I became interested with year 15 student issues while doing move-in approvals for a management company with two projects in their post-year 15 periods. Management was doing a decent job certifying new move-ins - however, every move-in was a full-time student - every single one.
The student affidavit being used clearly confirmed that applicants were full-time students. While state policy did not say that projects could move in full-time students, their training's and manual indicated that they would not monitor for students during the post-year 15 period. When I discussed this issue with state officials, they were not troubled with a few students, but they were concerned that the nature of their project could be changed. Their decision not to monitor students in the post-year 15 period had been based on the proposition that there would not be much change in a project’s status. They had not considered that changes regarding student households could jeopardize the original nature of the project.
That said, the state pointed out that their projects were governed by an extended-use agreement (EAU) requiring compliance with all Section 42 regulations throughout the extended-use period. The state further indicated that they could enforce that agreement if it was found the nature of a project had been changed by renting to full-time students.
When considering the post-year 15 requirements as they apply to student status, it is important to remember the EUA. This subject has been raised in conversations with the IRS and state agencies. I am aware of at least one state that is giving thought to amending its EUAs or, at least, looking into the viability of amending their agreements to accommodate a student exemption in the post-year 15 period.
How are states approaching the student year-15 issue? As you might expect, there are a variety of different positions. Some states do not change their student rules in the post-year 15 period, while others choose not to monitor for student rules. Still others, such as Mississippi, have amended their student requirements by exempting K-12 as full-time students or, as Connecticut has done, allowing students as long as they are not dependents. I have queried several states and these are the results:
Massachusetts, Maryland, Hawaii, Wyoming, West Virginia and the U.S. Virgin Islands adhere to the original Section 42 premise that student households are not eligible.
Colorado will no longer monitor for compliance with the student rule after year 15. Their compliance manual states “the student rule no longer applies.”
Connecticut allows full-time students, providing they are not dependent on a parent or another individual outside the household. It would not like to see the nature of its projects changed.
Indiana does not “monitor the student rule post-year 15 for projects that have been approved for our “extended use policy.” Any project that has completed year 15 is eligible for the policy as long as it is in compliance and up to date on reporting. Once a project is approved for the extended use policy, we issue an amendment to the recorded agreement and the owner has this document recorded. The amendment states that the compliance requirements are being reduced in accordance with the policies outlined in our compliance manual.”
Mississippi exempts K-12 as full-time students during the post-year 15 period.
North Carolina does not monitor students after year 15, and students are not specifically addressed in their LURA. Its compliance manual does address post-year 15 properties.
New Jersey does not enforce the student rule for projects in the extended use period. While not addressed in its extended-use agreement, the full-time student rule is included in their compliance manual.
Ohio and Texas do not monitor for student households in post-year 15, but neither would they like to see their projects operate as student dormitories.
Virginia has a policy similar to Connecticut's. Its manual states:
“Tax credit properties that do not have tax-exempt financing may now house full-time students but must follow the guidelines below when determining the eligibility of students who are head or co-head of a household:
The individual must be of legal contract age under state law.
The individual must have established a household separate from parents or legal guardians for at least one year prior to application for occupancy or the individual meets the U.S. Department of Education’s definition of an independent student.
The individual must not be claimed as a dependent by parents or legal guardians pursuant to IRS regulations.”
The state of Washington has made no changes in the student rules for the post-year 15 period.
It is clear that the post-year 15 student rules vary per state. You will have to check with your state to find out exactly what its policy is. We recommend that our clients do not modify the student rules in the post-year 15 period. This recommendation is based on our opinion that:
Congress clearly did not want student households in LIHTC projects.
As compliance specialists, we have a responsibility to maintain the integrity of our program as it was intended.
Project eligibility and compliance were lengthened with the implementation of EUAs. It does not seem that eligibility requirements should be changed during that extension.
The student rules during the initial compliance period have always been difficult to understand and not always logical. Many in our industry have felt some modification of the student rules during the initial compliance period would be prudent, and for a while some states implemented changes that thought to be sanctioned by the IRS, but in the end were not. An example would be the exemption of K-12 as full-time students. Certain modifications presented here for the post-year 15 period may be driven by sensibility and could even serve the LIHTC well during the initial compliance period. All states are within their rights to set their year-15 monitoring policies and most states have addressed their post-year 15 compliance/monitoring issues in their compliance manuals.
We continue to recommend no changes in the student rules to our clients, but would love to see some consensus in our industry regarding this issue. Special thanks to Ruth L. Theobald Probst of TheoPRO Group for collaboration on information for this piece.
Keith Garovoy has been involved in housing since the late 1970s. He became active with LIHTC compliance in 1994. During nine years as Director of SPECTRUM ENTERPRISES, Garovoy designed the compliance monitoring programs for eight housing finance agencies, co-authored four state compliance manuals, and created LIHTC forms for eight state agencies. He now presides over Garovoy Compliance & Consulting, offering comprehensive LIHTC compliance services.