a dog or cat that is commonly kept in the home for pleasure rather than commercial purposes.

CA Tax Credit Allocation Committee 126 April 2023

SECTION IX – GLOSSARY

140% Rule see also NAUR: If upon recertification, a low income tenant’s income is greater

than 140% of the applicable income limit adjusted for family size, the unit will continue to be

counted toward satisfaction of the required set-aside, providing the unit continues to be rent-

restricted and the next available unit of comparable or smaller size in the project is rented to a

qualified low income household.

20%/50%: 20% or more of the residential units must be rented to households with aggregate

gross income of 50% or less of the area median gross income adjusted for family size.

40%/60%: 40% or more of the units must be rented to households with aggregate gross

income of 60% or less of the area median gross income adjusted for family size

AB 1482: Tenant Protection Act of 2019. California State law that defines “Good Cause”,

sets parameters for eviction, and provides rent control. Per statute, does not apply to the LIHTC

Program except on exiting the Regulatory Period.

AB 1920: California State law that allowed the allocating agency to levy fines for

noncompliance violations of the LIHTC program.

AB 2006: California State Law that requires that HCD, CTCAC, and CalHFA enter into an

MOU that streamlines physical compliance monitoring to one entity that monitors per project.

AB 701: California State Law which provides persons who have been exonerated of a

conviction, access to specified public services and a lump sum payment.

Annual Household Income: Gross income of all persons who intend to permanently reside

in a unit. The annual income is defined as income as of the date of occupancy for the next twelve

(12) months.

Annual Income: Total gross income anticipated to be received by a tenant from all sources

including assets for the next twelve (12) months.

Annual Income Recertification: Document by which the tenant re-certifies his/her income,

for the purpose of determining whether the tenant will be of low income according to the

provisions of the LIHTC Program.

Annual Inspection: A review of a project which may be made annually by CTCAC or its

agent, which includes an examination of records, a review of operating procedures and a physical

inspection.

Applicable Fraction: The applicable fraction is the lesser of a) the ratio of the number of low

income units to the total number of units in the building or b) the ratio of the total floor space of

the low income units to the total floor space of all units in the building.

CA Tax Credit Allocation Committee 127 April 2023

Applicable Credit Percentage: Although the credits are commonly described as 9% and 4%

credits, the percentages are approximate figures. The U.S. Department of the Treasury publishes

the exact credit percentages each month. For instance, for December 1994, the 9% credit figure

was actually 8.89%, while the 4% credit figure was 3.81%. The monthly percentages may be

greater or less than exactly 9% and 4%. Once the percentage is established for a building, the

percentage applies for the entire 10 year credit period.

Application: Form completed by a person or family seeking rental of a unit in a project. An

application should solicit sufficient information to determine the applicant’s eligibility and

compliance with federal and CTCAC guidelines.

ARRA: Economic Stimulus Bill in 2009 that was designed to provide resources to many

different programs with the intent of reinvigorating the nation’s economy.

Assets: Items of value, other than necessary personal items, which are considered in

determining the eligibility of a household.

Asset Income: The amount of money received by a household from items of value as defined

in HUD Handbook 4350.3.

Authority: California Tax Credit Allocation Committee (TCAC or CTCAC)

Average Income Targeted (AIT): A federal minimum set-aside that allows households up to

80% of AMI as long as the average targeting of the property is at or below 60% of AMI.

Certification Year: The twelve (12) month time period beginning on the date the unit is first

occupied and each twelve (12) month period commencing on the same date thereafter.

Compliance: The act of meeting the requirements and conditions specified under the law and

the LIHTC Program requirements.

Compliance Period: The length of time a property must remain in compliance with the

provisions of the Low Income Tax Credit Program. For projects that were awarded credits after

1990 this is a minimum of 30 years and maximum of 55 years. The Compliance Period includes

both the federal Credit Period and the Extended Use Period.

Correction Period: A reasonable time as determined by the Authority for an owner to correct

any violations as a result of noncompliance.

Credit Period: The period of fifteen (15) taxable years during which credit may be claimed

beginning with:

(1) the taxable year the building is placed in service, or

(2) at the election of the taxpayer, the succeeding year, but only if the building is a

qualified low income building as of the close of the first year of such building, and

remains qualified throughout succeeding years.

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(3) the credits may be accelerated and claimed over the initial 10 years of the Credit

Period

CTCAC: California Tax Credit Allocation Committee

Current Anticipated Income: Gross anticipated income for the next twelve (12) months as

of the date of occupancy that is expected to be received by the tenant(s). All income is counted

unless specifically excluded as determined by HUD 4350 Chapter 5.

Effective Term of Verification: A period of time not to exceed one hundred twenty (120)

days prior to the certification date. A verification must be within the effective term at time of

tenant’s Income Certification.

Eligible Basis: The eligible basis of a qualifying project generally includes those capital costs

incurred with respect to the construction, rehabilitation, or acquisition in certain circumstances,

of the property, minus non-depreciable costs such as land and certain other items such as

financing fees. While it may not include any parts of the property used for commercial purposes,

it may include the cost of facilities for use by tenants to the extent that there is no separate fee for

their use and they are available to all tenants. It may also include the cost of amenities if the

amenities are comparable to the cost of amenities in other units. Eligible basis is reduced by an

amount equal to the portion of a building’s adjusted basis which is attributable to non-low

income units which exceed the average quality standard of the low income units unless the cost

of building the market rate units does not exceed the cost of the average low income units by

more than 15% and the excess cost is excluded from the eligible basis.

Eligible basis is further reduced by the amount of any federal grants applied towards the project,

and, should the owner so elect, it may be reduced by “federal subsidies” to take advantage of the

higher applicable tax credit percentage. It is determined without regard to depreciation.

Eligible Person: One or more persons or a family determined to be of low income.

Employment Income: Wages, salaries, tips, bonuses, overtime pay, and all other

compensation for services from a job.

Extended Use Period: The time frame which begins after the initial 15 year federal

compliance period in which all the regulatory provisions must continue to be met. Depending on

allocation year this can be an additional 15 – 40 years. The end date of the Extended Use Period

will be specified by TCAC in the Regulatory Agreement/Restrictive Covenant.

Fair Market Value: An amount which represents the true value at which property would be

sold on the open market.

Federal Omnibus Bill of 2018: Legislation enacted in March of 2018 that allowed for a

third federal set-aside called Income Averaging.

First Year of the Credit Period: Either the year a building is placed in service, or, at the

CA Tax Credit Allocation Committee 129 April 2023

owner’s option, the following year.

Full-time Student Household: A household that is comprised entirely of full-time students

as determined by the educational institution they are attending. Full-time student households

must meet one of 5 IRS exceptions in order to qualify for the LIHTC program.

Grandfathering: A term used by the IRS in the resyndication process to refer to a

household that was initially income eligible under a previous allocation of credits, but may be

over the income limit for the incoming resyndication of federal credits. The Tax Credit

Regulatory Agreement for the first federal credit allocation gives the authority to treat any

household that was eligible under the initial credits to be concurrently eligible for any subsequent

allocation of credits.

Gross Income: See Annual Household Income.

Gross Rent: Maximum amount that a tenant can pay for rent after deducting a utility

allowance. The maximum gross rent is the tenant paid rent + utility allowance.

Note: The owner must be aware of the year in which the tax credit allocation was made

and the specific guidelines that refer to the calculation of gross rent for those years, i.e.

1987, 1988, and 1989 tax credit allocations base gross rent on the actual number of

persons residing in the unit. All projects that received credits after 1990 are based on

bedroom size.

HERA / HR 3221: The Housing Economic Recovery Act of 2008. This was legislation that

impacted the LIHTC program in several ways. The most significant impact was the change in

methodology for how the Income and Rent tables were calculated as it changed from a county-

wide threshold to a project threshold, meaning the tables would be calculated for each project on

the year they Placed in Service, rather than making all projects in the same county have the same

limits. It granted the provision of HERA Hold Harmless once a project placed in service. HERA

created the requirement for annual Tenant Demographic Data Collection and the allowed that for

100% projects full income and asset certifications were no longer required after move-in. This

provision does not apply to projects with conventional as well as tax credit units. Please note:

CTCAC will still require a full income and asset certification at the 1

anniversary date of a

household in a 100% tax credit project.

Hold Harmless: The provision that limits will not drop lower than their current level.

Household: The individual, family, or group of individuals living together as a unit.

Imputed Income: The estimated earning potential of assets held by a tenant using the

potential earning rate established by HUD. The current rate is provided by TCAC in its

instructions to the Annual Income Recertification.

Income Limits: Maximum incomes as published by CTCAC for projects giving the

maximum income limits per unit for low income (50% or 60% of median) units. These limits

will be adjusted periodically by TCAC based on median income figures provided by HUD.

CA Tax Credit Allocation Committee 130 April 2023

Ineligible Person: One or more persons, or a family who apply for residency in a rent-

restricted low income unit and whose combined income exceeds the income limitation that was

selected by owner (i.e. 50% or 60% of median) or someone living in a set-aside unit who is not

certified or under lease, or, in many circumstances, full-time students not filing joint tax returns.

Initial Compliance: The 12 month period, commencing with the date the building is placed

in service, in which the minimum set-aside must be met to receive the tax credits. Note:

Projects consisting of multiple buildings with phased completion must meet the set-aside

requirements on a building by building basis with the 12 month commencing with the individual

date each building is placed in service.

Lease: The legal agreement between the tenant and the owner which delineates the terms and

conditions of the rental of a unit.

LIHTC: Low Income Housing Tax Credit.

Low Income Household: Households whose incomes are not more than either 50% or 60%

of the median family income for the local area adjusted for family size.

Low Income Tenant: an individual whose income, adjusted for family size, does not exceed

either 50% or 60% of median income for the local area.

Low Income Unit: Any unit in a building if:

1. such unit is rent restricted (as defined in subsection (g)(2) or IRS Section 42).

2. the individuals occupying such unit meet the income limitation applicable under

subsection 42(g)(1) to the project of which such building is a part.

3. the unit is suitable for occupancy, available to the general public, and used other than

on a transient basis.

Management Company: A firm selected by the owner to oversee the operation and

management of the project and who accepts compliance responsibility.

Maximum Allowable Rent Calculation: The maximum allowable rent calculation includes

costs to be paid by the tenant for utilities inclusive of heat, electricity, air conditioning, water,

sewer, oil, or gas where applicable. (Do not include cable TV or telephone.)

Maximum Chargeable Rent (Net Rent): Gross rent less utility allowance paid by the tenant.

Note: Charge for Amenities: If the tenant amenity is included in eligible basis under Section

42(d), it must be provided as a comparable amenity to all residential rental units in the building

without charge. IRS Section 42(d)(4)(B) (Treasury Regulation § 1-42-5 5(c)(1)(vii).

Median Income: A determination made through statistical methods establishing a middle

point for determining income limits. Median is the amount that divides the distribution into two

equal groups, one group having income above the medial and one group having income below

the median.

CA Tax Credit Allocation Committee 131 April 2023

Minimum Set-Aside: The minimum number of units that the owner has elected under the

statute to be income and rent-restricted (either at 20% @ 50% or 40% @ 60%). Please note- In a

100% Tax Credit property all units will be income and rent restricted to either 50% or 60%.

Monitoring Agent: The agency responsible for monitoring the compliance with the terms

and conditions specified under the law and the LIHTC Program.

MTSP Limits: Multi-family Tax Subsidy Program Limits. As of 2009, the income and

rent limit tables that HUD releases for use in the LIHTC program.

NAUR (see also 140% Rule): Next Available Unit Rule or 140% rule. Requires that

household that exceed 140% of AMI at recertification remain rent restricted and the next unit of

equal or smaller size be rented to a qualified household. If the property has market rate

(conventional units) then the owner may increase the rent on the household once a qualified

household occupies the next available unit.

Owner or Developer: Any individual, association, corporation, joint venture, or partnership

that owns a LIHTC project.

Placed in Service Date: For buildings, this is the date on which the building is ready and

available for its specifically assigned function, i.e., the date on which the first unit in the building

is certified as being suitable for occupancy in accordance with state or local law. Note:

Rehabilitation expenditures that are treated as a separate new building are placed-in-service at

the close of any 24 month period over which such expenditures are aggregated (see IRS Notice

88-116).

Project: Rental housing development receiving a LIHTC allocation.

Qualified Allocation Plan: The plan developed and promulgated by CTCAC.

Qualified Basis: The portion of the eligible basis attributable to low income rental units. It is

equal to the eligible basis multiplied by the applicable fraction. The amount of qualified basis is

determined annually on the last day of each taxable year. Note: This is the lesser of the

Applicable Fraction/Occupancy Percentage:

1. the proportion of low income units to all residential rental units, or

2. the proportion of floor space of the low income units to the floor space of all residential

rental units.

Qualified Low Income Building: Any building that is part of a qualified low income

housing project at all times during the period beginning on the first day in the compliance period

on which such building is part of such a project and ending on the last day of the compliance

period with respect to such building (Section 42 (c)(2)(A) of the Code).

Qualified Persons: Individuals and families who, at the time each such individual or family

first occupies a unit in the development, are of low income, having annual income not exceeding

CA Tax Credit Allocation Committee 132 April 2023

50% or 60% of area median gross income (depending on the set-aside chosen), adjusted for

family size, within the meaning of the Code and Treasury Regulations.

Qualified Unit: A unit occupied by qualified persons at a qualified rent.

Regulatory Agreement/Restrictive Covenant: The agreement between CTCAC and the

owner restricting the use of the project during the term of the LIHTC compliance period.

Resyndication: An existing tax credit project with a tax credit regulatory agreement that

returns for a subsequent allocation of credits after the initial 15 year federal credit period has

expired.

Roommates: Two of more unrelated persons occupying one dwelling unit as a household.

SB 329: California State law that prohibited housing discrimination on the basis of

income.

SB 971: California State law that requires any housing development that is financed after

January 1, 2023 to allow residents of affordable housing developments to have the ability to own

common household pets.

Section 8 of the U.S. Housing Act of 1937, as Amended: Regulations used in defining and

determining income as required under Section 103(b)(4)(A) of the Internal Revenue Code of

1986, as amended.

Student: Any individual who has been, or will be, a full-time student at an educational

institution with regular facilities and students, during five months of the calendar year.

Tax Credit: The tax credit amount is calculated by multiplying the qualified basis by the

applicable credit percentage. The credit percentage, determined monthly, changes so as to yield

over a 10 year period, a credit equal to either 30% or 70% of the present value of the qualified

basis of the building. An owner may elect to lock in the applicable credit percentage either at the

time a Commitment is made by TCAC, or at the time the allocation is made.

Tenant: Occupant of a unit to whom the unit is leased.

Tenant/Unit File: Complete and accurate records pertaining to each dwelling unit, containing

the application for each tenant, verification of income and assets of each tenant, annual income

recertification, utility schedules, rent records, lease and lease addendum. Any authorized

representative of TCAC or the Department of Treasury may be permitted access to these files

upon receipt by project owner or management company of prior written notice of not less than

two calendar days.

Totem Pole Rule: An IRS requirement that states a household remains qualified as long as at

least one original certified household member remains in the unit. If at any point, there are no

CA Tax Credit Allocation Committee 133 April 2023

longer any original household members occupying the unit, in order for the unit to remain

eligible, documentation must be provided showing the current household is income eligible at the

current income limits.

Utility Allowance: An allowance for the cost of utilities, other than telephone, cable,

television, or Internet, paid directly by the tenant(s) and not by or through the owner of the

building and is included in the computation of gross rent under IRC Section 42(g)(2)(B).

Verification: Information from a third party which is collected in order to corroborate the

accuracy of information about income provided by applicants to a project.

Verification Request Form: The form used by management to request verifications of

income from the source of the income or assets. The form must state the purpose of the request,

include a release statement by the applicant/resident and request the frequency and amount of

pay or interest.