Section 42 (i) (3) (D) states that certain students do not disqualify a unit from being low-income for LIHTC purposes. Five exceptions are outlined in the Code, one of which states “A unit shall not fail to be treated as a low-income unit merely because it is occupied entirely by full-time students if such students are single parents and their children and such parents are not dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of another individual and such children are not dependents (as so defined) of another individual other than a parent of such children…”
While persons other than a parent may claim a child as a dependent, §152 does not define such persons as parents. For example, a grandparent may claim a child as a dependent, but they are not deemed a “parent” for tax purposes. For this reason, I recommend following a relatively narrow definition of “parent” with regard to the single parent exception under §42 of the IRC. The most common definition in legal circles is “the lawful and natural father or mother of a person. The word does not mean grandparent or ancestor, but can include an adoptive parent. The definition has recently be expanded in many circumstances to include same-sex relationships, if the parties have full parental rights under the law. It generally will include an individual who, in law, has custody, guardianship or access rights in regards to a child and who may have corollary obligations to financially support a minor, typically by way of child support.
Based on the ambiguity of this issue, and the fact that the IRS has provided no specific guidance regarding the definition of a “parent” under §42, I recommend that owners and managers of LIHTC properties use a strict definition of “parent” for purposes of the tax credit student rule. While owners may decide to use an expanded definition if approved by the Housing Credit Allocating Agency, there is no guarantee that the IRS, in the event of an audit, would approve the expanded definition.