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IRC §42, Low-Income Housing Credit - Part I Introduction and Pre-Contact Analysis

IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis) · 2026 edition · updated 2026-07-29 · United States

Revision Date - August 11, 2015

NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.

  • Chapter 1 Introduction o Topics

    • Overview of the IRC §42 Program

      • Types of Housing

      • Combining with Other Tax Credits

      • Computation of Allowable Annual Credit

      • Eligible Basis

      • Applicable Fraction

      • Qualified Basis

      • Applicable Percentage

      • Compliance Requirements

      • Credit Disallowance and Recapture

    • State Housing Agency Responsibilities.

      • Qualified Allocation Plan (QAP)

      • Allocating Credits

      • Compliance Monitoring

      • Reporting Noncompliance to the IRS

      • Annual Report to the IRS

o IRS Responsibilities: Chief Counsel

o IRS Responsibilities: LIHC Compliance Unit

  • Form 8610, with Form 8609 and Schedule A (Form 8610)

  • Form 8823

  • Form 8821

o IRS Responsibilities: Audits

o Summary

  • Chapter 2 Pre contact Analysis

o Introduction

  • Topics

o Form 8609, Low-Income Housing Credit Allocation and Certification

  • Amount of Credit Allocated

  • Eligible Basis and Qualified Basis

  • Applicable Percentage

  • Type of Allocation

  • Tax-Exempt Bonds

  • Nonprofit Set-Aside

    • Credit Period: BINs, Dates, and Elections

    • Multi-Building Projects

    • Minimum Set-Aside

    • Property Address

  • Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition

    • Reconciliation to Forms 8609

    • Rental Units

    • Period of Noncompliance

    • Categories of Noncompliance

    • Dispositions

  • Form 8609-A, Annual Statement for Low-Income Housing Credit Part I, Compliance Information

    • Part II, Computation of Credit

o Balance Sheet

  • Land Values

  • Buildings and Other Depreciable Assets

  • Accounts Receivable and Payable

o Schedule K and Schedule K-1

o Ownership By Individuals

  • Prior and Subsequent Year Returns

o Related Returns

  • Partners: Consistent Treatment

  • General Partner: Additional IRC §42 Projects

o Risk Analysis

  • Example 1: Estimating Potential Tax

  • Initial Information Document Request

    • General Information about the Taxpayer

    • Tax Returns

    • Eligible Basis

    • Qualifying Low- Income Households

    • 1st and 11th Year of the Credit Period

    • Additions to Qualified Basis

    • Examination of Income: Rents & Other Sources of Income

    • Noncompliance

    • Dispositions

    • IDR & Crosswalk to Issues

  • Summary

o Exhibit 2-1 IDR & Crosswalk to Issues

  • General Information about the Credit Allocation

  • Eligible Basis

  • Qualifying Low- Income Households

  • 1st and 11th Year of the Credit Period

  • Additions to Qualified Basis

  • Rents & Other Sources of Income (Minimum Income Probes)

  • Noncompliance 

    - Dispositions

  • Chapter 3 Audit Techniques

    • Introduction

  • Topics

    • Interviewing Taxpayers

      • Background and Financial History

      • Business Practices

      • Internal Controls

      • Compliance with IRC §42

      • Physical Maintenance

      • Tenant Qualifications

      • Tenant Files

      • Rents

      • Cash Flows

      • Community Service Facilities

      • Forms 8823

      • Prior and Subsequent Year Tax Returns

      • Large, Unusual, or Questionable Items.

      • Related Parties or Returns

o Touring IRC §42 Projects

  • Preparing for Tour of an IRC §42 Project

  • Physical Characteristics to Observe When Touring IRC §42 Projects

  • Rents

  • Income Qualifying New Tenants

  • Mixed-Use Projects

  • Community Service Facilities

  • Analyzing Results

  • Case File Documentation

  • Evaluating Internal Controls

    • Control Environment

    • Accounting System

    • Control Procedures

    • Testing Internal Controls

    • Establishing Scope and Depth of the Audit

  • Third Party Contacts Contacting State Agencies

    • Other Third Party Contacts

o Summary

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▸ Contents — IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis)
IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis)
  1. IRC §42, Low-Income Housing Credit - Part I Introduction and P…
  2. Chapter 1 Introduction
  3. Topics
  4. Overview of the IRC §42 Program
  5. Types of Housing
  6. Combining with Other Tax Credits
  7. Computation of Allowable Annual Credit
  8. Eligible Basis
  9. Applicable Fraction
  10. Qualified Basis
  11. Applicable Percentage
  12. Compliance Requirements
  13. Credit Disallowance and Recapture
  14. State Housing Agency Responsibilities
  15. Qualified Allocation Plan (QAP)
  16. Allocating Credits
  17. Compliance Monitoring
  18. Reporting Noncompliance to the IRS
  19. Annual Report to the IRS
  20. IRS Responsibilities: Chief Counsel
  21. IRS Responsibilities: LIHC Compliance Unit
  22. Form 8610, with Form 8609 and Schedule A (Form 8610)
  23. Form 8823
  24. Form 8821
  25. IRS Responsibilities: Audits
  26. Summary
  27. Chapter 2 Pre-contact Analysis
  28. Introduction
  29. Topics
  30. Form 8609, Low-Income Housing Credit Allocation and Certificat…
  31. Amount of Credit Allocated
  32. Eligible Basis and Qualified Basis
  33. Applicable Percentage
  34. Type of Allocation
  35. Tax-Exempt Bonds
  36. Nonprofit Set-Aside
  37. Credit Period: BINs, Dates, and Elections
  38. Multi-Building Projects
  39. Minimum Set-Aside
  40. Property Address
  41. Form 8823, Low-Income Housing Credit Agencies Report of Noncom…
  42. Reconciliation to Forms 8609
  43. Rental Units
  44. Period of Noncompliance
  45. Categories of Noncompliance
  46. Dispositions
  47. Form 8609-A, Annual Statement for Low-Income Housing Credit
  48. Part I, Compliance Information
  49. Part II, Computation of Credit
  50. Balance Sheet
  51. Land Values
  52. Buildings and Other Depreciable Assets
  53. Accounts Receivable and Payable
  54. Schedule K and Schedule K-1
  55. Ownership By Individuals
  56. Prior and Subsequent Year Returns
  57. Related Returns
  58. Partners: Consistent Treatment
  59. General Partner: Additional IRC §42 Projects
  60. Risk Analysis
  61. Example 1: Estimating Potential Tax
  62. Initial Information Document Request
  63. General Information about the Taxpayer
  64. Tax Returns
  65. Eligible Basis
  66. Qualifying Low- Income Households
  67. 1st and 11th Year of the Credit Period
  68. Additions to Qualified Basis
  69. Examination of Income: Rents & Other Sources of Income
  70. Noncompliance
  71. Dispositions
  72. IDR & Crosswalk to Issues
  73. Summary
  74. Exhibit 2-1 IDR & Crosswalk to Issues
  75. General Information about the Credit Allocation
  76. Eligible Basis
  77. Qualifying Low- Income Households
  78. 1st and 11th Year of the Credit Period
  79. Additions to Qualified Basis
  80. Rents & Other Sources of Income (Minimum Income Probes)
  81. Noncompliance
  82. Dispositions
  83. Chapter 3 Audit Techniques
  84. Introduction
  85. Topics
  86. Interviewing Taxpayers
  87. Background and Financial History
  88. Business Practices
  89. Internal Controls
  90. Compliance with IRC §42
  91. Physical Maintenance
  92. Tenant Qualifications
  93. Tenant Files
  94. Rents
  95. Cash Flows
  96. Community Service Facilities
  97. Forms 8823
  98. Prior and Subsequent Year Tax Returns
  99. Large, Unusual, or Questionable Items
  100. Related Parties or Returns
  101. Touring IRC §42 Projects
  102. Preparing for Tour of an IRC §42 Project
  103. Physical Characteristics to Observe When Touring IRC §42 Proje…
  104. Rents
  105. Income Qualifying New Tenants
  106. Mixed-Use Projects
  107. Community Service Facilities
  108. Analyzing Results
  109. Case File Documentation
  110. Evaluating Internal Controls
  111. Control Environment
  112. Accounting System
  113. Control Procedures
  114. Testing Internal Controls
  115. Establishing Scope and Depth of the Audit
  116. Third Party Contacts
  117. Contacting State Agencies
  118. Other Third Party Contacts
  119. Summary

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