7 steps for tax credit compliance: these simple steps give apartment professionals a better chance to meet and beat the challenges of a tax credit community.

Managing a Low Income Housing Tax Credit (LIHTC) community can be challenging. Following are seven steps that can help managers--especially those new to LIHTC management--succeed with their tax credit communities.

1. Know the Program

Experience with market-rate apartments or subsidized housing will serve a new manager well. The manager of the tax credit program will begin with an understanding of how a community is to be managed. The challenges of that aspect of a manager's job will not significantly differ. Becoming familiar with tax credit requirements will be the key to successfully managing a tax credit community.

While many management companies have their own training programs, others rely on professional trainers or state agencies to build and maintain the proficiency of their staff. Contact the state agency or the local National Affordable Housing Management Association (NAHMA) affiliate covering the region to learn about training opportunities. Just as regular training helped Lance Armstrong win the Tour de France, regular training will help a manager--novice or expert--in the compliance "race."

2. Know the Community

While all communities may be created equal, they are not operated equally. Each community has unique characteristics. This is usually the result of different Qualified Allocation Plans used to define the community at application, or of the market and intentions of the developer and owner. Therefore, while one community may have to follow the same rules as another, how those rules affect the community will differ significantly. It pays to know one's community. Questions a new manager should ask include:

* Is my community 100 percent low-income, or is it mixed income?

* What minimum set-aside did the owner elect, 20/50 or 40/607 (See "FYI: Set-Asides".)

* Did the owner use any other funding such as federal HOME funds--financing intended to lower rents by offsetting construction costs--or state funds to build the project?

* Do other funding sources (HOME or state) have additional requirements?

* Are any current residents over the minimum set-aside income by more than 140 percent?

3. Follow the Dollars

The challenge facing all affordable housing communities is ensuring its residents are qualified to live in low-income apartments. Many problems that must be fixed as the result of an audit are related to either incorrect or incomplete income calculations or late resident income recertifications. Each community faces pressures to maintain high occupancy; but, qualifying a household should proceed with deliberation and attention to detail. Few issues can derail the receipt of tax credits as fast as an over-income resident.

When determining a household's gross income, every manager should have a copy of HUD Handbook 4350.3 close at hand. Handbook 4350.3 guides the income calculation for a range of HUD programs, but is also used in the tax credit program. Knowing what to count as income and how to count it will allow managers to calculate household income accurately.

4. Apartment Transfers--Use Caution

Changing life circumstances such as reduced income, a growing family or conflict with a neighbor, cause residents occasionally to ask to move from one building to another within an apartment community. Such a request requires careful consideration by the manager.

Generally, allowing a resident to move within the building results in no serious consequences. However, moves between buildings can negatively affect the resident and community. If a resident moves between buildings, a new income certification must be completed. If the resident's financial status has changed since initial occupancy and their income does not meet the tax credit income requirements, he or she would be allowed to remain in the current apartment, but the move cannot be allowed. This may result in the resident choosing to leave the community, unless the community has a market-rate apartment the resident can lease. Failure to properly certify a resident's income when transferring residents from one building to another may result in non-compliance, which can reduce the value of the investor's tax credits.

Many management companies avoid these problems altogether by not allowing any apartment transfers. Such a blanket policy is easy to enforce. The manager isn't required to explain it when questioned. Some management companies allow transfers. It is important to know the policy and seek guidance when confronted by a transfer request.

5. Take Action on Vacancies

While the tax credit program allows owners to take credits for vacant apartments under certain circumstances, the privilege is not unlimited. Therefore, it is important to make ready, market and fill low-income apartments as quickly as possible.

6. Follow Up on Monitoring Reports

Each community suffers the same fate: it must be monitored for compliance. Depending on the sources financing the community, a community will receive at least one monitoring visit each year, usually from the equity provider. Additional visits may be made by local or state funders who are checking on the status of federal HOME funds or other sources. The state housing finance agency responsible for the tax credits must visit the project at least once every three years. All agencies reserve the right to conduct additional site visits as necessary.

The majority of monitoring visits result in at least a few findings, some minor, some not. No matter the nature of the finding, it is important that a manager, particularly a new manager, follow up with the state agency by responding to the report as quickly as possible.

This accomplishes a few goals: It usually helps minimize non-compliance issues as a result of not responding; it also establishes that the manager is attempting to remedy problems, thus making it more likely an extension to resolve noncompliance issues will be granted, if necessary; finally, follow-up will start the process of correcting any non-compliance issues. Timeliness can affect the low-income housing tax credits. The longer a period of non-compliance, the greater the risk that credits will be lost.

7. Submit Reports On Time

Finally, to ensure compliance, all required reports must be submitted on time.

These reports can include reports to the management company, investor or state agency. The consistency, accuracy and timeliness of reporting provide key insights into the operation of an affordable housing community. Determination of compliance may be based on these reports.

The ability to report accurately is affected by careful record keeping. Maintaining records in accordance with IRS regulations and regularly documenting management decisions will ensure a community has the information necessary to face compliance challenges.

At a Glance

New managers will find complying with tax credit and other programs simpler by remembering these steps:

* Know the program

* Know the community

* Carefully determine household qualifications

* Proceed with caution where unit transfers are concerned

* Rapidly market vacant low-income apartments

* Follow up on monitoring reports

* Submit management, investor or state agency reports on time

* Keep records that will make reporting easier

FYI: Set-Asides

When applying for tax credits, owners choose to reserve or "set aside" apartments for households earning 50 percent or 60 percent of the area median income.

A community with a 20/50 set-aside must lease a minimum of 20 percent of its apartments to households earning 50 percent or less of the area median income; a community with a 40/60 set-aside must lease a minimum of 40 percent of its apartments to households earning 60 percent or less of the area median income. Maintaining the appropriate set-aside ensures the owner can continue to claim tax credits.

Brian Carnahan works at the Ohio Housing Finance Agency as Assistant Director of the Office of Program Compliance. He previously worked in the Agency's development office. He can be reached at [e-mail].