HUD/IRS Agree on Protocols for Physical Inspections

The Internal Revenue Service and HUD have reached a preliminary agreement that will allow HUD REAC inspections to satisfy IRS physical inspection requirements for tax credit properties with project-based Section 8 assistance. Also, HUD will be able to rely on Housing Allocation Agency inspections instead of REAC inspections.

This preliminary agreement was reached in a meeting between HUD and IRS officials on January 10, 2011.

This agreement is part of the ongoing discussions between HUD, IRS, Rural Development, and the Treasury Department. The goal of this interagency task force is to develop uniform requirements for the tax credit and other affordable housing programs.

While it would be fairly easy to use a HUD REAC inspection for Section 42 purposes, the HUD required scoring for REAC creates problems in terms of using an HFA inspection for HUD purposes. To address this, HUD and the IRS have discussed creating a streamlined scoring system for tax credit properties with Section 8 assistance. HFA staff would have to be training in the use of this system, and if they agreed to do so, HUD could use the inspection results from the HFA.

Keep in mind that these discussions are in a preliminary stage, and at this point, there is no change in the inspection requirements for tax credit/Section 8 properties. Federal officials plan to issue a written proposal on the new inspection standards in the Fall of 2011.