Banks & Developers Seeking Affordable Housing Tax Credits: Don’t Misstep on Tenancy

May 11, 2015

Securing Low-Income Housing Tax Credits Is Easier Than Ensuring That Tenants Qualify; Without Careful Tenant Audits, Credits May Be at Risk, Says New York Accounting Firm Marks Paneth LLP

NEW YORK, NY--(Marketwired - May 11, 2015) -

Banks and developers seeking Low-Income Housing Tax Credits (LIHTC) for New York City projects need to be careful -- their projects can be ruled unqualified for the program and their costs can be made ineligible for credits if tenants don't meet the program's complex and stringent requirements.

"As challenging as it is to identify a site, secure funding and develop the property, it can be much more difficult to ensure that tenants meet the qualification requirements -- and continue to meet them over the life of the credit and beyond," says William H. Jennings, Partner-in-Charge of the Real Estate Group at New York accounting firm Marks Paneth LLP.

"There are many tenant-related issues that can put eligibility at risk," says Edie Kitchens, president of Tax Credit Assurance, Inc., a firm that works with developers to help ensure compliance with eligibility. "Not all of those issues are obvious or easy to anticipate."

"Finding qualified tenants is hard, to a great degree because New York City's requirements have made it so," Mr. Jennings explains. "Vetting is just not a matter of finding a qualified tenant, but also looking carefully at overall household income, household size and other factors, then matching those to the city's requirements. The stakes are high, because if income is over the limit, eligibility can be lost."

Mr. Jennings and Mrs. Kitchens highlight the following key issues relevant to developers seeking Low-Income Housing Tax Credits needing to vet tenants:

General LIHTC challenges: identifying the site, understanding the benefits of long-term housing deals in underserved areas, creating an effective partnership between bank and developer and creating a favorable debt-service structure.

Determining that costs are program-qualified and tax credit-eligible. "This isn't as straightforward as it might seem," Mr. Jennings says. "On a basic level, if you build 100 units and 40 are affordable, then 40 percent of your costs are qualified for tax credits. However, eligibility depends on many factors, and compliance is measured differently if you're building from scratch than if it's a rehabilitation project. The intricacies are not easy to navigate."

Ensuring compliance with tenant qualification requirements so that violations do not disqualify the project or put tax credits at risk. "There are many traps for the unwary," Mr. Jennings says. "The developer is required to verify household size and household income for each applicant -- and to ensure that the household remains in compliance for well beyond the 10-year life of the credit. And the IRS is taking proactive steps to enforce the recent increased compliance requirement."

For more information, or to schedule an interview or bylined article, please contact Katarina Wenk-Bodenmiller of Sommerfield Communications at (212) 255-8386 or katarina@sommerfield.com.

About Marks Paneth LLP

Marks Paneth LLP is an accounting firm with more than 550 people, including over 70 partners and principals. The firm provides public and private businesses with a full range of auditing, accounting, tax, consulting, trade remediation and valuation services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit and medical practice clients. The firm has a strong track record supporting emerging growth companies, entrepreneurs, business owners and investors as they navigate the business life cycle.

The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in Morison International, a leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world. Marks Paneth, whose origins date back to 1907, is the 35th largest accounting firm in the nation and the 9th largest in the mid-Atlantic region. In addition, readers of the New York Law Journal rank Marks Paneth as one of the area's top three forensic accounting firms for the fifth year in a row.

Its headquarters are in New York City. Additional offices are in Washington, DC, New Jersey, Long Island, Westchester and the Cayman Islands. For more information, please visit www.markspaneth.com.

Contact:
Katarina Wenk-Bodenmiller
Sommerfield Communications, Inc.
(212) 255-8386
katarina@sommerfield.com