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Part II, Computation of Credit

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

The second part of Form 8609-A is the computation of the allowable credit for the taxable year. The computation involves a number of steps needed to account for various types of low-income housing and circumstances. At this point, it is not necessary to analyze the whole equation, but note the following:

  • The eligible basis entered on Form 8609-A, line 1, should be the same as disclosed on Form 8609. Differences should be addressed during the audit. The amount entered on Form 8609-A, line 1, is the "per return" amount and the starting point for any adjustment made to the eligible basis.

  • The applicable percentage on Form 8609-A, line 5, should be the same as disclosed on Form 8609, line 2. If the applicable percentages are not the same, the taxpayer should be asked to provide an explanation.

  • Form 8609-A, line 15, is the allowable credit, but cannot be higher than the amount of credit identified on Form 8609, line 1b.

  • If credit is claimed on Form 8609-A, line 17, then the tax return is for the eleventh year of the credit period. Any credit not allowed in the first year of the credit period because of the special rule for computing the applicable fraction is allowable in the 11th year of the 15-year compliance period under IRC §42(f)(2)(B).

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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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