Form 8703: Annual Certification of a Residential Rental Project

IRS Form 8703: Annual Certification of a Residential Rental Project

IRS Form 8703, also known as the Annual Certification of a Residential Rental Project, is a critical document for owners of residential rental properties that are part of the Low-Income Housing Tax Credit (LIHTC) program. The form is designed to certify that a property continues to meet the requirements of the LIHTC program and provides the necessary documentation for maintaining the tax credit allocation.

This guide will help you understand Form 8703, the purpose behind it, who needs to file it, the necessary information required, and how to ensure compliance with the IRS regulations related to the LIHTC program.

What is IRS Form 8703?

Form 8703 is used by owners of residential rental properties that are benefiting from the Low-Income Housing Tax Credit (LIHTC). The form serves as an annual certification to the IRS that the property is still in compliance with the requirements of the program.

The Low-Income Housing Tax Credit (LIHTC) program encourages private investment in affordable housing by providing tax credits to property owners who reserve a portion of their units for low-income tenants. To continue receiving these tax credits, property owners must file Form 8703 each year to prove their compliance.

Why is Form 8703 Important?

The completion of Form 8703 is important for several reasons:

1. Ensure Ongoing Compliance: Filing this form helps ensure that the property remains eligible for tax credits under the LIHTC program by confirming that it meets the required occupancy and affordability standards.
2. Tax Credit Maintenance: The form serves as confirmation that the property owner is still maintaining the minimum levels of affordable rental units as agreed upon when they received the LIHTC.
3. Reporting and Documentation: The IRS uses this form to verify that the property owner is properly reporting and certifying the required information about the residential rental project.

Who Needs to File Form 8703?

Form 8703 is required to be filed by property owners who have a residential rental project that is receiving or has received Low-Income Housing Tax Credits (LIHTC). Specifically, the following entities need to file Form 8703:

1. Owners of LIHTC Properties: Any entity that owns a residential rental property that benefits from the Low-Income Housing Tax Credit (for properties with an allocation of credits, whether for new construction, rehabilitation, or acquisition).

2. Tax Credit Allocations: If the property was allocated credits for low-income housing purposes, owners must ensure that they are complying with the terms of the credit and file this form annually to maintain eligibility.

3. Partnerships, LLCs, or Corporations: If the property is owned by a partnership, limited liability company (LLC), or corporation, those entities will need to ensure the filing of Form 8703 as part of their annual compliance process.

What Information is Required on Form 8703?

Filing Form 8703 requires specific information about the residential rental project to ensure continued compliance with the Low-Income Housing Tax Credit program. Here is what you’ll need to include:

1. Owner Information:

   • The name, address, and Taxpayer Identification Number (TIN) of the property owner.
   • The name of the property or the development in question.

2. Property Information:

   • The address of the residential rental property benefiting from the LIHTC.
   • A description of the number of affordable housing units and the total number of units in the property.

3. Certification of Compliance:

   • The form asks the property owner to certify that the property continues to meet the low-income housing requirements.
   • The property must still have at least 20% of units occupied by tenants earning 50% or less of the area median income (AMI) or 40% of units occupied by tenants earning 60% or less of AMI, as stipulated by the LIHTC guidelines.

4. Project Status:

   • A certification that the property is still in compliance with the tenant income certification and rent limitation rules. The form asks about the overall compliance with the rules outlined in the LIHTC program.

5. Changes to the Property:

   • If there have been any changes to the ownership or use of the property, these must be noted on the form, as these could affect eligibility.

6. Signature of the Property Owner:

   • The form must be signed by an authorized representative of the property owner or an officer of the business entity.

How to File IRS Form 8703

To file Form 8703, follow these steps:

1. Complete the Form: Ensure that all sections are filled out completely and accurately. Verify that the residential rental property meets all the requirements of the Low-Income Housing Tax Credit program for the year in question.

2. Submit the Form: Form 8703 must be filed annually with the IRS. It should be filed by the last day of the first month following the end of the calendar year for which the certification applies (for example, by January 31st for the prior year).

3. Keep Records: As the property owner, you should keep copies of the form and any related documents for your records. It’s crucial to keep a complete record of the annual certifications and any documents supporting the eligibility and compliance of the property.

4. Mail or E-file: The IRS provides guidelines for how the form should be submitted (via paper or electronically). For entities that prefer to e-file, check with the IRS for available electronic submission options for Form 8703.

Penalties for Non-Compliance

Failure to file Form 8703 or inaccurately reporting the certification could result in penalties, including:

1. Loss of Tax Credit: If a property owner fails to file the annual certification, the property could lose its eligibility for the Low-Income Housing Tax Credit.
2. IRS Scrutiny and Audits: Incomplete or inaccurate forms may trigger IRS audits, leading to penalties or fines.
3. Late Filing Penalties: If the form is filed late or not filed at all, the IRS may assess penalties for non-compliance.

Key Considerations for Filing Form 8703

1. Timely Filing: Make sure Form 8703 is filed within the required timeframe, as delays could jeopardize the property’s continued eligibility for the Low-Income Housing Tax Credit.

2. Ongoing Compliance: It’s crucial to continually assess whether your property remains in compliance with the income limits and rent restrictions set forth by the LIHTC program.

3. Consult a Tax Professional: Given the complexity of the Low-Income Housing Tax Credit program and its requirements, it’s often advisable to consult a tax professional or real estate attorney to ensure full compliance and accuracy in filing Form 8703.

Conclusion

Form 8703, the Annual Certification of a Residential Rental Project, is an essential document for owners of Low-Income Housing Tax Credit (LIHTC) properties. Filing this form ensures that the property remains eligible for the benefits of the LIHTC program and continues to provide affordable housing options to low-income tenants.