Multifamily Low Income Occupancy Compliance

On July 1, 2004, the Internal Revenue Service issued Revenue Procedure 2004-39 setting forth procedures for determining whether a bond financed residential rental project is in compliance with the set-aside requirements contained in Section 142(d) of the Internal Revenue Code in the context of an acquisition/rehabilitation transaction or a new construction project. In general, Section 142(d) requires that a bond financed residential rental project must have either (i) 20% of its units occupied by individuals whose income is 50% or less of area median income, or (ii) 40% of its units occupied by individuals whose income is 60% or less of area median income. The set-aside requirements often raise a compliance dilemma for developers, especially during rehabilitation of a project. For example, must a developer rent all available units in a project until the 20% or 40% set-asides, as