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IRS Memo Released Discussing Proper Treatment of Common Area Noncompliance

October 31, 2019 By Elizabeth

On July 1, the IRS issued a memo discussing the proper treatment of common area noncompliance indicating the eligible basis should be reduced for the taxable year in which it occurred rather than the applicable fraction.

The memo also indicates the recapture amount is based on the entire dollar amount placed in eligible basis not just the amount that represents the portion out-of-compliance. In a provided example, the eligible basis contained $50,000 for a laundry room with 20 machines — $40,000 for the construction of the room itself and $10,000 for the 20 machines. During inspection 10 of the 20 machines were discovered to be out of order and therefore in noncompliance. The 10 machines represented $5,000 out of the total $50,000 placed in eligible basis. In the scenario, the noncompliance was not corrected by year end. The IRS deems in the memo that the entire $50,000 must be removed from eligible basis not just the $10,000 representing the portion of the laundry out of compliance. 

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Elizabeth L. Moreland
NCP-E, SCS, HCCP, SHCM, FHC

My goal, quite simply, is to prevent people from feeling overwhelmed by the program rules and all of the responsibilities that come with managing a Housing Credit property like I was when I was in the field! It was so frustrating! So when I started Elizabeth Moreland Consulting, I vowed to make a difference and to help people become Compliance Confident!“

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Elizabeth Moreland Consulting, Inc.
6907 University Ave, Suite 196
Middleton, WI 53562

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Who Is Elizabeth Moreland?

Elizabeth is the affordable housing industry’s most sought after speaker, trainer and consultant due to her dynamic speaking style, concrete understanding of the various affordable housing programs’ rules and nuances, and sense of humor & style in delivering such information and advice. As the President of Elizabeth Moreland Consulting, Inc. and the Housing Credit Training Center, Elizabeth has taught thousands and thousands of industry professionals from across the country. Much of her expertise is garnered from her years in the trenches of property management working with all types of housing including Housing Credits, HUD Section 8, HOME, Bond, special needs, students and conventional. She has held practically every position in this field and has over 25 years of experience, so her advice and teachings are realistic and proven in the real world of affordable housing!
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