Scenario

An income-qualified family occupies an LIHTC unit. Every family member is a full-time student. The family qualifies under the student rule because one of the students receives adoption assistance under Title IV-E of the Social Security Act.

Two years later, the adoption assistance ends. Every family member remains a full-time student, and no other student-rule exception applies. The family remains income-qualified. Management concludes that the unit remains qualified because the family was eligible when it originally moved in and continues to meet the income limit.

What color is the compliance stoplight?

🟢 Green Light – Tax credits are safe
🟡 Yellow Light – Proceed with caution
🔴 Red Light – Tax credit loss is imminent

Food for thought: Does qualifying under a student exception at move-in protect the unit if that exception later ends?

Stoplight Reveal

🔴 Red Light – Tax credit loss is imminent

The exception that kept this all-student family qualified no longer applies. With no other student exception, the unit is no longer qualified.

More Details

IRC §42(i)(3)(D) provides exceptions that allow certain families comprised entirely of full-time students to occupy LIHTC units. One exception applies when a student is receiving assistance under Title IV of the Social Security Act.

Here, Title IV-E adoption assistance was the fact that allowed the all-student family to qualify. When that assistance ends, the family no longer meets that exception.

The family's continued income eligibility does not change the result. Income eligibility and the student rule are separate requirements. A family that remains income-qualified can still cause the unit to become noncompliant if every family member is a full-time student and no student exception applies.

The student rule is not merely a move-in test. Student status and any exception being relied upon must continue to support qualification.

Compliance Insight

Do not assume that a student exception established at move-in continues indefinitely. When an LIHTC unit is occupied entirely by full-time students, confirm that the exception supporting qualification still applies. If it ends, determine whether another student exception protects the unit.

References

• IRC §42(i)(3)(D)
• Social Security Act, Title IV-E; 42 U.S.C. §673 – Adoption Assistance
• IRS Publication 5913 (Rev. Jan. 2024), Chapter XVII, Category 11l – Units Comprised Entirely of Full-Time Students

Did the result surprise you? Watch for next week’s Compliance Stoplight Test.