Compliance "Stoplight" 1 - UAs calculated 15 months ago
Mar 25, 2026
In LIHTC compliance, the difference between a harmless practice and a serious violation can come down to a single regulatory detail.
Each Compliance Stoplight Test presents a real-world scenario. What color is the compliance stoplight for situation: Green Light (tax credits are safe), Yellow Light (proceed with caution), or Red Light (tax credit loss is imminent)?
Scenario
An LIHTC property completes a utility allowance review after a 15-month gap since the previous review. During the new review, management determines that the updated allowance is significantly higher than the previous one and lowers rents at that time.
What color is the compliance stoplight?
🟢 Green Light – Tax credits are safe
🟡 Yellow Light – Proceed with Caution
🔴 Red Light – Tax credit loss imminent
Food for thought: More than twelve months passed between annual reviews. Is that important? Note: About 51% surveyed on LinkedIn thought this was a "yellow light" scenario.
Stoplight Reveal
🟡 Yellow Light — Proceed With Caution
A 15-month gap between utility allowance reviews is not, by itself, a violation of the LIHTC rules. More information is needed.
More Details
The LIHTC utility allowance regulations require owners to review utility allowances "annually," defined as once during each calendar year, not every twelve months. The key question is whether a review occurred in each calendar year.
For example, a property could complete reviews in June 2024 and September 2025, creating a fifteen-month gap, and still satisfy the rule because reviews were conducted in each calendar year 2024 and 2025.
By contrast, the same fifteen-month gap—from December 2024 to March 2026—would be a violation because no review occurred during the calendar year 2025. Because the updated utility allowance required rents to drop in the scenario, the property would have been charging excess rent during January and February of 2026, resulting from the missed 2025 review.
Because the scenario does not identify when the reviews occurred, the situation cannot be fully evaluated based on the information provided, and it is a "yellow light" (proceed with caution) scenario.
Compliance Insight
The LIHTC utility allowance rule requires a review "annually," which is once during each calendar year.
References
- 26 CFR §1.42-10(c)(2)
Did the result surprise you? Watch for next week’s Compliance Stoplight Test.
There is a very good chance that the topic of this post is covered in an online on-demand course at Costello University.
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