15 CAR § 86-104 – Credit period and compliance period

(a)
1. (1) Generally, owners must:
  1. (A) Place the projects in service within two (2) years of carryover allocation; or
  2. (B) Return the credits to the Arkansas Development Finance Authority for reallocation to other projects.
2. (2) Once a development is placed in service, it is generally eligible for the tax credit every year for ten (10) years.
3. (3) To continue generating the credit and avoid recapture, an LIHTC building must satisfy specific tax credit compliance rules for fifteen (15) years.
4. (4)
  1. (A) In cases where one hundred percent (100%) low-income occupancy is not achieved during the first tax credit year (for example, either due to unqualified tenants or inability to find qualified tenants to qualify units), there will be possible increases in qualified basis in subsequent years.
  2. (B) In such cases, excess qualified basis shall have the percentage equal to two-thirds (2/3) of the applicable fraction applied, thus extending the tax credits claimed over the fifteen-year compliance period.
5. (5) The tax credits may be generated annually on a building-by-building basis beginning either with the:
  1. (A) Taxable year in which the building is placed in service; or
  2. (B) At the election of the taxpayer (owner), the succeeding taxable year.
(b)
1. (1) For buildings placed in service in 1987, the credit was taken at annual rates of nine percent (9%) (for the seventy percent (70%) value credit) and four percent (4%) (for the thirty percent (30%) value credit).
2. (2)
  1. (A) Three (3) types of credit are available for low-income buildings placed in service after 1987.
  2. (B) The first type of credit is a nine percent (9%) annual credit for the cost of a new building or qualifying rehabilitation costs without a federal subsidy.
  3. (C) The second type of credit is a four percent (4%) annual credit for the cost of a new building or substantial rehabilitation built with a federal subsidy.
  4. (D) The third type of credit is a four percent (4%) annual credit for the cost of buying an existing building for which substantial rehabilitation expenditures are also incurred.
3. (3)
  1. (A) Although the nine percent (9%) and four percent (4%) credits are called nine percent (9%) and four percent (4%), the figures are actually estimates.
  2. (B) The Internal Revenue Service sets the figures each month based upon fluctuating interest rates.
4. (4) A project can qualify for:
  1. (A) One (1) of the three (3) credits; or
  2. (B) A combination of the credits.
(c)
1. (1) Low-income housing tax credit amounts are based on the:
  1. (A) Cost of a building; and
  2. (B) Portion of the project that low-income households occupy.
2. (2)
  1. (A) The cost of acquiring, rehabilitating, and constructing a building constitutes the building's eligible basis.
  2. (B)
(i) The portion of the eligible basis attributable to low-income units is the building's qualified basis.
1. (ii) Generally, the qualified basis excludes the cost of land.
  1. (C) Developers are urged to consult legal counsel, as other costs may be excluded.
    1. (d)
2. (1) Low-income housing tax credit projects that use federal subsidies generally receive a smaller credit.
3. (2) If federally subsidized loans are used to finance substantial rehabilitation or new construction, either the:
  1. (A) Eligible basis of the building must be reduced; or
  2. (B) Thirty percent (30%) credit must be used.
4. (3) Federally subsidized loans include:
  1. (A) Below-market federal loans; and
  2. (B) Tax-exempt financing.
(e)
1. (1) The compliance period for any building is the period:
  1. (A) Beginning on the first day of the first taxable year of the credit period of such building; and
  2. (B) Ending fifteen (15) years from such date.
2. (2)
  1. (A) Beginning in 1990, the authority implemented the land-use restriction agreement (LURA), which extended the compliance period for an additional fifteen-year period.
  2. (B) The LURA, recorded in the real estate records of the county in which the development is located, is a binding agreement of the owner and any successors to maintain specific occupancy and affordability requirements for the development.
(f)
1. (1) Projects placed in service before the use of the LURA (1987, 1988, and 1989) must comply with the fifteen-year compliance period only.
2. (2)
  1. (A) In reference to those projects, the authority will review the Internal Revenue Service Form 8609 to determine the year the owner claimed the tax credits.
  2. (B) If there is no completed copy of the Internal Revenue Service Form 8609 available, authority staff will ask the project owner to confirm the credit year.
3. (3) Upon determining that the fifteen-year compliance period has expired, the authority will notify the owner that:
  1. (A) The compliance period has ended; and
  2. (B) The authority will no longer conduct physical or tenant file audits.
(g)
1. (1) After the initial fifteen-year compliance period, the authority will continue to monitor developments with extended use agreements.
2. (2) The authority intends to enforce the terms and agreements set forth in the land-use restriction agreement and Declaration of Restrictive Covenants for the Low-Income Housing Tax Credits and this part.
3. (3) The authority will not modify any of the I.R.C. § 42 requirements.
4. (4) Owners will be allowed specific time periods, as deemed appropriate by the authority, to correct items of noncompliance.
(h) Remedies for noncompliance include, but are not limited to, the following:
1. (1) Temporary suspension or permanent expulsion from participation in the LIHTC, HOME, or any other program administered by the authority;
2. (2) Notification to other lenders or agencies that provided funding for the project;
3. (3) Notification to the:
  1. (A) Limited partners;
  2. (B) Syndicators;
  3. (C) Board of trustees; or
  4. (D) Any other affiliate of the project; and
4. (4) Legal action.

Codification Notes: "LIHTC" means low-income housing tax credit.