LIHTC Alert: Physical Inspection Pilot Program Extended for Low-income Housing Projects in Select States

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In order to reduce compliance costs by avoiding multiple physical inspections for low-income housing projects, the Internal Revenue Service created the Physical Inspection Pilot Program. This program which was originally set to be expired after 2012 has been extended through the end of 2014. The program, which is currently available in Michigan, Minnesota, Ohio, Oregon, Washington, and Wisconsin, allows state housing financing agencies (HFA) to use either current property-inspection protocol or alternatively, the U.S. Department of Housing and Urban Development’s (HUD) Real Estate Assessment Center (REAC) inspection protocol in order to be in compliance with the monitoring requirements for low-income housing projects. For any project that is physically inspected by HUD or one of its agents under the REAC inspection protocol, the HFA is deemed to satisfy the minimum twenty percent low-income unit physical inspection requirement. Under the REAC inspection protocol, the HFA will also satisfy the review requirement by reviewing the annual low-income certifications, supporting documentation, and rent records for tenants in at least twenty percent of low-income units in a project, regardless of whether any units whose files are reviewed are among the units physically inspected.

Conversely, the use of the current property-inspection protocol by low-income housing projects outside the six states included in the Pilot Program, or even by low-income housing projects within the six provisional states that elect not to use the HUD’s REAC inspection protocol, provides for a much more cumbersome inspection and review process. Within prescribed time periods, the HFA is required to conduct an on-site inspection of each building in the housing project and, for at least twenty percent of the project’s low-income units, inspect the units and review the annual low-income certifications, the documentation supporting the certifications, as well as the rent records for the tenants in those inspected units. Since the rules associated with different Federal programs may require physical inspections of the same project that use different inspection protocols, project owners and managers often spend significant time preparing for and responding to multiple physical inspection visits for the same project.

W&G Observation: This is welcome news to the many LIHTC projects in the states currently covered by the program. Project owners in other states are hopeful the extension will be the first step in making this program permanent and expanding it to eliminate duplicate inspection requirements for all states.

If you have any questions about this or any other related matter, please contact Len Nitti or Melissa Marsicano.

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