As used in this part:

1. (1)

   1. (A) “20/50 test” means a requirement whereby twenty percent (20%) or more of the residential rental units are rent restricted and occupied by households with incomes of fifty percent (50%) or less of the area median gross income, adjusted for family size.
   2. (B) This test is referred to as one (1) of the minimum set-aside requirements.
   3. (C) Compliance with the minimum set-aside requirements must be maintained at all times during the compliance period.
   4. (D) Failure to meet the elected test will disqualify a development from being eligible for the credit;

2. (2)

   1. (A) “40/60 test” means a requirement whereby forty percent (40%) or more of the residential rental units are rent restricted and occupied by households with incomes of sixty percent (60%) or less of the area median gross income, adjusted for family size.
   2. (B) This test is referred to as one (1) of the minimum set-aside requirements.
   3. (C) Compliance with the minimum set-aside requirements must be maintained at all times during the compliance period.
   4. (D) Failure to meet the elected test will disqualify a development from being eligible for the credit;

3. (3)

   1. (A) “Accelerated portion of the credit” means in exchange for ten (10) years of tax credits, under the low-income housing credit program, a building owner agrees to comply with I.R.C. § 42 for at least a fifteen-year period.
   2. (B) This accelerates the tax benefits over a shorter term and lengthens compliance to fifteen (15) years.
   3. (C) In each of the ten (10) years of the credit period, the building owner effectively receives an additional one-third (1/3) of the credit, which is accelerated from the eleventh through fifteenth years.

   4. (D) Thus, the credit for each year consists of both the:

      1. (i) Earned portion of two-thirds (2/3); and
      2. (ii) Accelerated portion of one-third (1/3).
   5. (E) It is the accelerated or unearned portion that must be recaptured as a result of decreases in qualified basis or disposition events;

4. (4)

   1. (A) “Applicable fraction”, which is calculated for each building, is the lesser of the:

      1. (i) Number of LIHTC units divided by the total number of units in the building; or
      2. (ii) Total rentable square footage of LIHTC units in the building divided by the total rentable square footage in the building.
   2. (B) The applicable fraction is established during rent-up.
   3. (C) Once established, the applicable fraction for a building must never fall below this initial fraction.
   4. (D) Failure to maintain applicable fraction could result in recapture of tax credits;

5. (5)

   1. (A) “Area median gross income (AMGI)” means a term that represents the midpoint (that is, half are above and the other half are below) income level for a given area.
   2. (B) Those figures are published annually by the Department of Housing and Urban Development based on various population and earnings data.
   3. (C) The AMGI figure, adjusted for family size, is used in the determination of whether or not a household qualifies as low-income for purposes of the LIHTC program;

6. (6)

   1. (A) “Bedroom election” allows owners of low-income buildings with allocations before 1990 or on financed buildings placed in service before 1990 to determine the gross rent limitation for rent-restricted units under the number of bedrooms method.
   2. (B) In this method, a set occupancy is assigned based on the number of bedrooms contained in the low-income unit.
   3. (C) Previously, the actual number of occupants was used to determine the rent restriction;

7. (7)

   1. (A) “Below-market loan” means a loan funded in whole or in part with federal funds, if the loan is less than the applicable federal rate in effect under I.R.C. § 1271(d)(4).

   2. (B) There are six (6) basic categories of below-market federal loan programs:

      1. (i) Federal tax-exempt interest loan;
      2. (ii) I.R.C. § 236 loans;
      3. (iii) I.R.C. § 515 loans;
      4. (iv) I.R.C. § 312 loans;
      5. (v) I.R.C. § 221(d)(3) and (4) loans; and
      6. (vi) Flexible subsidy loans;

8. (8)

   1. (A) “Building identification number” means the nine-digit alpha numeric designation assigned by the state housing credit agency to a low-income building.
   2. (B) Essential to the monitoring process for I.R.C. § 42, Internal Revenue Service Notice 88-91 provides information regarding building identification number requirements;

9. (9)

   1. (A) “Compliance period” means the fifteen-year period over which a development must maintain compliance with I.R.C. § 42.
   2. (B) This period begins with the first taxable year of the credit period.
   3. (C) The compliance period may be extended another fifteen (15) years by terms of extended use provisions;

10. (10)

    1. (A) “Credit period” means the ten-year period over which an owner may claim tax credits annually on a building-by-building basis.

    2. (B) The tax credit period begins either with the:

       1. (i) Taxable year in which the building is placed in service; or
       2. (ii) Succeeding taxable year (if elected by the owner);

11. (11)

    1. (A) “Eligible basis” means that portion of the development allocated credits and for which credits are allowable.

    2. (B) “Eligible basis” consists of the cost of:

       1. (i) New construction;
       2. (ii) Rehabilitation; or
       3. (iii) Acquisition of existing buildings acquired by purchase (including the cost of rehabilitation, if any, to such buildings incurred before the close of the first taxable year of the credit period which do not exceed a prescribed minimum amount).
    3. (C) Only the adjusted basis of the depreciable property may be included in eligible basis.
    4. (D) The cost of land is not included in adjusted basis;
12. (12) “Empty unit” means an LIHTC unit that has never been rented;

13. (13)

    1. (A) “Equity” means the funds provided by investors in a project.
    2. (B) The amount of this investment is contingent upon the value attributed to the tax benefits generated by ownership in the project.
    3. (C) Equity represents one (1) of the basic financing layers in a project;
14. (14) “Extended low-income housing commitment” means a binding agreement between the owner and the housing credit agency that obligates the owner and any successors to maintain specific occupancy and affordability requirements for the development;

15. (15)

    1. (A) “General public use”. The legislative history of I.R.C. § 42 and Treas. Reg. § 1.42-9 provides that the residential rental units upon which a low-income housing credit is taken must be available for use by the general public.
    2. (B) A residential rental unit is for use by the general public if the unit is rented in a manner consistent with housing policy governing nondiscrimination.
    3. (C) The Department of Housing and Urban Development Handbook 4350.3 is the appropriate reference source;

16. (16)

    1. (A) “Gross rent floor”. This ruling allowed the owner to establish floor rent amounts that will not be affected by fluctuations in the income limits and maximum rent ceilings.

    2. (B) For developments that received an allocation of credits or determination letter on or after October 6, 1994, the owner may elect to establish the gross rent floor as the maximum rent in effect either on the date the development:

       1. (i) Was placed in service; or
       2. (ii) Received an allocation.
    3. (C) This irrevocable election must be made by the owner and submitted in writing to the Arkansas Development Finance Authority no later than the placed-in-service date of the development;

17. (17)

    1. (A) “Gross rent limitation” means gross rent may not exceed thirty percent (30%) of the applicable qualifying income as adjusted for household size.
    2. (B) Gross rent includes the cost of utilities, except telephone and cable.
    3. (C) If utilities are paid directly by the tenant, the maximum rent must be reduced by the amount of the utility allowance.
    4. (D) The gross rent limitation applies only to payments made directly by the tenant.
    5. (E) Any rental assistance payment, such as Department of Housing and Urban Development Section 8, is not included in the gross rent limitation;

18. (18)

    1. (A) “Household income limitations”. One (1) of the requirements of the minimum set-aside test, household income limitation of a qualifying unit is a set percentage of the area median gross income figure.
    2. (B) In accordance with the minimum set-aside elections, the income level may be no greater than fifty percent (50%) or sixty percent (60%) of the respective area median gross income.
    3. (C) A household can consist of one (1) or more persons.
    4. (D) Count all household members and compare to the per person income limits.
    5. (E) You may count unborn children or children in the process of being adopted as members of the household for income limit purposes;
19. (19) “Income certification” means all qualifying units must have adequate documentation to support the household income limitation at initial lease-up as well as annually throughout the compliance period;

20. (20) “Low-income unit” includes any unit in a qualified low-income building if the:

    1. (A) Individuals occupying such unit meet the income limitations; and
    2. (B) Unit meets the gross rent restrictions;
21. (21) “Market unit” means any non-LIHTC unit, whether occupied or not;

22. (22)

    1. (A) “Minimum set-aside test” means a requirement that must be met at all times during the development's compliance period.

    2. (B) This test restricts rent and dictates:

       1. (i) Which households qualify as low income; and
       2. (ii) How many units must be occupied by the qualifying households.
    3. (C) The two (2) general minimum set-aside tests are the 20/50 and the 40/60 tests, which are defined in this section;

23. (23) “Move-in certification” means the form, signed by both the resident and owner's representative, that summarizes:

    1. (A) Household composition;
    2. (B) Projected household income; and
    3. (C) Assets;

24. (24)

    1. (A) “Next available unit rule” states that if an existing tenant's income in an LIHTC unit increases above one hundred forty percent (140%) of the applicable income limitations (over-income unit), the next available unit of comparable or smaller size must be rented to a low-income tenant to continue treating the over-income unit as a low-income unit within that building.
    2. (B) In fact, all comparable units that subsequently become available in the same building must be rented to qualified residents until the applicable fraction is restored to the percentage on which the credit is based;
25. (25) “Occupied unit” means an LIHTC unit that has been rented;

26. (26)

    1. (A) “Owner’s certification” means a building owner must provide certification to the Arkansas Development Finance Authority every year that the low-income units in a development are occupied by qualifying households.
    2. (B) Failure to provide such certification in a timely manner will result in the filing of Internal Revenue Service Form 8823 (Report of Non-Compliance or Building Disposition (Non-Compliance Report)) by the Arkansas Development Finance Authority;

27. (27)

    1. (A) “Placed in service” is defined in Internal Revenue Service Notice 88-116, 1988-2 C.B. 449, as being the date on which the first unit in the building is first certified as being suitable for occupancy under state or local law.
    2. (B) For rehabilitations that qualify for treatment as a separate new building, the placed-in-service date would occur at the end of the twenty-four-month period over which such expenditures are aggregated;

28. (28)

    1. (A) “Qualified basis” means the formula used to calculate how much tax credit will be provided.
    2. (B) Qualified basis amounts are determined as the proportion of eligible basis in a qualified LIHTC building attributable to the LIHTC rental units.

    3. (C) This proportion is the lesser of the proportion of:

       1. (i) Low-income units to all residential rental units; or
       2. (ii) Floor space of the low-income units to the floor space of all residential rental units;

29. (29)

    1. (A) “Recapture” means an adjustment in which the accelerated portion of the credit, plus interest, is recovered as a result of reductions in qualified basis (including but not limited to the partial or full disposition of the building or interest therein).
    2. (B) If the qualified basis on which credit is taken decreases, recapture applies to that portion of the qualified basis that is no longer eligible for the credit.
    3. (C) If a project ceases to meet the minimum set-aside requirement, the project no longer qualifies as a low-income housing project until the minimum set-aside is again met, and recapture is applied to all credits previously taken on the entire project;
30. (30) “Recertification” means the annual redetermination of household income and composition for continuing eligibility;

31. (31)

    1. (A) “Seventy-percent credit” means the seventy-percent present-value credit that applies to new construction and qualifying rehabilitations.
    2. (B) The seventy-percent credit will yield, over the ten-year credit period, a tax benefit equal to seventy percent (70%) of qualifying costs.
    3. (C) On an annual basis, this present value computation approximates a nine-percent figure each year over the credit period to arrive at the seventy-percent credit;

32. (32)

    1. (A) “Single-room occupancy (SRO) units”. Residential rental units must generally contain complete living, sleeping, eating, cooking, and sanitation facilities.
    2. (B) I.R.C. § 42 provides an exception to this definition that allows SRO units to qualify as residential rental units even if eating, cooking, and sanitation facilities are on a shared basis;

33. (33)

    1. (A) “Student tenants”. Units occupied entirely by full-time students will not be eligible.
    2. (B) Exceptions apply for students who are single parents of children who are also full-time students, provided no one is claimed as a dependent of a third party other than a parent of the dependent children.
    3. (C) Another exception is a student who was previously under the care and placement of the state agency responsible for administering foster care.
    4. (D) Married students who are entitled to file a joint tax return are also exceptions, as are students enrolled in certain job training programs or those receiving welfare assistance under Title IV of the Social Security Act;

34. (34)

    1. (A) “Thirty-percent credit” means the thirty-percent present-value credit that applies to acquisitions of existing housing or for new construction/rehabilitations that are federally subsidized.
    2. (B) The thirty-percent credit will yield, over the ten-year credit period, a tax benefit equal to thirty percent (30%) of qualifying costs.
    3. (C) On an annual basis, this present value computation approximates a four-percent figure each year over the credit period to arrive at the thirty-percent credit;
35. (35) “Unit fraction” means the percentage of low-income units in a building expressed as a fraction, the numerator of which is the number of low-income units in the building and the denominator of which is the number of residential units, whether occupied or not, in such building;

36. (36)

    1. (A) “Utility allowance” means:

       1. (i) A calculated average of expenses for utilities (other than telephone and cable) for units comparable in size; or
       2. (ii) The utility allowances used by the local public housing authority or Section 8 office.
    2. (B) Utility allowances are calculated annually; and
37. (37) “Vacant unit” means an LIHTC unit from which someone has moved.

Codification Notes: "LIHTC" means low-income housing tax credit. "Section 8" refers to Section 8 of the Housing Act of 1937 and is codified at 42 U.S.C. § 1437f. Title IV of the Social Security Act is codified at 42 U.S.C. § 601 et seq.