Cal. Code Regs. Tit. 4, § 10337 - Compliance
(a) Regulatory Agreement. All recipients of
Tax Credits, whether Federal only, or both Federal and State, are required to
execute a regulatory agreement, as a condition to the Committee's making an
allocation, which will be recorded against the property for which the Tax
Credits are allocated, and, if applicable, will reflect all scoring criteria
proposed by the applicant in the competition for Federal and/or State housing
Credit Ceiling.
(1) For all projects
receiving a reservation of competitive 9% federal tax credits on or after
January 1, 2016 for which all general partners will be Qualified Nonprofit
Organizations, the partnership agreement shall include a Right of First Refusal
("ROFR") for one or more of the nonprofit general partners to purchase the
project after the end of the 15-year federal compliance period. The price to
purchase the project under this ROFR shall be the minimum price allowed under
IRC Section
42(i) plus any
amounts required to be paid to the tax credit investors that remain unpaid for
approved Asset Management Fees and required payments under the limited
partnership agreement for tax credit adjusters that remain outstanding at the
time of the sale. The applicant shall demonstrate compliance with this
requirement prior to the issuance of the 8609 forms.
(2) For all projects receiving a reservation
of 4% and 9% federal tax credits on or after January 1, 2016, the regulatory
agreement shall require written approval of the Executive Director for any
Transfer Event.
(3) Where a Project
is receiving renewable project-based rental assistance or operating subsidy:
(A) the owner shall in good faith apply for
and accept all renewals available;
(B) if the project-based rental assistance or
operating subsidy is terminated through no fault of the owner, the property
owner shall notify CTCAC in writing immediately and shall make every effort to
find alternative subsidies or financing structures that would maintain the
deeper income targeting contained in the recorded CTCAC regulatory agreement.
Upon documenting to CTCAC's satisfaction unsuccessful efforts to identify and
obtain alternative resources, the owner may increase rents and income targeting
for Low-Income Units above the levels allowed by the recorded regulatory
agreement up to the federally-permitted maximum. Rents shall be raised only to
the extent required for Financial Feasibility, as determined by CTCAC. Where
possible, remedies shall include skewing rents higher on portions of the
project in order to preserve affordability for units regulated by CTCAC at
extremely low income targeting. Any necessary rent increases shall be phased in
as gradually as possible, consistent with maintaining the project's Financial
Feasibility. If housing Special Needs populations, the property owner shall
attempt to minimize disruption to existing households, and transition to
non-Special Needs households only as necessary and upon vacancy whenever
possible.
(4) All
projects that receive a reservation of Tax Credits on or after January 1, 2017
and that involve a leasehold interest shall, in addition to the regulatory
agreement, execute a lease rider which shall be recorded in the County
Recorder's Office for which the project is located.
(b) Responsibility of owner.
(1) Compliance. All compliance requirements
monitored by the Committee shall be the responsibility of the project owner.
Project owners are required to annually certify tenant incomes in conformance
with IRS regulation § 1.42-5(c)(3) unless the project is a 100 percent (100%)
tax credit property exempted under IRC Section
142(d)(3)(A).
Owners of a 100% tax credit property must perform a first annual income
recertification in addition to the required initial move-in certification.
After initial move-in certification and first annual recertification, owners of
100% tax credit properties may discontinue obtaining income verifications.
Owners of 100% tax credit properties must continue to check for full-time
student status of all households during the entire tenancy of the households
and throughout the initial compliance period, and continue recordkeeping in
accordance with paragraph (1) of this subsection. These requirements continue
if the tax credit property is sold, transferred, or under new management. Any
failure by the owner to respond to compliance reports and certification
requirements will be considered an act of noncompliance and shall be reported
to the IRS if reasonable attempts by the Committee to obtain the information
are unsuccessful.
(2) Homeless
youth and federal student rule. After the 15-year federal compliance period has
lapsed, units in a special needs project designated at reservation for homeless
youth may be occupied entirely by full-time students who are not dependents of
another individual.
(3) Prohibition
against requiring tenants to participate in services. All new and existing Tax
Credit projects are prohibited from requiring tenants to participate in
services, unless the tenant occupies a unit assisted with a federal source that
requires tenant participation in services.
(c) Compliance monitoring procedure. As
required by Section
42(m), allocating
agencies are to follow a compliance monitoring procedure to monitor all Credit
projects for compliance with provisions of Section
42. Compliance with Section
42 is the sole responsibility of
the owner of the building for which the Credit is allowable. The Committee's
obligation to monitor projects for compliance with the requirements of Section
42 does not place liability on the
Committee for any owner's noncompliance, nor does it relieve the owner of its
responsibility to comply with Section
42. In addition to the requirements
set forth in CTCAC's Compliance Manual, available on CTCAC's website (https://www.treasurer.ca.gov/ctcac/compliance/manual.asp)
and incorporated herein by reference, owners must comply with the following:
(1) Record keeping. The owner of a Credit
project is required to keep records for each qualified low income building in
the project for each year in the compliance period showing: the total number of
residential rental units in the building (including the number of bedrooms, and
unit size in square feet); the percentage of Low-Income and Market Rate Units
in the building that are Low-Income Units; the rent charged for each Low-Income
Unit; a current utility allowance as specified in 26 CFR Section 142.10(c) and
Section 10322(h)(21) of
these regulations (for buildings using an energy consumption model utility
allowance, that allowance must be calculated using the most recent version of
the CUAC); the number of household members in each Low-Income Unit; notation of
any vacant Low-Income Units; move-in dates for all Low-Income Units; low-income
tenants' (i.e., household) income; documentation to support each low-income
household's income certification; the eligible basis and qualified basis of the
building at the end of the first year of the Credit period; and, the character
and use of any nonresidential portion of the building included in the
building's eligible basis.
Upon request, scattered site projects shall make these records available for inspection by CTCAC staff at a single location.
(2) Record Retention. For each
qualified low-income building in the project, and for each year of the
compliance period, owners and the Committee are required to retain records of
the information described above in "record keeping requirements."
(A) Owners shall retain documents according
to the following schedule:
(i) for at least
six years following the due date (with extensions) for filing the Federal
income tax return for that year (for each year except the first year of the
Credit period); and,
(ii) for the
first year of the Credit period, at least six years following the due date
(with extensions) for filing the Federal income tax return for the last year of
the compliance period of the building.
(iii) for local health, safety, or building
code violation reports or notices issued by a state or local governmental
entity, until the Committee has inspected the reports or notices and completes
the tenant file and unit inspections and the violation has been corrected. This
subsection shall take effect beginning January 1, 2001.
(B) The Committee shall retain records of
noncompliance, or failure to certify, for at least six years beyond the
Committee's filing of the respective IRS noncompliance Form 8823. Should the
Committee require submission of copies of tenant certifications and records, it
shall retain them for three years from the end of the calendar year it receives
them. Should it instead review tenant files at the management office of the
subject project, it shall retain its review notes and any other pertinent
information for the same three-year period. The Committee shall retain all
other project documentation for the same three-year period.
(3) Certification requirements.
Under penalty of perjury, a Credit project owner is required to annually,
during each year of the compliance period, meet the certification requirements
of U.S. Treasury Regulations 26 CFR 1.42-5(c),
(including certifications that no finding of discrimination under the Fair
Housing Act, 42 USC
3601 occurred for the project), that the
buildings and low income units in the project were suitable for occupancy
taking into account local health, safety, and building codes, that no violation
reports were issued for any building or low income unit in the property by the
responsible state or local government unit, that the owner did not refuse to
lease a unit to an applicant because the applicant had a section
8 voucher or certificate, and that
except for transitional or single room occupancy housing, all low income units
in the project were used on a nontransient basis. The following must also be
certified to by the owner:
(A) the project
met all terms and conditions recorded in its Regulatory Agreement, if
applicable;
(B) the applicable
fraction (as defined in IRC Section
42(c)(1)(B)) met
all requirements of the Credit allocation as specified on IRS Form(s) 8609
(Low-Income Housing Credit Allocation Certification.);
(C) no change in ownership of the project has
occurred during the reporting period;
(D) the project has not been notified by the
IRS that it is no longer a "qualified low-income housing project" within the
meaning of Section
42 of the IRC;
(E) no additional tax-exempt bond funds or
other Federal grants or loans with interest rates below the applicable Federal
rate have been used in the Project since it was placed-in-service;
and,
(F) report the number of units
that were occupied by Credit eligible households during the reporting
period.
(G) the services specified
in the Regulatory Agreement were provided to the tenants during the reporting
period.
(H) if the project is
subject to a cash flow limitation in its Regulatory Agreement, that the
limitation has been met.
(I) the
project complied with local, state, and federal laws, constitutions, codes,
standards, rules, guidelines, and regulations, including, without limitation,
those that pertain to accessibility, construction, health and safety, labor,
fair housing, fair employment practices, affirmatively furthering fair housing,
nondiscrimination, and equal opportunity and is not the subject of any
regulatory or investigative proceeding by a local, state, or federal agency
relating to an alleged, pending, ongoing, or closed violation of the Fair
Housing Laws.
(4) Status
report, file and on site physical inspection. The Committee or its agent will
conduct file and on site physical inspections for all projects no later than
the end of the second calendar year following the year the last building in the
project is placed-in-service, and once every three years thereafter. These
physical inspections will be conducted for all buildings and common areas in
each project, and for at least 20% of the low-income units in each project. The
tenant file reviews will also be for at least 20% of the low-income units in
each project, but may be conducted on site or off site. Each year the Committee
shall select projects for which site inspections will be conducted. The
projects shall be selected using guidelines established by the Executive
Director for such purpose, while the units and tenant records to be inspected
shall be randomly selected. Advance notice shall not be given of the
Committee's selection process, or of which tenant records will be inspected at
selected projects; however, an owner shall be given reasonable notice prior to
a project inspection.
(A) A Notice of Intent
to Conduct Compliance Inspection and a Project Status Report (PSR) form will be
delivered to the project owner within a reasonable period before an inspection
is scheduled to occur. The completed PSR form shall be submitted to the
Committee by the owner prior to the compliance inspection. The Committee will
review the information submitted on the PSR for compliance with income, rent
and other requirements prior to performing the tenant file
inspection.
(B) Each project
undergoing a file inspection will be subject to a physical inspection to assure
compliance with local health, safety, and building codes or with HUD's uniform
physical condition standards. Owners shall be notified of the inspection
results.
(C) The Committee may
perform its status report, file inspection procedures and physical inspection
on Credit projects even if other governmental agencies also monitor those
projects. The Committee's reliance on other review findings may alter the
extent of the review, solely at the Committee's discretion and as allowed by
IRS regulations. The Committee may rely on reports of site visits prepared by
lenders or other governmental agencies, at its sole discretion. The Committee
shall, whenever possible, coordinate its procedures with those of other
agencies, lenders and investors.
(5) Notification of noncompliance. The
Committee shall notify owners in writing if the owner is required to submit
documents/information related to either the physical or tenant file inspection.
If the Committee does not receive the information requested, is not permitted
or otherwise is unable to conduct the inspections or discovers noncompliance
with Section
42 as a result of its review, the
owner shall be notified in writing before any notice is sent to the
IRS.
(6) Correction period. It is
the intention of the Committee that owners be given every reasonable
opportunity to correct any noncompliance. Owners shall be allowed an
opportunity to supply missing tenant file documents or to correct other
noncompliance within a correction period no longer than ninety (90) days from
the date of written notice by the Committee to the owner, unless the violation
constitutes an immediate health or safety issue, in which case, the correction
should be made immediately. With good cause, the Committee may grant up to a
six-month extension of the correction period upon receipt of a written
justification from the owner.
(7)
IRS and FTB notification. All instances of noncompliance, whether corrected or
not, shall be reported by the Committee to the IRS. This shall be done within
forty-five (45) days following the termination of a correction period allowed
by the Committee, pertaining to IRS Form 8823.
(d) Change in ownership and property
management. It is the project owner's responsibility to comply with the
requirements of Section
10320(b) and to
inform the Committee of any change in the project owner's mailing address.
(1) Any property management change during the
15-year federal compliance and extended use period must be to a party earning
equal capacity points pursuant to Section
10325(c)(1)(A) as
the exiting property management company. At a minimum this must be six (6)
projects in service more than three years, or the demonstrated training
required under Section
10326(g)(5). Two
of the six projects must be Low Income Housing Tax Credit projects in
California. If the new property management company does not meet these
experience requirements, then substitution of property management shall not be
permitted.
(e) First
year's 8609. Project owners shall be required to submit a copy of the executed
first year's filing of IRS Form 8609 (Low-Income Housing Credit Allocation
Certification) for inclusion in the Committee's permanent project
records.
(f)
(1) CTCAC may establish a schedule of fines
for violations of the terms and conditions, the regulatory agreement, other
agreements, or program regulations. In developing the schedule of fines, CTCAC
shall establish the fines for violations in an amount up to five hundred
dollars ($500) per violation or double the amount of the financial gain because
of the violation, whichever is greater. Except for serious violations, a
first-time property owner violator shall be given at least 30 days to correct
the violation before a fine is imposed. A violation that has occurred for some
time prior to discovery is one violation, but fines may be a recurring amount
if the violation is not corrected within a reasonable period of time
thereafter, as determined by the Committee.
(2) CTCAC shall adopt and may revise the
schedule of fines by resolution at a public general Committee
meeting.
(3) A person or entity
subject to a fine may appeal the fine to the Executive Director and,
thereafter, to the Committee pursuant to Section
10330(b)(2).
(4) The Executive Director may approve a
payment plan for any fines.
(5) If
a fine assessed against a property owner is not paid within six months from the
date when the fine was initially assessed and after reasonable notice has been
provided to the property owner, the Committee may record a lien against the
property. If the violation(s) for which the fine(s) is assessed is not
corrected within 90 days of the assessed fine, the Committee may record a lien
against the property.
(6)
Reoccurring or repeated noncompliance -- CTCAC shall issue fines of up to $500
per instance of repeated or reoccurring noncompliance violations noted in
separate monitoring cycles. CTCAC defines repeated or reoccurring violations as
25% or more instances of the current monitoring inspection having the same
noncompliance issues as found in the previous monitoring cycle.
Areas of repeated or reoccurring noncompliance include (but are not limited to):
(A) Repeat
Uniform Physical Condition Standards (UPCS) Health and Safety Violations and
Common Area Violations
(B)
Reoccurring patterns of units not turn-key ready and advertised within 60 days
of unit vacancy date
(C)
Reoccurring patterns of missing or the incorrect use of required CTCAC
forms
(D) Reoccurring misuse of
Utility Allowance methods
(E)
Reoccurring patterns of over-income households
(F) Reoccurring patterns of over-charged
rents
(G) Reoccurring patterns of
incomplete or missing re-certifications
(H) Service Amenities not provided within
Federal Compliance periods
(g) Housing Supplier Diversity Reporting. A
housing sponsor that receives a tax credit reservation on or after January 1,
2024, shall annually submit a report to CTCAC, in a form that CTCAC shall
require, and at the time that CTCAC shall annually designate. The reporting
period shall cover all contract activities directly related to the development
and construction of a housing project from the first day following the credit
reservation date with an option for the housing sponsor to include prior
contracting activities. The final report shall cover the year that the project
is placed in service. The report shall include information, as required in
Section
50199.23
of the Health and Safety Code and as outlined in the CTCAC Housing Supplier
Diversity Reporting Guidelines: Completing the Housing Supplier Diversity
Annual Report.
Notes
Note: Authority cited: Section 50199.17, Health and Safety Code. Reference: Sections 12206, 17058 and 23610.5, Revenue and Taxation Code; and Sections 50199.4, 50199.5, 50199.6, 50199.7, 50199.8, 50199.9, 50199.10, 50199.11, 50199.12, 50199.13, 50199.14, 50199.15, 50199.16, 50199.17, 50199.18, 50199.20, 50199.21, 50199.22 and 50199.23, Health and Safety Code.
Note: Authority cited: Section 50199.17, Health and Safety Code. Reference: Sections 12206, 17058 and 23610.5, Revenue and Taxation Code; and Sections 50199.4, 50199.5, 50199.6, 50199.7, 50199.8, 50199.9, 50199.10, 50199.11, 50199.12, 50199.13, 50199.14, 50199.15, 50199.16, 50199.17, 50199.18, 50199.20, 50199.21 and 50199.22, Health and Safety Code.
2. Editorial correction of subsections (c)(4)(C) and (e) (Register 98, No. 30).
3. Amendment of subsections (c)(2)(B) and (c)(3)(B) and new subsection (f) filed 7-21-98; operative 11-20-97 and 12-11-97 pursuant to Health and Safety Code section 50199.17 (Register 98, No. 30).
4. Amendment of subsections (a), (c), (c)(3)(D), (c)(3)(F), (c)(4) and (c)(4)(B)-(C) and new subsection (c)(4)(D) filed 7-26-99; operative 6-3-99 pursuant to Health and Safety Code section 50199.17 (Register 99, No. 31).
5. Readoption of emergency action filed 7-26-99, operative 6-3-99; filed 4-3-2000 as an emergency; operative 10-12-99 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 14).
6. Readoption of emergency action filed 4-3-2000, operative 10-12-99; filed 4-3-2000 as an emergency; operative 2-9-2000 pursuant to Health and Safety Code section 50199.17, with amendment of section (Register 2000, No. 14).
7. Emergency readoption without change filed 9-22-2000 of an action originally filed 4-3-2000; operative 6-9-2000 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 38).
8. Emergency readoption without change filed 10-23-2000 of an action originally filed 4-3-2000; operative 9-27-2000 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 43).
9. Emergency amendment effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 16, 2001, filed with the Secretary of State on March 5, 2001 (Register 2001, No. 10).
EDITOR'S NOTE: On December 20, 2000, the Committee adopted and made effective an emergency amendment to an earlier version of this regulation; this amendment was superseded by the February 16, 2001 amendment. The December 20, 2000 amendment was filed with the Secretary of State on March 5, 2001; it was not printed in the California Code of Regulations.
10. Emergency readoption without change filed 11-19-2001 of an action most recently filed 3-5-2001; operative 9-17-2001 pursuant to Health and Safety Code section 50199.17 (Register 2001, No. 47).
11. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on March 19, 2003, filed with the Secretary of State on 5-8-2003 (Register 2003, No. 19).
EDITOR'S NOTE: These March 19, 2003 emergency regulations supersede prior emergency regulations adopted and made effective by the Committee on January 29, 2003. The January 29 emergency regulations were filed with the Secretary of State on May 8, 2003, but were never printed in the California Code of Regulations.
12. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 18, 2004, filed with the Secretary of State on 4-26-2004. These February 18, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 18).
13. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on June 16, 2004, filed with the Secretary of State on 7-19-2004. These June 16, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 30).
14. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on October 5, 2004, filed with the Secretary of State on 12-16-2004. These October 5, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 51).
15. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 16, 2005, filed with the Secretary of State on 4-4-2005. These February 16, 2005 emergency regulations supersede prior emergency regulations (Register 2005, No. 14).
16. Emergency readoption of action adopted by the Committee 2-16-2005 and filed with the Secretary of State 4-4-2005; refiled 11-1-2005; readopted by the Committee and effective 9-28-2005 pursuant to Health and Safety Code section 50199.17 (Register 2005, No. 44).
17. Emergency adoption filed 3-23-2006; conclusively presumed to be an emergency and effective upon adoption by the Committee on 1-18-2006 pursuant to Health and Safety Code section 50199.17(c) and (d). This filing supercedes prior emergency regulations and is exempt from the Administrative Procedure Act except as provided in Health and Safety Code section 50199.17(a) and (b) (Register 2006, No. 12).
18. New section replacing prior emergency adoption filed 7-22-2010; operative 2-17-2010. Submitted to OAL for printing only pursuant to Health and Safety Code section 50199.17 (Register 2010, No. 30).
19. Amendment of subsection (a), new subsections (a)(1)-(2) and amendment of subsection (c)(1) filed 3-19-2013; operative upon adoption by the California Tax Credit Allocation Committee on 1-23-2013 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for printing only (Register 2013, No. 12).
20. Amendment filed 3-28-2014; operative upon adoption by the California Tax Credit Allocation Committee on 1-29-2014 pursuant to Health and Safety Code section 50199.77(c). Submitted to OAL for printing only (Register 2014, No. 13).
21. Amendment filed 12-28-2015; operative upon adoption by the Tax Credit Allocation Committee on
22. New subsections (f)(1)-(5) filed 2-9-2017; operative upon adoption by the Tax Credit Allocation Committee on
23. New subsection (a)(4) filed
24. Amendment of subsections (a)(3)(A)-(B), new subsection (b)(3) and amendment of subsections (c)(1) and (f)(3) filed
25. New subsection (b)(4) filed 2-7-2019; operative upon adoption by the California Tax Credit Allocation Committee on 12-12-2018 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to pursuant to Health and Safety Code section 50199.17 (Register 2019, No. 6).
26. Amendment of subsection (d), new subsection (d)(1), amendment of subsection (f) and amendment of Note filed 2-26-2021; operative upon adoption by the California Tax Credit Allocation Committee on 12-20-2020 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2021, No. 9).
27. Editorial correction deleting duplicative subsection (d) (Register 2022, No. 18).
28. New subsections (f)(6)-(f)(6)(H) filed 8-8-2022; operative upon adoption by the California Tax Credit Allocation Committee on 7-20-2022 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2022, No. 32).
29. Amendment of subsection (a)(3)(B) filed 3-13-2023; operative upon adoption by the California Tax Credit Allocation Committee on 1-18-2023 pursuant to Health and Safety Code section 50199.17. Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2023, No. 11).
30. Amendment of subsection (a)(4), new subsection (g) and amendment of NOTE filed 3-12-2024; operative
31. Repealer of subsections (b)(2)-(b)(2)(B), subsection renumbering, amendment of subsection (c) and new subsection (c)(3)(I) filed 2-3-2025; operative upon adoption by the California Tax Credit Allocation Committee on
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