SureDeposit Programs Comply with New IRS Low Income Tax Credit Housing Regulation
- Jun 11, 2008
By Anuradha Kher, Online News EditorLivingston, N.J.–When the Internal Revenue Service (IRS) rolled out its new compliance manual for Low Income Tax Credit communities in January 2007, many in the industry perceived some changes in the manual as a potential problem for developers using SureDeposit programs.The IRS has now clarified that SureDeposit does in fact comply with IRS regulation section 1.42-11 for LIHTC units. Specifically, the IRS allows security deposit alternatives in the form of optional tenant-paid insurance policies in lieu of security deposits for LIHTC units without requiring premiums to be included in gross rents. “If the gross rent is too high, the developer is in danger of losing his tax credits,” Dan Rudd, co-founder and chief financial officer of SureDeposit, tells MHN. “As long as the developer does not make our programs mandatory, there is no such problem.”While such optional tenant-paid insurance policies are not new, “the issue of whether security deposit insurance premiums should be included in restricted rent amounts has come up in multiple discussions with members of the industry at different levels,” says Grace F. Robertson, an IRS senior program analyst in charge of audits and enforcement for the tax credit program. In her statement, Robertson said, “Rents for LIHTC units are restricted, but owners can charge fees for additional services other than housing if the fees meet one of three criteria: the fee cannot be a condition of occupancy, or it must be offered as an option, or it must be refundable. Even though security deposit alternatives are non-refundable, in my opinion, they are offered to residents as a reasonable option in place of a refundable security deposit, especially since a refundable security deposit may be cost prohibitive. Therefore, security deposit alternatives do meet one of the criteria and are allowable by the IRS.” SureDeposit has approximately 75,000 LIHTC units under agreement nationwide. “Fortunately, despite all the rumors, our clients have stayed with us. We did lose one, but we are working on getting them back,” says Rudd.The IRS has not issued any written determinations or rulings on the matter.