LIHTC Eligibility Criteria & Application Process 5 — Questions and Answers
Question 1: What is the consequence for a LIHTC project owner if the IRS determines a building is out of compliance during the compliance period?
- The owner pays a fine equal to 10% of annual credits
- Previously claimed credits may be recaptured plus interest (Correct answer)
- The compliance period resets to zero
- The owner must convert all units to market rate
Correct answer: Previously claimed credits may be recaptured plus interest
Noncompliance can trigger recapture of previously claimed tax credits plus interest, representing a significant financial penalty for owners.
Question 2: In California's LIHTC scoring, what does 'leverage' typically refer to in the competitive application context?
- The project's debt-to-equity ratio
- Non-LIHTC funds brought into the project per credit dollar (Correct answer)
- The number of investor partners in the ownership entity
- The ratio of affordable units to market-rate units
Correct answer: Non-LIHTC funds brought into the project per credit dollar
Leverage in the CTCAC scoring context refers to non-LIHTC public subsidies or grants per dollar of credit requested, rewarding projects that attract additional funding.
Question 3: Under California LIHTC rules, which of the following would be classified as an 'applicable fraction' for a mixed-income project?
- The percentage of total square footage occupied by affordable units
- The lesser of the unit fraction or the floor space fraction dedicated to low-income use (Correct answer)
- The ratio of tax credit investors to total partners
- The percentage of annual gross rents attributable to affordable units
Correct answer: The lesser of the unit fraction or the floor space fraction dedicated to low-income use
The applicable fraction is the lesser of the unit fraction (percentage of low-income units) and the floor space fraction (percentage of low-income floor space), ensuring projects cannot game the credit by making affordable units disproportionately small.
Question 4: Which of the following is NOT a valid method for verifying income during LIHTC tenant certification in California?
- Third-party written verification from employer
- Review of six months of bank statements
- Tenant's self-certification alone without any supporting documentation (Correct answer)
- IRS Form 4506-C tax transcript request
Correct answer: Tenant's self-certification alone without any supporting documentation
Self-certification alone is insufficient for LIHTC income verification; third-party documentation or official records are required.
Question 5: California's CTCAC awards 'tiebreaker' points when two applications receive equal competitive scores. What is typically used as a tiebreaker?
- The project with the earlier application submission date
- The project requesting the lowest credit per low-income unit (Correct answer)
- The project located in the county with the highest housing need index
- The project with the most experienced developer
Correct answer: The project requesting the lowest credit per low-income unit
CTCAC uses the amount of credit requested per low-income unit as a tiebreaker, favoring more cost-efficient projects.
Question 6: What is the federal 'basis boost' percentage available to LIHTC projects located in a Qualified Census Tract (QCT)?
- 110% of eligible basis
- 120% of eligible basis
- 130% of eligible basis (Correct answer)
- 150% of eligible basis
Correct answer: 130% of eligible basis
Projects in a QCT or DDA may use up to 130% of eligible basis to compute the credit, increasing the maximum available credit amount.
Question 7: In California, what is the typical deadline for a LIHTC project to incur at least 10% of reasonably expected project costs after receiving a carryover allocation?
- 6 months from carryover allocation date
- 12 months from carryover allocation date (Correct answer)
- 18 months from carryover allocation date
- 24 months from carryover allocation date
Correct answer: 12 months from carryover allocation date
IRS rules require that at least 10% of reasonably expected project costs be incurred within 12 months of receiving a carryover allocation.
LIHTC Eligibility Criteria & Application Process 5
What is the consequence for a LIHTC project owner if the IRS determines a building is out of compliance during the compliance period?