Q & A | Help! Rent Has Been Charged to Employees in Tax Credit Employee Units.

Question from a Blog Reader

"I just started at a new company as Compliance Director. I noticed that we have exempt tax credit units where full-time employees live. We are charging these employees rent and they pay their utilities. At my last company, we did not charge employees rent to prevent loss of tax credits on those units. How serious is this, and how can I fix it? I am really worried because I know that the 8823 Guide indicates that this is a problem."

Answer

Summary: Charging rent or utilities for employee units does not risk tax credits and is not a federal non-compliance issue.
The prohibition against charging rent is based on outdated information found in Chapter 8 of the 8823 Guide. Since the last version of the Guide was released in 2011, a Chief Counsel Advice Memo was released on June 2, 2014. Based on this Memo, Chapter 12 of the Section 42 Audit Technique Guide explains, "charging rents, utilities, or both for units occupied by resident managers, maintenance personnel, or security officers in a qualified low-income building does not make such units residential rental units for purposes of the applicable fraction."

NOTE: some states still prohibit charging rent for employee units. However, this is a state rule and not a federal one. No tax credits will be lost if rent is charged to employees in exempt employee units. Work with your state to resolve the issue with them if you are out of compliance with state rules.

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