CHAPTER 170
PROCEDURES FOR ALLOCATION OF LOW-INCOME HOUSING TAX CREDITS (REPEALED)

13VAC5-170-10. Definitions. (Repealed.)

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:

"Applicant" means an applicant for federal credits or state credits, or both, under these procedures and, upon and subsequent to an allocation of such credits, also means the owner of the development to whom the federal credits or state credits or both are allocated.

"Estimated highest per bedroom credit amount for new construction units" means, in 13VAC5-170-60 E 6, the highest amount of federal credits and 50% of state credits estimated by the director to be allocated per bedroom (within the low-income housing units) to any development in the Commonwealth (or, if the director shall so determine, in each pool or subpool) composed solely of new construction units.

"Estimated highest per bedroom credit amount for rehabilitation units" means, in 13VAC5-170-60 E 6, the highest amount of federal credits and 50% of state credits estimated by the director to be allocated per bedroom (within the low-income housing units) to any development in the Commonwealth (or, if the director shall so determine, in each pool or subpool) composed solely of rehabilitation units.

"Estimated highest per unit credit amount for new construction units" means, in 13VAC5-170-60 E 5, the highest amount of federal credits and 50% of state credits estimated by the director to be allocated per low-income unit to any development in the Commonwealth (or if the director shall so determine, in each pool or subpool) composed solely of new construction units.

"Estimated highest per unit credit amount for rehabilitation units" means, in subdivision 5 of 13VAC5-170-60 E 5, the highest amount of federal credits and 50% of state credits estimated by the director to be allocated per low-income unit to any development in the Commonwealth (or, if the director shall so determine, in each pool or subpool) composed solely of rehabilitation units.

"Federal credits" means the low-income housing tax credits as described in § 42 of the IRC.

"IRC" means the Internal Revenue Code of 1986, as amended, and the rules, regulations, notices and other official pronouncements promulgated thereunder.

"Low-income housing units" means those units which are defined as "low income units" under § 42 of the IRC.

"Qualified low-income buildings" or "qualified low-income development" means the buildings or development which meets the applicable requirements in § 42 of the IRC to qualify for an allocation of federal credits thereunder.

"Single-room occupancy units (SRO)" means permanent facilities for the homeless, consisting of a single room housing unit with either private or shared bath facilities with the optional provision of kitchen facilities.

"State code" means Chapter 1.4 of Title 36 of the Code of Virginia.

"State credits" means the low-income housing tax credits as described in the state code.

"Transitional housing" means facilities for the homeless in which the housing units contain sleeping accommodations and kitchen and bathroom facilities and are located in a building which is used exclusively to facilitate the transition of homeless individuals (within the meaning of § 103 of the Stewart B. McKinney Homeless Assistance Act (42 USC § 11302)) to independent living within 24 months, and in which a governmental entity or qualified nonprofit organization provides such individuals with temporary housing and supportive services designed to assist such individuals in locating and retaining permanent housing.

"Virginia taxpayer" means any individual, estate, trust or corporation which, in the determination of the department, is subject to the payment of Virginia income taxes and will be able to claim in full against such taxes the amount of state credits reserved or allocated to such individual, estate, trust or corporation under these procedures.

13VAC5-170-20. Purpose and applicability. (Repealed.)

The following procedures will govern the allocation by the department of federal credits pursuant to § 42 of the IRC and state credits pursuant to the state code.

Notwithstanding anything to the contrary herein, acting at the request or with the consent of the applicant for federal credits or state credits or both, the director is authorized to waive or modify any provision herein where deemed appropriate by him for good cause, to the extent not inconsistent with the IRC and the state code.

This chapter is intended to provide a general description of the department's processing requirements and is not intended to include all actions involved or required in the processing and administration of the federal credits and state credits. This chapter is subject to change at any time by the department and may be supplemented by policies and procedures adopted by the department from time to time.

Any determination made by the department pursuant to this chapter as to the financial feasibility of any development or its viability as a qualified low-income development shall not be construed to be a representation or warranty by the department as to such feasibility or viability.

Notwithstanding anything to the contrary here, all procedures and requirements in the IRC and the state code must be complied with and satisfied.

13VAC5-170-30. General description. (Repealed.)

The IRC provides for federal credits to the owners of residential rental projects comprised of qualified low-income buildings in which low-income housing units are provided, all as described there. The aggregate amount of such credits (other than federal credits for developments financed with certain tax-exempt bonds as provided in the IRC) allocated in any calendar year within the Commonwealth may not exceed the Commonwealth's annual state housing credit ceiling for such year under the IRC. An amount equal to 10% of such ceiling is set-aside for developments in which certain qualified nonprofit organizations hold an ownership interest and materially participate in the development and operation of them. Federal credit allocation amounts are counted against the Commonwealth's annual state housing credit ceiling for federal credits for the calendar year in which the federal credits are allocated. The IRC provides for the allocation of the Commonwealth's state housing credit ceiling for federal credits to the housing credit agency of the Commonwealth. The department has been designated by executive order of the Governor as the housing credit agency under the IRC and, in such capacity, shall allocate for each calendar year federal credits to qualified low-income buildings or developments in accordance with this chapter.

Federal credits may be allocated to each qualified low-income building in a development separately or to the development as a whole in accordance with the IRC.

Federal credits may be allocated to such buildings or development either (i) during the calendar year in which such building or development is placed in service or (ii) if the building or development meets the requirements of § 42(h)(1)(E) of the IRC, during one of the two years preceding the calendar year in which such building or development is expected to be placed in service. Prior to such allocation, the department shall receive and review applications for reservations of federal credits as described hereinbelow and shall make such reservations of federal credits to eligible applications in accordance with this chapter and subject to satisfaction of certain terms and conditions as described herein. Upon compliance with such terms and conditions and, as applicable, either (i) the placement in service of the qualified low-income buildings or development or (ii) the satisfaction of the requirements of § 42(h)(1)(E) of the IRC with respect to such buildings or the development, the federal credits shall be allocated to such buildings or the development as a whole in the calendar year for which such federal credits were reserved by the department.

Except as otherwise provided herein or as may otherwise be required by the IRC, this chapter shall not apply to federal credits with respect to any development or building to be financed by certain tax-exempt bonds in an amount so as not to require under the IRC an allocation of federal credits under this.

The department is authorized by the state code to establish the amount, if any, of state credits to be allocated to any buildings or development qualified for and claiming federal credits. The amount of state credits is calculated as a percentage of federal credits. Such percentage is established by the department as provided herein. The Code of Virginia provides for a maximum allocation of $3,500,000 state credits in any calendar year. The state credits will be available for buildings or developments for which federal credits shall be allocated in 1990 and subsequent years or, in the case of any development or building to be financed by certain tax-exempt bonds in an amount so as not to require under the IRC an allocation of federal tax credits under this, for which such bonds shall be issued in 1990 and subsequent years. In the event that legislation is adopted by the General Assembly to defer the date set forth in §§ 36-55.63 A, 58.1-336 A or 58.1-435 A of the Code of Virginia, then the year 1990 in the preceding sentence shall likewise be deferred and the provisions of this chapter relating to state credits shall not become effective until the date set forth in such legislation.

The department shall charge to each applicant fees in such amount as the director shall determine to be necessary to cover the administrative costs to the department, but not to exceed the maximum amount permitted under the IRC. Such fees shall be payable at such time or times as the director shall require.

13VAC5-170-40. Adoption of allocation plan; solicitations of applications. (Repealed.)

The IRC requires that the department adopt a qualified allocation plan which shall set forth the selection criteria to be used to determine housing priorities of the department which are appropriate to local conditions and which shall give certain priority to and preference among developments in accordance with the IRC. The director from time to time may cause housing needs studies to be performed in order to develop the qualified allocation plan and, based upon any such housing needs study and any other available information and data, may direct and supervise the preparation of and approve the qualified allocation plan and any revisions and amendments to it in accordance with the IRC. The IRC requires that the qualified allocation plan be subject to public approval in accordance with rules similar to those in § 147(f)(2) of the IRC. The director may include all or any portion of this chapter in the qualified allocation plan.

The director may from time to time take such action as he may deem necessary or proper in order to solicit applications for federal credits and state credits. Such actions may include advertising in newspapers and other media, mailing of information to prospective applicants and other members of the public, and any other methods of public announcement which the director may select as appropriate under the circumstances. The director may impose requirements, limitations and conditions with respect to the submission of applications and the selection of them as he shall consider necessary or appropriate.

13VAC5-170-50. Application. (Repealed.)

Application for a reservation of federal credits or state credits or both shall be commenced by filing with the department an application, on such form or forms as the director may from time to time prescribe or approve, together with such documents and additional information as may be requested by the department in order to comply with the IRC, the state code and this chapter and to make the reservation and allocation of the federal credits and state credits in accordance with this chapter. The application shall include a breakdown of sources and uses of funds sufficiently detailed to enable the department to ascertain where and what costs will be incurred and what will comprise the total financing package, including the various subsidies and the anticipated syndication or placement proceeds that will be raised. The following cost information must be included in the application: site acquisition costs, site preparation costs, construction costs, construction contingency, general contractor's overhead and profit, architect and engineer's fees, permit and survey fees, insurance premiums, real estate taxes during construction, title and recording fees, construction period interest, financing fees, organizational costs, rent-up and marketing costs, accounting and auditing costs, working capital and operating deficit reserves, syndication and legal fees, development fees, and other costs and fees.

Each application shall include evidence of (i) sole fee simple ownership of the site of the proposed development by the applicant, (ii) lease of such site by the applicant for a term exceeding the compliance period (as defined in the IRC) or for such longer period as the applicant represents in the application that the development will be held for occupancy by low-income persons or families or (iii) right to acquire or lease such site pursuant to a valid and binding written option or contract between the applicant and the fee simple owner of such site, provided that such option or contract shall have no conditions within the discretion or control of such owner of such site. No application shall be considered for a reservation or allocation of federal credits or state credits unless such evidence is submitted with the application and the department determines that the applicant owns, leases or has the right to acquire or lease the site of the proposed development as described in the preceding sentence.

The application shall include pro forma financial statements setting forth the anticipated cash flows during the credit period as defined in the IRC. The application shall include a certification by the applicant as to the full extent of all federal, state and local subsidies which apply (or which the applicant expects to apply) with respect to each building or development. The director may also require the submission of a legal opinion or other assurances satisfactory to the director as to, among other things, compliance of the proposed development with the IRC and a certification, together with an opinion of an independent certified public accountant or other assurances satisfactory to the director, setting forth the calculation of the amount of federal credits requested by the application and certifying, among other things, that under the existing facts and circumstances the applicant will be eligible for the amount of federal credits requested.

The director may establish criteria and assumptions to be used by the applicant in the calculation of amounts in the application, and any such criteria and assumptions shall be indicated on the application form or instructions.

The director may prescribe such deadlines for submission of applications for reservation and allocation of federal credits and state credits for any calendar year as he shall deem necessary or desirable to allow sufficient processing time for the department to make such reservations and allocations.

After receipt of the applications, the department shall notify the chief executive officers (or the equivalent) of the local jurisdictions in which the developments are to be located and shall provide such individuals a reasonable opportunity to comment on the developments.

The development for which an application is submitted may be, but shall not be required to be, financed by the department. If any such development is to be financed by the department, the application for such financing shall be submitted to and received by the department in accordance with its applicable procedures.

The department may consider and approve, in accordance herewith, both the reservation and the allocation of federal credits and state credits to buildings or developments which the department may own or may intend to acquire, construct or rehabilitate.

13VAC5-170-60. Review and selection of applications; reservation of federal credits. (Repealed.)

A. The director may divide the amount of federal credits into separate pools and may further subdivide those pools into subpools. The division of such pools and subpools may be based upon one or more of the following factors: geographical areas of the Commonwealth; types or characteristics of housing, construction, financing, owners, or occupants; or any other factors deemed appropriate by him to best meet the housing needs of the Commonwealth.

B. An amount, as determined by the director, not less than 10% of the Commonwealth's annual state housing credit ceiling for federal credits, shall be available for reservation and allocation to buildings or developments with respect to which the following requirements are met:

1. With respect to all reservations and allocations of federal credits, a "qualified nonprofit organization" (as described in § 42(h)(5)(C) of the IRC) is to materially participate (within the meaning of § 469(h) of the IRC) in the development and operation of the development throughout the "compliance period" (as defined in § 42(i)(1) of the IRC); and

2. With respect to only those reservations of federal credits made by the director on or after December 18, 1990, and with respect to only those allocations made pursuant to such reservations, (i) the "qualified nonprofit organization" described in the preceding subdivision 1 is to own an interest in the development (directly or through a partnership) as required by the IRC; (ii) such qualified nonprofit organization is to, prior to the allocation of federal credits to the buildings or development, own a general partnership interest in the development which shall constitute not less than 51% of all of the general partnership interests of the ownership entity of it (such that the qualified nonprofit organizations have at least a 51% interest in both the income and profit allocated to all of the general partners and in all items of cash flow distributed to the general partners) and which will result in such qualified nonprofit organization receiving not less than 51% of all fees, except builder's overhead and builder's profit, paid or to be paid to all of the general partners (and any other entities determined by the department to be related to or affiliated with one or more of such general partners) in connection with the development; (iii) the director of the department shall have determined that such qualified nonprofit organization is not affiliated with or controlled by a for-profit organization; and (iv) the director of the department shall have determined that the qualified nonprofit organization was not or will not be formed by one or more individuals or for-profit entities for the principal purpose of being included in any nonprofit pools or subpools (as defined below) established by the director. In making the determination required by this subdivision 2(iv), the director may apply such factors as he deems relevant, including, without limitation, the past experience and anticipated future activities of the qualified nonprofit organization, the sources and manner of funding of the qualified nonprofit organization, the date of formation and expected life of the qualified nonprofit organization, the number of staff members and volunteers of the qualified nonprofit organization, the nature and extent of the qualified nonprofit organization's proposed involvement in the construction or rehabilitation and the operation of the proposed development, and the relationship of the staff, directors or other principals involved in the formation or operation of the qualified nonprofit organization with any persons or entities to be involved in the proposed development on a for-profit basis. The director may include in the application of the foregoing factors any other nonprofit organizations which, in his determination, are related (by shared directors, staff or otherwise) to the qualified nonprofit organization for which such determination is to be made.

For purposes of the foregoing requirements, a qualified nonprofit organization shall be treated as satisfying such requirements if any qualified corporation (as defined in § 42(h)(5)(D)(ii) of the IRC) in which such organization holds stock satisfies such requirements.

C. The applications shall include such representations and warranties and such information as the director may require in order to determine that the foregoing requirements have been satisfied. In no event shall more than 90% of the Commonwealth's annual state housing credit ceiling for federal credits be available for developments other than those satisfying the preceding requirements. The director may establish such pools or subpools ("nonprofit pools or subpools") of federal credits as he may deem appropriate to satisfy the foregoing requirement. If any such nonprofit pools or subpools are so established, the director may rank the applications in them and reserve federal credits (and, if applicable, state credits) to such applications before ranking applications and reserving federal credits (and, if applicable, state credits) in other pools and subpools, and any such applications in such nonprofit pools or subpools not receiving any reservations of federal credits (and, if applicable, state credits) or receiving such reservations in amounts less than the full amount permissible hereunder (because there are not enough federal credits then available in such nonprofit pools or subpools to make such reservations) shall be assigned to such other pool or subpool as shall be appropriate under this; provided, however, that if federal credits are later made available (pursuant to the IRC or as a result of either a termination or reduction of a reservation of federal credits made from any nonprofit pools or subpools or a rescission in whole or in part of an allocation of federal credits made from such nonprofit pools or subpools or otherwise) for reservation and allocation by the department during the same calendar year as that in which applications in the nonprofit pools or subpools have been so assigned to other pools or subpools as described above, the director may, in such situations, designate all or any portion of such additional federal credits for the nonprofit pools or subpools (or for any other pools or subpools as he shall determine) and may, if additional federal credits have been so designated for the nonprofit pools or subpools, reassign such applications to such nonprofit pools or subpools, rank the applications in them and reserve federal credits to such applications in accordance with the IRC and this chapter. In the event that during any round (as authorized below) of application review and ranking the amount of federal credits reserved within such nonprofit pools or subpools is less than the total amount of federal credits made available to them, the director may either (i) leave such unreserved federal credits in such nonprofit pools or subpools for reservation and allocation in any subsequent round or rounds or (ii) redistribute, to the extent permissible under the IRC, such unreserved federal credits to such other pools or subpools as the director shall designate and in which there are or remain applications for federal credits which have not then received reservations therefor in the full amount permissible under this (which applications shall hereinafter be referred to as "excess applications") or (iii) carry over such unreserved federal credits to the next succeeding calendar year for inclusion in the state housing credit ceiling (as defined in § 42(h)(3)(C) of the IRC) for such year. Any redistribution made pursuant to clause (ii) above shall be made pro rata based on the amount originally distributed to each such pool or subpool with excess applications divided by the total amount originally distributed to all such pools or subpools with excess applications. Notwithstanding anything to the contrary herein, no allocation of credits shall be made from any nonprofit pools or subpools to any application with respect to which the qualified nonprofit organization has not yet been legally formed in accordance with the requirements of the IRC. In addition, no application for credits from any nonprofit pools or subpools may receive a reservation or allocation of credits from any nonprofit pools or subpools, or any combination of those pools with other pools, in an amount greater than $500,000. For the purposes of implementing this limitation, the director may determine that more than one application for more than one development which he deems to be a single development shall be considered as a single application.

D. The director may elect to allocate no more than $1,000,000 in annual tax credits to any new construction project until all other eligible projects within the applicable pool have received an allocation of credits.

E. The department shall review each application, and, based on the application and other information available to the department, shall assign points to each application as follows:

1.a. The extent to which the project addresses public purpose. This category carries a maximum of 400 points. Of those:

A maximum of 100 points may be earned based upon the project location and quality characteristics. For new construction and rehabilitation projects located in a HUD defined qualified census tract or difficult to develop area, up to 50 points will be awarded for amenities and unit size, 25 points for energy efficiency, and 25 points for historic certification. For new construction and rehabilitation projects not located in a HUD defined qualified census tract or difficult to develop area, up to 30 points will be awarded for amenities and unit size, 15 points for energy efficiency, and 15 points for historic certification.

b. A maximum of 100 points may be earned for documented local need and local support distributed as follows:

A maximum of 40 points may be earned for local need documented by a letter from the locality's chief executive officer certifying that the project meets a priority need identified in the locality's Comprehensive Housing Affordability Strategy (CHAS). In those areas without a local CHAS, points will be awarded for a letter from the local CEO explaining how the project meets a need identified in a current housing study or comprehensive plan, and/or a private market study, and secondary data from other research on housing needs in the area. A maximum of 50 points may be earned for documented funding provided by the locality to be determined on a pro rata basis. If the local funding accounts for 20% or more of the total sources, the project will receive full points. A maximum of 10 points will be awarded for other evidence of support from local referral agencies and neighborhood and local interest groups.

c. A maximum of 20 points may be earned for special needs preference. Using a weighted average of the number of units, up to 10 points may be earned for elderly housing, where "elderly" means 62 years of age or older, up to 10 points for housing for handicapped persons, and up to 10 points for housing for large families (3 bedrooms or more).

d. Five points may be earned for giving leasing preference to persons from either local housing authority waiting lists or 13VAC5-170-80 waiting lists.

e. A maximum of 25 points may be earned for involvement by a qualified Nonprofit Organization, if such organization owns a 51% or greater interest in the general partner of the owning entity.

f. A maximum of 150 points may be earned for projects with rents below the maximums allowed, which have low-income restrictions on a higher percentage of units than the minimum required, and which serve the following households or some combination of them:

(1) 150 Maximum points for households at 40% of median income;

(2) 125 Maximum points for households at 50% of median income; or

(3) 100 Maximum points for households at 60% of median income.

2. The extent to which the project demonstrates readiness to move forward quickly. This category carries a maximum of 100 points and each project eligible for credits must meet a threshold of 50 points. The department reserves the right to reduce the threshold level at its sole discretion. Of these points:

a. Twenty-five points may be earned for having documented appropriate zoning or written evidence satisfactory to the department that no zoning requirements are applicable.

b. Ten points may be earned for having an approved plan of development or written evidence that such a plan is not required.

c. A maximum of 40 points may be earned for the degree to which the project's plans and specifications (where the project is a new construction project or a rehabilitation project involving major reconfiguration), or work write-ups and specifications (where the project is a rehabilitation project not involving major reconfiguration) are complete. This will be calculated by multiplying 40 points by the percentage of completion of final, sealed construction documents. The degree of completion will typically be determined by a letter from the project's architect or other appropriate third-party professional. In the absence of this documentation, the department will determine the degree of completion. Full points will be awarded for completion greater than or equal to 75%.

d. Twenty-five points may be earned for a complete and reasonable time line for putting the project into service.

3. The extent to which the application demonstrates project financial workability. This category carries a maximum of 250 points and each project eligible for credits must meet a threshold of 125 points. The department reserves the right to reduce the threshold level at its sole discretion. Of those points:

a. A maximum of 110 points may be earned based on the completeness (up to 20 points) and reasonableness (up to 95 points) of the project budget, with reasonableness points being awarded based upon consideration of factors including, but not limited to, the cost per unit, debt per unit, estimated capitalization rate, projected tax credit proceeds, developer's fee, builder overhead and profit, and project reserves.

b. A maximum of 140 points may be earned based on the completeness (up to 20 points) and reasonableness (up to 120 points) of the operating budget, with reasonableness points being awarded based upon consideration of factors including, but not limited to, rent as a percentage of HUD fair market rents, utility allowance, management fee, maintenance expense per unit, replacement reserve per unit, total operating expenses per unit, and the debt coverage ratio.

4. The extent to which the application demonstrates the administrative capacity of the applicants. This category carries a maximum of 100 points. Of those: A maximum of 65 points may be earned for project sponsor/development team's demonstrated experience, qualifications, ability and financial capacity to perform their respective functions. Applications will not be accepted from sponsors who have filed, as an individual or corporation entity, for bankruptcy protection under Chapter 7 or Chapter 11 during the last five years.

a. A maximum of 15 points may be earned for contractor experience and financial strength;

b. A maximum of 20 points may be earned for property management experience and the property management plan;

c. A maximum of 50 points may be deducted for failure to address Displacement;

d. A maximum of 50 points may be deducted for failure to complete the Application, with 10 points deducted if the correct number of copies is not submitted, and 20 points deducted if all required documentation is not submitted, and up to 20 points deducted if answers to questions are not reasonably complete.

5. A maximum of 35 points will be available for scoring the per unit credit amount. For new construction and substantial rehabilitation projects, the number of points awarded shall be determined by multiplying 35 points by the percentage by which the total of the amount of federal credits and 50% of the amount of state credits per low-income housing unit (the "per unit credit amount") of the proposed development is less than the estimated highest per unit credit amount for new construction and substantial rehabilitation projects adjusted for location. For moderate rehabilitation projects, the number of points awarded shall be determined by multiplying 35 points by the percentage by which the total of the amount of federal credits and 50% of the amount of state credits per low-income housing unit (the "per unit credit amount") of the proposed development is less than the estimated highest per unit credit amount for moderate rehabilitation projects adjusted for location. In the case of projects which combine new construction or substantial rehabilitation with moderate rehabilitation, this calculation will use a weighted average based on the number of each unit type in the proposed development.

6. A maximum of 15 points will be available for scoring the per bedroom credit amount. For new construction and substantial rehabilitation projects, the number of points awarded shall be determined by multiplying 15 points by the percentage by which the total of the amount of federal credits and 50% of the amount of state credits per bedroom (the "per bedroom credit amount") of the proposed development is less than the estimated highest per bedroom credit amount for new construction and substantial rehabilitation projects adjusted for location. For moderate rehabilitation projects, the number of points awarded shall be determined by multiplying 15 points by the percentage by which the total of the amount of federal credits and 50% of the amount of state credits per bedroom (the "per bedroom credit amount") of the proposed development is less than the estimated highest per bedroom credit amount for moderate rehabilitation projects adjusted for location. In the case of projects which combine new construction or substantial rehabilitation with moderate rehabilitation, this calculation will use a weighted average based on the number of each unit type in the proposed development.

For the purpose of calculating the points to be assigned pursuant to such items 5 and 6 above, all credit amounts shall be those requested in the applicable application, and the per unit credit amount and per bedroom credit amount for any building located in a qualified census tract or difficult development area (such tract or area being as defined in the IRC) shall be determined based upon 100% of the eligible basis of such building, in the case of new construction, or 100% of the rehabilitation expenditures, in the case of rehabilitation of an existing building, notwithstanding the use by the applicant of 130% of such eligible basis or rehabilitation expenditures in determining the amount of federal credits as provided in the IRC. Furthermore, the department reserves the right to exclude from these calculations any project which has such a high request that it unreasonably distorts the results of these measures.

7. Extent to which the application addresses extended compliance, reasonable intermediary costs, and special needs preferences. This category carries a maximum of 100 points. Of those:

a. A maximum of 30 points may be earned for a commitment by the applicant to maintain the development as a qualified low-income housing development beyond the 15-year compliance period as defined in the IRC; such commitment beyond the end of the 15-year compliance period and prior to the end of the 30-year extended use period (as defined in the IRC) being deemed to represent a waiver of the applicant's right under the IRC to cause a termination of the extended use period in the event the department is unable to present during the period specified in the IRC a qualified contract (as defined in the IRC) for the acquisition of the building by any person who will continue to operate the low-income portion thereof as a qualified low-income building, two points being awarded for each year of compliance beyond 15 years.

b. A maximum of 40 points may be earned for limiting intermediary costs, with the maximum number being awarded for the lowest efficiency measure score resulting from the application of the following formulas:

Step 1. Net equity =

(Project equity) - (bridge loan interest + syndication fees and expenses)

Step 2. Efficiency measure =

(construction cost)/(net equity - front-end developer's fee)

Where "front-end developer's fee" means any fee withdrawn from the project prior to the first five years following placement in service, less the amount of any loans made by the developer to the project that are not to be repaid within that five-year period.

c. Using a weighted average of the total number of units, up to 30 points may be earned for providing either permanent housing (30 points), including single room occupancy facilities, or temporary housing (30 points), including transitional housing, for homeless persons.

In the event of a tie in the number of points assigned to two or more applications within the same pool or subpool, or, if none, within the Commonwealth, and if the amount of federal credits available for reservation to such applications is determined by the director to be insufficient for the financial feasibility of both or, as applicable, all of the developments described therein, the department shall, in order to fully utilize the amount of credits available for reservation within such pool or subpool or, if none, within the Commonwealth select one or more of the applications, by lot, to receive a reservation of federal credits in the lesser of the full amount determined by the director to be permissible hereunder or the amount of federal credits then available in such pool or subpool.

F. The director may exclude and disregard any application which he determines is not submitted in good faith or which he determines would not be financially feasible.

G. Upon assignment of points to all of the applications, the director shall rank the applications based on the number of points so assigned. If any pools or subpools shall have been established, each application shall be assigned to a pool or subpool and shall be ranked within such pool or subpool. Those applications assigned more points shall be ranked higher than those applications assigned fewer points.

H. For each application which may receive a reservation of federal credits, the director shall determine the amount, as of the date of the deadline for submission of applications for reservation of federal credits, to be necessary for the financial feasibility of the development and its viability as a qualified low-income development throughout the credit period under the IRC. In making this determination, the director shall consider the sources and uses of the funds, the available federal, state and local subsidies committed to the development, the total financing planned for the development as well as the investment proceeds or receipts expected by the department to be generated with respect to the development, and the percentage of the federal credit dollar amount used for development costs other than the costs of intermediaries. He shall also examine the development's costs, including developer's fees and other amounts in the application, for reasonableness and, if he determines that such costs or other amounts are unreasonably high, he shall reduce them to amounts that he determines, in his sole discretion, to be reasonable. (If the applicant requests any state credits, the amount of state credits to be reserved to the applicant shall be determined pursuant to 13VAC5-170-70 prior to the foregoing determination, and any funds to be derived from such state credits shall be included in the above described sources and uses of funds.) The director shall review the applicant's projected rental income, operating expenses and debt service for the credit period. The director may establish such criteria and assumptions as he shall deem reasonable for the purpose of making such determination, including, without limitation, criteria as to the reasonableness of fees and profits and assumptions as to the amount of net syndication proceeds to be received (based upon such percentage of the federal credit dollar amount used for development costs, other than the costs of intermediaries, as the director shall determine to be reasonable for the proposed development), increases in the market value of the development, and increases in operating expenses, rental income and, in the case of applications without firm financing commitments (as defined above) at fixed interest rates, debt service on the proposed mortgage loan.

I. At such time or times during each calendar year as the director shall designate, the director shall reserve federal credits to applications in descending order of ranking within each pool or subpool, if applicable, until either substantially all federal credits in them are reserved or all applications in them have received reservations. (For the purpose of the preceding sentence, if there is not more than a de minimis amount, as determined by the director, of federal credits remaining in a pool or subpool after reservations have been made, "substantially all" of the federal credits in such pool shall be deemed to have been reserved.) The director may rank the applications within pools or subpools at different times for different pools or subpools and may reserve federal credits, based on such rankings, one or more times with respect to each pool or subpool. The director may also establish more than one round of review and ranking of applications and reservation of federal credits based on such rankings, and he shall designate the amount of federal credits to be made available for reservation within each pool or subpool during each such round. The amount reserved to each such application shall be equal to the lesser of (i) the amount requested in the application or (ii) an amount determined by the director, as of the date of application, to be necessary for the financial feasibility of the development and its viability as a qualified low-income development throughout the credit period under the IRC; provided, however, that in no event shall the amount of federal credits so reserved exceed the maximum amount permissible under the IRC.

J. If the amount of federal credits available in any pool is determined by the director to be insufficient for the financial feasibility of the proposed development to which such available federal credits are to be reserved, the director may (i) permit the applicant to modify such proposed development and his application so as to achieve financial feasibility based upon the amount of such available federal credits or (ii), for projects which meet the requirements of § 42(h)(1)(E) of the IRC only, reserve additional federal credits from the Commonwealth's annual state housing credit ceiling for the following year in such an amount necessary for the financial feasibility of the proposed development. Any modifications shall be subject to the approval of the director; provided, however, that in no event shall such modifications result in a material reduction in the number of points assigned to the application pursuant to 13VAC5-170-60 here. The reservation of federal credits from the Commonwealth's annual state housing credit ceiling for the following year shall be made only to proposed developments that rank high enough to receive some federal credits from the state housing credit ceiling for the current year. However, any such reservation shall be in the sole discretion of the director if he determines it to be in the best interest of the plan. In the event a reservation or an allocation of federal credits from the current year or a prior year is reduced, terminated or cancelled, the director may substitute such federal credits for any federal credits reserved from the following year's annual state housing credit ceiling.

K. In the event that during any round of application review and ranking the amount of federal credits reserved within any pools or subpools is less than the total amount of federal credits made available therein during such round, the director may either (i) leave such unreserved federal credits in such pools or subpools for reservation and allocation in any subsequent round or rounds or (ii) redistribute such unreserved federal credits to such other pools or subpools as the director may designate and in which there remain excess applications or (iii) carry over such unreserved federal credits to the next succeeding calendar year for inclusion in the state housing credit ceiling (as defined in § 42(h)(3)(C) of the IRC) for such year. Any redistribution made pursuant to subparagraph (ii) above shall be made pro rata based on the amount originally distributed to each of such pools or subpools so designated by the director with excess applications divided by the total amount originally distributed to all such designated pools or subpools with excess applications. Such redistributions may continue to be made until either all of the federal credits are reserved or all applications have received reservations.

L. Within a reasonable time after federal credits are reserved to any applicants' applications, the director shall notify each applicant for such reservations of federal credits either of the amount of federal credits reserved to such applicant's application (by issuing to such applicant a written binding commitment to allocate such reserved federal credits subject to such terms and conditions as may be imposed by the director therein, by the IRC and by this chapter) or, as applicable, that the applicant's application has been rejected or excluded or has otherwise not been reserved federal credits in accordance herewith.

M. The director may require the applicant to make a good faith deposit or to execute such contractual agreements providing for monetary or other remedies as it may require, or both, to assure that the applicant will comply with all requirements under the IRC (and, in the case of state credits, the state code), this chapter and the binding commitment (including, without limitation, any requirement to conform to all of the representations, commitments and information contained in the application for which points were assigned pursuant to 13VAC5-170-60). Upon satisfaction of all such aforementioned requirements (including any post-allocation requirements), such deposit (or a pro rata portion thereof based upon the portion of federal credits and, if applicable, state credits so allocated) shall be refunded to the applicant or such contractual agreements shall terminate, or both, as applicable.

N. If, as of the date the application is approved by the director, the applicant is entitled to an allocation of the federal credits under the IRC, this chapter and the terms of any binding commitment that the department would have otherwise issued to such applicant, the director may at that time allocate the federal credits (and, if applicable, state credits) to such qualified low income buildings or development without first providing a reservation of such federal credits (and, if applicable, state credits). This provision in no way limits the authority of the director to require a good faith deposit or contractual agreement, or both, as described in the preceding paragraph, nor to relieve the applicant from any other requirements under this for eligibility for an allocation of federal credits.

O. The director may require that applicants to whom federal credits (and, if applicable, state credits) have been reserved shall submit from time to time or at such specified times as he shall require, written confirmation and documentation as to the status of the proposed development and its compliance with the application, the binding commitment and any contractual agreements between the applicant and the department. If on the basis of such written confirmation and documentation as the director shall have received in response to such a request, or on the basis of such other available information, or both, the director determines any or all of the buildings in the development which were to become qualified low- income buildings will not do so within the time period required by the IRC (and, in the case of state credits, the state code) or will not otherwise qualify for such federal credits (and, if applicable, state credits) under the IRC, these procedures or the binding commitment, then the director may terminate the reservation of such federal credits (and, if applicable, state credits) and draw on any good faith deposit. If, in lieu of or in addition to the foregoing determination, the director determines that any contractual agreements between the applicant and the department have been breached by the applicant, whether before or after allocation of the federal credits, he may seek to enforce any and all remedies to which the department may then be entitled under such contractual agreements.

P. The director may establish such deadlines for determining the ability of the applicant to qualify for an allocation of federal credits (and, if applicable, state credits) as he shall deem necessary or desirable to allow the department sufficient time, in the event of a reduction or termination of the applicant's reservation, to reserve such federal credits (and, if applicable, state credits) to other eligible applications and to allocate such federal credits pursuant to them.

Q. Any material changes to the development, as proposed in the application, occurring subsequent to the submission of the application for the federal credits (and, if applicable, state credits) therefor shall be subject to the prior written approval of the director. As a condition to any such approval, the director may, as necessary to comply with this chapter, the IRC, the binding commitment and any other contractual agreement between the department and the applicant, reduce the amount of federal credits (and, if applicable, state credits) applied for or reserved or impose additional terms and conditions with respect to them. If such changes are made without the prior written approval of the director, he may terminate or reduce the reservation of such federal credits (and, if applicable, state credits), impose additional terms and conditions with respect to them, seek to enforce any contractual remedies to which the department may then be entitled, draw on any good faith deposit, or any combination of the foregoing.

R. In the event that any reservation of federal credits is terminated or reduced by the director under this section, he may reserve, allocate or carry over, as applicable, such federal credits in such manner as he shall determine consistent with the requirements of the IRC and this chapter.

13VAC5-170-70. Reservation of state credits. (Repealed.)

A. Each applicant may also request a reservation of state credits in his application for a reservation of federal credits. State credits may be reserved only to those applications (i) to which federal credits have been reserved or (ii) which represent that the applicant will be the owner of any development or buildings to be financed by certain tax-exempt bonds in an amount so as not to require under the IRC an allocation of federal credits under this. In the case of (ii) above, the applicant for state credits shall submit an application for federal credits (as well as for state credits), and such application shall be submitted, reviewed, and ranked in accordance with this chapter; provided, however, that a reservation shall be made for the state credits only and not for any federal credits.

B. In order to be eligible for a reservation and allocation of state credits, the development must be owned by one of the following: (i) an individual who is a Virginia taxpayer, (ii) a corporation (other than an S corporation) which is a Virginia taxpayer, (iii) a partnership or an S corporation in which at least 75% of the state credits received by such partnership or S corporation will be allocated to partners or shareholders who are Virginia taxpayers, or (iv) any other legal entity which is a Virginia taxpayer or, in the case of an entity that is taxed on a pass-through basis with respect to tax credits, in which at least 75% of the state credits received by such entity will be allocated to Virginia taxpayers. If more than one of the foregoing shall be joint owners of the development, then the joint tenancy shall be treated as a partnership for purposes of applying the foregoing ownership test. In the case of tiered partnerships, S corporations, and other entities that are taxed on a pass-through basis with respect to tax credits, the ownership test will be applied by looking through such pass-through entities to the underlying owners. The application shall include such information as the director may require in order to determine the owner or owners of the development and the status of such owner or owners or those owning interests in them as Virginia taxpayers. The prior written approval of the department shall be required for any change in the ownership of the development prior to the end of the calendar year in which all of the buildings in such development shall be placed in service, unless the transferee certifies that it is a Virginia taxpayer or, in the case of a pass-through entity, that 100% of its owners of such entity are Virginia taxpayers.

C. State credits may be reserved by the director to an application only if the maximum amount of federal credits (determined by the use of the full applicable percentage as defined in the IRC, regardless of the amount requested by the applicant) which could be claimed for any development is determined by the director not to be sufficient for the financial feasibility of the development and its viability as a qualified low-income housing development throughout the credit period under the IRC. The amount of state credits which may be reserved shall be equal to the lesser of (i) the amount requested by the applicant or (ii) the amount which is necessary for such financial feasibility and viability as so determined by the director. Such determination shall be made by the director in the same manner and based upon the same factors and assumptions as the determination described in 13VAC5-170-60 with respect to reservation of federal credits. In addition, the director may establish assumptions as to the amount of additional net syndication proceeds to be generated by reason of the state credits (based upon such percentage of the state credit dollar amount used for development costs, other than costs of intermediaries, as the director shall determine to be reasonable for the proposed development). The amount of state credits which may be so reserved shall be based upon a percentage of the federal credits as the director shall determine to produce such amount of state credits.

D. The director may divide the amount of state credits into pools and may further divide those pools into subpools based upon the factors set forth in 13VAC5-170-60 with respect to the federal credits; however, the state credits need not be so divided in the same manner or proportions as the federal credits. Applications for state credits shall be assigned points and ranked at the same time or times and in the same manner as described in 13VAC5-170-60. The director shall reserve state credits to applications in descending order of ranking within each pool or subpool, if applicable, until either all state credits in them are reserved or all applications in them eligible for state credits under this have received reservations for state credits. Any amounts in any pools or subpools not reserved to applications shall be reallocated at the time or times and in the same manner as the federal credits, among the pools or subpools in which applications eligible for state credits under this shall have not received reservations of state credits in the full amount permissible under this chapter. Such allocation shall be made pro rata based on the amount originally allocated to each such pool or subpool with such excess applications divided by the total amount originally allocated to all such pools or subpools with such excess applications. Such reallocations shall continue to be made until either all of the state credits are reserved or all applications for state credits have received reservations.

E. 13VAC5-170-60 contains certain provisions relating to requirements for good faith deposits and contractual agreements, allocation of state credits without any prior reservation of them, deadlines for determining the ability of the applicant to qualify for state credits, and reduction and termination of state credits. Such provisions shall be applicable to all applicants for state credits, notwithstanding the fact that the developments or buildings may be financed by certain tax-exempt bonds in an amount so as not to require an allocation of federal credits under this. In the event that any reservation of state credits is reduced or terminated, the director may reserve or allocate, as applicable, such state credits to other eligible applicants in such manner as he shall determine consistent with the requirements of the state code.

13VAC5-170-80. Allocation of federal credits. (Repealed.)

At such time as one or more of an applicant's buildings or an applicant's development which has received a reservation of federal credits is (i) placed in service or satisfies the requirements of § 42(h)(1)(E) of the IRC and (ii) meets all of the preallocation requirements of this chapter, the binding commitment and any other applicable contractual agreements between the applicant and the department, the applicant shall so advise the department, shall request the allocation of all of the federal credits so reserved or such portion thereof to which the applicant's buildings or development is then entitled under the IRC, this chapter, the binding commitment and the aforementioned contractual agreements, if any, and shall submit such application, certifications, legal and accounting opinions, evidence as to costs, a breakdown of sources and uses of funds, pro forma financial statements setting forth anticipated cash flows, and other documentation as the director shall require in order to determine that the applicant's buildings or development is entitled to such federal credits as described above. The applicant shall certify to the department the full extent of all federal, state and local subsidies which apply (or which the applicant expects to apply) with respect to the buildings or the development.

As of the date of allocation of federal credits to any building or development and as of the date such building or such development is placed in service, the director shall determine the amount of federal credits to be necessary for the financial feasibility of the development and its viability as a qualified low-income housing development throughout the credit period under the IRC. In making such determinations, the director shall consider the sources and uses of the funds (including, without limitation, any funds to be derived from the state credits), the available federal, state and local subsidies committed to the development, the total financing planned for the development as well as the investment proceeds or receipts expected by the department to be generated with respect to the development and the percentage of the federal credit dollar amount used for development costs other than the costs of intermediaries. He shall also examine the development's costs, including developer's fees and other amounts in the application, for reasonableness and, if he determines that such costs or other amounts are unreasonably high, he shall reduce them to amounts that he determines, in his sole discretion, to be reasonable. The director shall review the applicant's projected rental income, operating expenses and debt service for the credit period. The director may establish such criteria and assumptions as he shall then deem reasonable (or he may apply the criteria and assumptions he established pursuant to 13VAC5-170-60) for the purpose of making such determinations, including, without limitation, criteria as to the reasonableness of fees and profits and assumptions as to the amount of net syndication proceeds to be received (based upon such percentage of the federal credit dollar amount used for development costs, other than the costs of intermediaries, as the director shall determine to be reasonable for the proposed development), increases in the market value of the development, and increases in operating expenses, rental income and, in the case of applications without firm financing commitments (as defined in 13VAC5-170-60) at fixed interest rates, debt service on the proposed mortgage loan. The amount of federal credits allocated to the applicant shall in no event exceed such amount as so determined by the director by more than a de minimis amount of not more than $100.

In the case of any buildings or development to be financed by certain tax-exempt bonds in such amount so as not to require under the IRC an allocation of federal credits under this, the director shall, upon timely request by the owner of them, make the foregoing determination as of the date the buildings or the development is placed in service, and for the purpose of such determination, the owner of the buildings or development shall submit to the department such of the above described information and documents and such other information and documents as the director may require. The director shall also determine, in accordance with the IRC and upon timely request by the owner of them, for such buildings or development (and, in addition, for any buildings or development to be financed by certain tax-exempt bonds of an issuer other than the department in such amount so as not to require under the IRC an allocation of federal credits under this) whether such buildings or development satisfies the requirements for allocation of federal credits under this.

Prior to allocating the federal credits to an applicant, the director shall require the applicant to execute, deliver and record among the land records of the appropriate jurisdiction or jurisdictions an extended low-income housing commitment in accordance with the requirements of the IRC. Such commitment shall require that the applicable fraction (as defined in the IRC) for the buildings for each taxable year in the extended use period (as defined in the IRC) will not be less than the applicable fraction specified in such commitment and which prohibits both (i) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of a low-income unit and (ii) any increase in the gross rent with respect to such unit not otherwise permitted under the IRC. The amount of federal credits allocated to any building shall not exceed the amount necessary to support such applicable fraction, including any increase thereto pursuant to § 42(f)(3) of the IRC reflected in an amendment to such commitment. The commitment shall provide that the extended use period will end on the day 15 years after the close of the compliance period (as defined in the IRC) or on the last day of any longer period of time specified in the application during which low-income housing units in the development will be occupied by tenants with incomes not in excess of the applicable income limitations; provided, however, that the extended use period for any building shall be subject to termination, in accordance with the IRC, (i) on the date the building is acquired by foreclosure or instrument in lieu of it unless a determination is made pursuant to the IRC that such acquisition is part of an agreement with the current owner of it, a purpose of which is to terminate such period or (ii) the last day of the one-year period following the written request by the applicant as specified in the IRC (such period in no event beginning earlier than the end of the fourteenth year of the compliance period) if the department is unable to present during such one-year period a qualified contract (as defined in the IRC) for the acquisition of the building by any person who will continue to operate the low-income portion of it as a qualified low-income building. In addition, such termination shall not be construed to permit, prior to close of the three-year period following such termination, the eviction or termination of tenancy of any existing tenant of any low-income housing unit other than for good cause or any increase in the gross rents over the maximum rent levels then permitted by the IRC with respect to such low-income housing units. Such commitment shall also contain such other terms and conditions as the director may deem necessary or appropriate to assure that the applicant and the development conform to the representations, commitments and information in the application and comply with the requirements of the IRC (and, in the case of an allocation of state credits, the state code) and this chapter. Such commitment shall be a restrictive covenant on the buildings binding on all successors to the applicant and shall be enforceable in any state court of competent jurisdiction by individuals (whether prospective, present or former occupants) who meet the applicable income limitations under the IRC. Such commitment shall also be required with respect to any development financed by certain tax-exempt bonds in an amount so as not to require an allocation of federal credits under this and the form thereof shall be made available to owners of such developments upon their timely request for it.

In accordance with the IRC, the director may, for any calendar year during the project period (as defined in the IRC), allocate federal credits to a development, as a whole, which contains more than one building. Such an allocation shall apply only to buildings placed in service during or prior to the end of the second calendar year after the calendar year in which such allocation is made, and the portion of such allocation allocated to any building shall be specified not later than the close of the calendar year in which such building is placed in service. Any such allocation shall be subject to satisfaction of all requirements under the IRC.

If the director determines that the buildings or development is so entitled to the federal credits, he shall allocate the federal credits (or such portion of them to which he deems the buildings or the development to be entitled) to the applicant's qualified low income buildings or to the applicant's development in accordance with the requirements of the IRC. If the director shall determine that the applicant's buildings or development is not so entitled to the federal credits, he shall not allocate the federal credits and shall so notify the applicant within a reasonable time after such determination is made. In the event that any such applicant shall not request an allocation of all of its reserved federal credits or whose buildings or development shall be deemed by the director not to be entitled to any or all of its reserved federal credits, the director may reserve or allocate, as applicable, such unallocated federal credits to the buildings or developments of other qualified applicants at such time or times and in such manner as he shall determine consistent with the requirements of the IRC and this chapter.

The director may prescribe (i) such deadlines for submissions of requests for allocations of federal credits (and, if applicable, state credits) for any calendar year as he deems necessary or desirable to allow sufficient processing time for the department to make such allocations within such calendar year and (ii) such deadlines for satisfaction of all preallocation requirements of the IRC (and, in the case of state credits, the state code), the binding commitment, any contractual agreements between the department and the applicant and this chapter as he deems necessary or desirable to allow the department sufficient time to allocate to other eligible applicants any federal credits for which the applicants fail to satisfy such requirements.

The director may make the allocation of federal credits subject to such terms as he may deem necessary or appropriate to assure that the applicant and the development comply with the requirements of the IRC.

The director may also (to the extent not already required under 13VAC5-170-60) require that all applicants make such good faith deposits or execute such contractual agreements with the department as the director may require with respect to the federal credits (and, if applicable, state credits), (i) to ensure that the buildings or development are completed in accordance with the binding commitment, including all of the representations made in the application for which points were assigned pursuant to 13VAC5-170-60 and (ii) only in the case of any buildings or development which are to receive an allocation of federal credits under this and which are to be placed in service in any future year, to assure that the buildings or the development will be placed in service as a qualified low-income housing project (as defined in the IRC) in accordance with the IRC and that the applicant will otherwise comply with all of the requirements under the IRC.

In the event that the director determines that a development for which an allocation of federal credits is made shall not become a qualified low-income housing project (as defined in the IRC) within the time period required by the IRC or the terms of the allocation or any contractual agreements between the applicant and the department, the director may terminate the allocation and rescind the federal credits in accordance with the IRC and, in addition, may draw on any good faith deposit and enforce any of the department's rights and remedies under any contractual agreement. An allocation of federal credits to an applicant may also be cancelled with the mutual consent of such applicant and the director. Upon the termination or cancellation of any federal credits, the director may reserve, allocate or carry over, as applicable, such federal credits in such manner as he shall determine consistent with the requirements of the IRC and this chapter.

13VAC5-170-90. Allocation of state credits. (Repealed.)

Upon the allocation of federal credits to the buildings or development described in an application which received a reservation of state credits under 13VAC5-170-70, the director shall allocate state credits to such buildings or development in an amount equal to the amount of federal credits so allocated times such percentage of federal credits as shall have been determined by the director under 13VAC5-170-70 but in no event shall such amount of state credits exceed the amount reserved to the application under 13VAC5-170-70. If the amount of state credits so allocated to the buildings or development under this 13VAC5-170-90 is less than the amount of state credits reserved to the application under 13VAC5-170-70, then the director may reserve to other applications or allocate to other buildings or developments, as applicable, such unallocated state credits at such time or times and in such manner as he shall determine consistent with the requirements of the state code.

In the case of any buildings or development to be financed by certain tax-exempt bonds in an amount so as not to require under the IRC an allocation of federal credits under this, the director shall, prior to the last day of the calendar year in which such building or development is reserved state credits, allocate state credits to the buildings or development in an amount equal to the amount of federal credits to be claimed annually by the applicant times such percentage of federal credits as shall have been determined by the director under 13VAC5-170-70 but in no event shall such amount of state credits exceed the amount reserved to the application under 13VAC5-170-70.

Prior to any allocation of state credits, the director may require the applicant to confirm the status of the owner or owners as Virginia taxpayers who are eligible for an allocation of state credits under 13VAC5-170-70.

The director may make the allocation of state credits subject to such terms as he may deem necessary or appropriate to assure that the applicant and the development conform to the representations, commitments, and information in the application and comply with the requirements of the IRC, the state code, and this chapter.

The state credits allocated may be claimed for the first five taxable years in which the federal credits shall be claimed. The amount of state credits claimed in each such year shall be such percentage of the federal credits so claimed as shall have been established by the director pursuant to 13VAC5-170-70; provided, however, that the amount of state credits which may be claimed by the applicant in the initial taxable year shall be calculated for the entire development on the basis of a twelve-month period during such initial taxable year, notwithstanding that the federal credits may be calculated on the basis of some (but not all) of the buildings in such development or on the basis of a period of less than twelve months or both; provided, further, that in no event shall the amount of state credits claimed in any year exceed the amount allocated under this 13VAC5-170-90.

In the event that any federal credits claimed by the applicant for any taxable year in which the applicant also claimed state credits shall be recaptured pursuant to the IRC, the state credits for such taxable year shall be recaptured in an amount equal to the amount of federal credits recaptured for such taxable year times such percentage as shall have been established by the director pursuant to 13VAC5-170-70. The applicants receiving state credits shall provide the department with such information as the director may from time to time request regarding any recapture of the federal credits.

On or before such date each year as the director may require, each applicant shall apply to the department to determine the amount of state credits which such applicant may claim for the applicable taxable year. Each such applicant shall submit such documents, certifications and information as the director may require. The department shall certify to the Department of Taxation on forms prepared by the department that the applicant qualified for the state credits in the amount set forth in them and shall provide such certification to the applicant. Such certification is required to be attached to the applicant's state income tax return to be filed with the Department of Taxation.

13VAC5-170-80 contains certain provisions relating to (i) the establishment of deadlines for submission of requests for allocation of state credits and for satisfaction of requirements of the IRC and state code and (ii) requirements for good faith deposits and contractual agreements. Such provisions shall be applicable to all applicants for state credits, notwithstanding the fact that the developments or buildings may be financed by certain tax-exempt bonds in an amount so as not to require an allocation of federal credits under this.

In the event that any allocation of federal credits shall be terminated and rescinded or cancelled pursuant to 13VAC5-170-80 (or, in the case of any development or buildings to be financed by certain tax-exempt bonds in an amount so as not to require an allocation of federal credits under this, in the event that the development shall not become a qualified low-income housing project as defined in the IRC within the time period required by the IRC or by the terms of the allocation of state credits), the director may also terminate and rescind or cancel the state credits and, if permitted by the state code, may reserve or allocate, as applicable, such state credits to other qualified applicants at such time or times and in such manner as he shall determine consistent with the requirements of the state code.

13VAC5-170-100. Reservation and allocation of additional federal credits and state credits (Repealed.)

Prior to the initial determination of the "qualified basis" (as defined in the IRC) of the qualified low-income buildings of a development pursuant to the IRC, an applicant to whose buildings federal credits or state credits or both have been reserved may submit an application for a reservation of additional federal credits or state credits or both. Subsequent to such initial determination of the qualified basis, the applicant may submit an application for an additional allocation of federal credits or state credits or both by reason of an increase in qualified basis based on an increase in the number of low-income housing units or in the amount of floor space of the low-income housing units. Any application for an additional allocation of federal credits or state credits or both shall include such information, opinions, certifications and documentation as the director shall require in order to determine that the applicant's buildings or development will be entitled to such additional federal credits or state credits or both under the IRC, the state code and this chapter. The application shall be submitted, reviewed, ranked and selected by the director in accordance with the provisions of 13VAC5-170-60 and 13VAC5-170-70, and any allocation of federal credits or state credits or both shall be made in accordance with 13VAC5-170-80 and 13VAC5-170-90. For the purposes of such review, ranking and selection and the determinations to be made by the director under the procedures as to the financial feasibility of the development and its viability as a qualified low-income development during the credit period, the amount of federal credits or state credits, or both, previously reserved to the application or allocated to the buildings or development (or, in the case of any development or building to be financed by certain tax-exempt bonds in an amount so as not to require an allocation of federal credits under this, the amount of federal credit which may be claimed by the applicant) shall be included with the amount of such federal credits or state credits or both so requested.

13VAC5-170-110. Monitoring for IRS compliance. (Repealed.)

A. General. Federal law requires the Commonwealth to monitor projects receiving federal credits for compliance with the requirements of § 42 of the IRC and notify the IRS of any noncompliance of which it becomes aware.

Compliance with the requirements of § 42 is the responsibility of the owner of the building for which the federal credit is allowable. The monitoring requirements set forth below are to qualify the Commonwealth's allocation plan of federal credits. The Commonwealth's obligation to monitor for compliance with the requirements of § 42 does not make the Commonwealth liable for an owner's noncompliance, nor does the Commonwealth's failure to discover any noncompliance by an owner excuse such noncompliance.

B. Recordkeeping. The owner of a low-income housing project must keep records for each qualified low-income building in the project that show for each year in the compliance period:

1. The total number of residential rental units in the building (including the number of bedrooms and the size in square feet of each residential rental unit);

2. The percentage of residential rental units in the building that are low-income units;

3. The rent charged on each residential rental unit in the building (including any utility allowances);

4. The number of occupants in each low-income unit, but only if rent is determined by the number of occupants in each unit under § 42(g)(2) (as in effect before the amendments made by the Revenue Reconciliation Act of 1989 IRS § 1 et seq.);

5. The low-income unit vacancies in the building and information that shows when, and to whom, the next available units were rented;

6. The annual income certification of each low-income tenant per unit;

7. Documentation to support each low-income tenant's income certification (for example, a copy of the tenant's federal income tax return, Forms W-2, or verifications of income from third parties such as employers or state agencies paying unemployment compensation). Tenant income is calculated in a manner consistent with the determination of annual income under Section 8 of the United States Housing Act of 1937 (42 USC § 1401 et seq.)("Section 8"), not in accordance with the determination of gross income for federal income tax liability. In the case of a tenant receiving housing assistance payments under "Section 8" the documentation requirement of subdivision B 7 is satisfied if the public housing authority provides a statement to the building owner declaring that the tenant's income does not exceed the applicable income limit under § 42(g);

8. The eligible basis and qualified basis of the building at the end of the first year of the credit period; and

9. The character and use of the nonresidential portion of the building included in the building's eligible basis under § 42(d) (e.g., tenant facilities that are available on a comparable basis to all tenants and for which no separate fee is charged for use of the facilities, or facilities reasonably required by the project).

The owner of a low-income housing project must retain the records described in the foregoing paragraph for at least six years after the due date (with extensions) for filing the federal income tax return for that year. The records for the first year of the credit period, however, must be retained for at least six years beyond the due date (with extensions) for filing the federal income tax return for the last year of the compliance period of the building.

C. Certification. The owner of a low-income housing project must certify annually to the Commonwealth, on the form prescribed by the Commonwealth, that, for the preceding 12-month period:

1. The project met the requirements of the 20-50 test under § 42(g)(1)(A) or the 40-60 test under § 42(g)(2)(B), whichever minimum set-aside test was applicable to the project;

2. There was no change in the applicable fraction (as defined in § 42(c)(1)(B)) of any building in the project, or that there was a change, and a description of the change;

3. The owner has received an annual income certification from each low-income tenant, and documentation to support that certification; or, in the case of a tenant receiving "Section 8" housing assistance payments, the statement from a public housing authority described in subdivision B 7 of this section;

4. Each low-income unit in the project was rent-restricted under § 42(g)(2);

5. All units in the project were for use by the general public and used on a nontransient basis (except for transitional housing for the homeless provided under § 42(i)(3)(B)(iii));

6. Each building in the project was suitable for occupancy, taking into account local health, safety, and building codes;

7. There was no change in the eligible basis (as defined in § 42(d)) of any building in the project, or if there was a change, the nature of the change (e.g., a common area has become commercial space, or a fee is now charged for a tenant facility formerly provided without charge);

8. All tenant facilities included in the eligible basis under § 42(d) of any building in the project, such as swimming pools, other recreational facilities, and parking areas, were provided on a comparable basis without charge to all tenants in the building;

9. If a low-income unit in the project became vacant during the year, that reasonable attempts were or are being made to rent that unit or the next available unit of comparable or smaller size to tenants having a qualifying income before any units in the project were or will be rented to tenants not having a qualifying income;

10. If the income of tenants of a low-income unit in the project increased above the limit allowed in § 42(g)(2)(D)(ii), the next available unit of comparable or smaller size in the project was or will be rented to tenants having a qualifying income; and

11. An extended low-income housing commitment as described in § 42(h)(6) was in effect (for buildings subject to § 7108(c)(1) of the Revenue Reconciliation Act of 1989).

Such certifications shall be made annually covering each year of the compliance period and must be made under the penalty of perjury.

In addition, each owner of a low-income housing project must provide to the Commonwealth, on a form prescribed by the Commonwealth, a certification containing such information necessary for the Commonwealth to determine the eligibility of tax credits for the first year of the project's compliance period.

D. Review. The Commonwealth will review each certification set forth in subsection C of this section for compliance with the requirements of § 42 of the IRC. Also, the Commonwealth will inspect at least 20% of low-income housing projects each year and will inspect the low-income certification, the documentation the owner has received to support that certification, and the rent record for each low-income tenant in at least 20% of the low-income units in those projects. The Commonwealth will determine which low-income housing projects will be reviewed in a particular year and which tenant's records are to be inspected.

In addition, the Commonwealth, at its option, may request an owner of a low-income housing project not selected for the review procedure set forth above in a particular year to submit to the Commonwealth for compliance review copies of the annual income certifications, the documentation such owner has received to support those certifications and the rent record for each low-income tenant of the low-income units in their project.

All low-income housing projects may be subject to review at any time during the compliance period.

E. Inspections. The Commonwealth has the right to perform, and each owner of a project receiving federal credits shall permit the performance of, an on-site inspection of any low-income housing project through the end of the compliance period of the building. The inspection provision of this subsection E is separate from the review of low-income certifications, supporting documents and rent records under subsection D of this section.

F. Notices. The Commonwealth will provide written notice to the owner of a low-income housing project if the Commonwealth does not receive the certification described in subsection C of this section, or does not receive or is not permitted to inspect the tenant income certifications, supporting documentation, and rent records described in subsection D of this section or discovers by inspection, review, or in some other manner, that the project is not in compliance with the provisions of § 42.

Such written notice will set forth a correction period which shall be that period specified by the Commonwealth during which an owner must supply any missing certifications and bring the project into compliance with the provisions of § 42. The Commonwealth will set the correction period for a time not to exceed 90 days from the date of such notice to the owner. The Commonwealth may extend the correction period for up to six months, but only if the Commonwealth determines there is good cause for granting the extension.

The Commonwealth will file Form 8823, "Low-Income Housing Credit Agencies Report of Noncompliance," with the IRS no later than 45 days after the end of the correction period (as described above, including extensions permitted under that paragraph) and no earlier than the end of the correction period, whether or not the noncompliance or failure to certify is corrected. The Commonwealth must explain on Form 8823 the nature of the noncompliance or failure to certify and indicate whether the owner has corrected the noncompliance or failure to certify. Any change in either the applicable fraction or eligible basis under subdivisions C 2 and C 7 of this section, respectively, that results in a decrease in the qualified basis of the project under § 42(c)(1)(A) is noncompliance that must be reported to the IRS under this subsection F. If the Commonwealth reports on Form 8823 that a building is entirely out of compliance and will not be in compliance at any time in the future, the Commonwealth need not file Form 8823 in subsequent years to report that building's noncompliance.

The Commonwealth will retain records of noncompliance or failure to certify for six years beyond the Commonwealth's filing of the respective Form 8823. In all other cases, the Commonwealth must retain the certifications and records described in subsection C of this section for three years from the end of the calendar year the Commonwealth receives the certifications and records.

G. Exception for certain buildings. If the Commonwealth decides to enter into the agreements described below, the review requirements under subsection D of this section will not require owners to submit, and the Commonwealth is not required to review, the tenant income certifications, supporting documentation and rent records for buildings financed by the Farmers Home Administration (FmHA) under the § 515 program, or buildings of which 50% or more of the aggregate basis (taking into account the building and the land) is financed with the proceeds of obligations the interest on which is exempt from tax under § 103 (tax-exempt bonds). In order for a monitoring procedure to except these buildings, the Commonwealth must enter into an agreement with the FmHA or tax-exempt bond issuer. Under the agreement, the FmHA or tax-exempt bond issuer must agree to provide information concerning the income and rent of the tenants in the building to the Commonwealth. The Commonwealth may assume the accuracy of the information provided by FmHA or the tax-exempt bond issuer without verification. The Commonwealth will review the information and determine that the income limitation and rent restriction of § 42(g)(1) and (2) are met. However, if the information provided by the FmHA or tax-exempt bond issuer is not sufficient for the Commonwealth to make this determination, the Commonwealth will request the necessary additional income or rent information from the owner of the buildings. For example, because FmHA determines tenant eligibility based on its definition of "adjusted annual income," rather than "annual income" as defined under "Section 8", the Commonwealth may have to calculate the tenant's income for § 42 purposes and may need to request additional income information from the owner.

H. Fees. The owners of low-income housing projects must pay to the Commonwealth such fees in such amounts and at such times as the Commonwealth shall, in its sole discretion, reasonably require the owners to pay in order to reimburse the Commonwealth for the costs of monitoring compliance with § 42.

13VAC5-170-120. Allocation pools. (Repealed.)

Under the low-income housing tax credit program established by § 42 of the Internal Revenue Code, the Commonwealth of Virginia has a certain dollar amount allocated each calendar year to qualified low-income housing developments located in it. In order to promote a distribution of the federal credits which effectively addresses the low-income housing needs of the state, the department hereby divides its Annual Credit Authority for calendar year 1993 (the "1993 Credit Authority") into several pools of federal credits, each containing a portion of the 1993 Credit Authority, all as set forth below: