1. (a)

   1. (1) Any determinations of noncompliance, including owner's failure to certify, will be communicated to the owner in writing.
   2. (2) The noncompliant conditions must be corrected within the period specified by the Arkansas Development Finance Authority.
   3. (3) Generally, there is a maximum of sixty (60) days to correct items of noncompliance.
   4. (4) Violations of general health, safety, and sanitary conditions may require immediate corrective measures.

   5. (5)

      1. (A) The authority will notify the Internal Revenue Service of any noncompliant conditions no later than forty-five (45) days after the end of the allowed correction period, whether or not those conditions are corrected.
      2. (B) The authority will utilize Internal Revenue Service Form 8823 when reporting noncompliance or corrections.
   6. (6) The authority reserves the right to request additional information, if necessary.
   7. (7) The authority, in its sole discretion, may schedule additional follow-up visits.

2. (b)

   1. (1) Noncompliance may be described as a period of time during which the owner failed to follow proper procedures for the:

      1. (A) Development;
      2. (B) Specific building; or
      3. (C) Unit.
   2. (2) Noncompliance may lead to recapture of tax credits by the Internal Revenue Service for a given period of time.

3. (c)

   1. (1) Most noncompliance issues as identified by the Internal Revenue Service may be found on the Internal Revenue Service Form 8823.

   2. (2) Generally, noncompliance issues can occur for:

      1. (A) Inadequate certification documents;
      2. (B) Failure to obtain and retain proper income verifications;
      3. (C) Missing signatures;
      4. (D) Late certifications or certification signature dates;
      5. (E) Lease issues, i.e., not signed, late, or no six-month term;
      6. (F) Failure to recertify by the LIHTC-required anniversary date;
      7. (G) Failure to furnish year-end documentation on time;
      8. (H) Failure to respond to requests for additional information;
      9. (I) Incomplete record keeping;
      10. (J) Failure to identify full-time students;
      11. (K) Failure to maintain and update utility allowance documentation;
      12. (L) Charging unrestricted rents;
      13. (M) Failure to maintain the minimum set-aside;
      14. (N) Any change in the applicable fraction or eligible basis that results in a decrease in the qualified basis;
      15. (O) Housing an ineligible tenant;
      16. (P) Failure to satisfy special needs or additional low-income housing set-asides;
      17. (Q) Failure to use appropriate forms; and
      18. (R) Implementing project changes prior to obtaining the authority’s approval.
   3. (3) This list is not meant to be all-inclusive.
4. (d) Noncompliance percentage and negative points. The Compliance Department of the Arkansas Development Finance Authority will calculate the noncompliance percentage for each applicant based upon all noncompliance by existing developments of which members, partners, or shareholders of the applicant, general partner of applicant, and members, partners, or shareholders of general partner of applicant, or members of applicant and members, partners, or shareholders of members of applicant were or are part of the development team or otherwise involved in the operation of the development as determined by the authority.

5. (e) Noncompliance percentage.

   1. (1) A noncompliance percentage will be used to determine:

      1. (A) Owner performance;
      2. (B) Property performance; and
      3. (C) Management performance.

   2. (2) The noncompliance percentage is determined at the time of review as evidenced by:

      1. (A) The issuance of the Internal Revenue Service Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition; and
      2. (B) UPCS inspection standards.
   3. (3) All percentages will be calculated as follows: total number of units noncompliance/total units reviewed = noncompliance percentage %.
   4. (4) The noncompliance percentage of all authority properties reviewed within a three-year period of time will be averaged and given an average noncompliance percentage.
   5. (5) Owners are subject to point deductions, determined by authority allocation, based on the average noncompliance percentage as follows. Owner

      Average Non Compliance Percentage	Negative Points
      51% or more	20
      41-50%	15
      31-40%	10
      16-30%	5
      0-15%	0

   6. (6)

      1. (A) Management companies will be given a grade based on the average noncompliance percentage of properties they manage.
      2. (B) The overall management company grade will be updated annually.
      3. (C) The grades will be:

6. (i) Considered during management change requests, in determining management compliance during the application process, and to review management performance standards; and

   1. (ii) Used for public information. Management

      Average Non Compliance Percentage	Grade
      51% or more	F
      41-50%	D
      31-40%	C
      16-30%	B
      0-15%	A

   2. (7) Disclaimer.

      1. (A) Grading is strictly based on Internal Revenue Service 8823 reports of noncompliance issuance and failed uniform inspection standards for units cited during the monitoring visit.

      2. (B)

         1. (i) Projects in year sixteen (16) and after that trigger noncompliance will still be cited with an Internal Revenue Service Form 8823.
         2. (ii) The Internal Revenue Service Form 8823 will not be sent to the Internal Revenue Service but will remain in the authority’s records for noncompliance.

7. (f) Noncompliance fees.

   1. (1) As of January 1, 2012, the units sampled or reviewed with noncompliance issues on the date the site is monitored will pay a noncompliance fee of fifty dollars ($50.00) per unit.
   2. (2) The fee, billed to the limited partnership entity, will be due no later than thirty (30) days from the billing date.
8. (g) Increased monitoring. The Compliance Department will increase the percentage of units to be monitored on the project, as scheduled, (no less than twenty percent (20%) as Internal Revenue Service suggested) based on the percentage of units previously out of compliance and compliance score.

Codification Notes: "LIHTC" means low-income housing tax credit. "UPCS" means Uniform Physical Condition Standards.