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TAX CREDIT SPECIALIST EXAM QUESTIONS WITH
VERIFIED SOLUTIONS
Content Coverage: LIHTC Program Regulations, Tenant Eligibility, Income & Assets, Rent
Restrictions, Compliance Monitoring
1. Which section of the Internal Revenue Code establishes the Low-Income
Housing Tax Credit (LIHTC) program?
A. Section 45
B. Section 42
C. Section 48
D. Section 121
Correct Answer: B
Rationale: The LIHTC program is governed by Section 42 of the Internal Revenue
Code. This section establishes the framework for tax credits allocated to
developers of qualified low-income housing projects .
2. Who is responsible for most of the regulatory administration of the Low-
Income Housing Tax Credit Program?
A. U.S. Department of Housing and Urban Development (HUD)
B. Internal Revenue Service (IRS)
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C. State Housing Finance Agencies (SHFA)
D. Local zoning boards
Correct Answer: C
Rationale: While the IRS oversees the LIHTC program at the federal level, most
regulatory administration is carried out by State Housing Finance Agencies. SHFAs
allocate tax credits, monitor compliance, conduct inspections, and ensure
properties meet program requirements .
3. The initial Compliance Period for LIHTC properties combined with the
Extended Use Period must provide affordability for a minimum of:
A. 15 years
B. 20 years
C. 30 years
D. 40 years
Correct Answer: C
Rationale: The statutory compliance period is 15 years. The extended-use
agreement required by §42(h)(6) must extend affordability for at least an
additional 15 years, producing a minimum 30-year affordability period .
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4. What is the primary purpose of the "Applicable Fraction" in LIHTC
compliance?
A. To determine tenant screening eligibility
B. To calculate the percentage of low-income units qualifying for credits
C. To set utility allowance standards
D. To establish property insurance premiums
Correct Answer: B
Rationale: The applicable fraction determines the portion of a building eligible for
credits based on unit or floor space set aside for qualified tenants .
5. A property participating in the LIHTC program elected the 40-60 minimum
set-aside test. During recertification, a tenant's income is discovered to exceed
140 percent of the current applicable median gross income limit. What
regulatory rule governs this situation?
A. The unit immediately loses its tax credit status and incurs recapture
B. The Next Available Unit Rule (NAUR) applies, requiring the next available
comparable unit to be rented to a qualified low-income household
C. The tenant must be evicted within thirty days
D. The owner may permanently convert the unit to market-rate status
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Correct Answer: B
Rationale: Under IRC Section 42, when an existing low-income tenant's income
rises above 140 percent of the current income limit, the unit remains a low-
income unit as long as the Next Available Unit Rule is followed for any comparable
unit in the same building .
6. Which form must state agencies file with the IRS to report noncompliance in
LIHTC properties?
A. Form 8821
B. Form 8823
C. Form 1099
D. Form 50059
Correct Answer: B
Rationale: Form 8823, "Low-Income Housing Credit Agencies Report of
Noncompliance," is used to notify the IRS of LIHTC noncompliance .
7. The two most important line items for management purposes under Part II of
IRS Form 8609 are:
TAX CREDIT SPECIALIST EXAM QUESTIONS WITH
VERIFIED SOLUTIONS
Content Coverage: LIHTC Program Regulations, Tenant Eligibility, Income & Assets, Rent
Restrictions, Compliance Monitoring
1. Which section of the Internal Revenue Code establishes the Low-Income
Housing Tax Credit (LIHTC) program?
A. Section 45
B. Section 42
C. Section 48
D. Section 121
Correct Answer: B
Rationale: The LIHTC program is governed by Section 42 of the Internal Revenue
Code. This section establishes the framework for tax credits allocated to
developers of qualified low-income housing projects .
2. Who is responsible for most of the regulatory administration of the Low-
Income Housing Tax Credit Program?
A. U.S. Department of Housing and Urban Development (HUD)
B. Internal Revenue Service (IRS)
,2|Page
C. State Housing Finance Agencies (SHFA)
D. Local zoning boards
Correct Answer: C
Rationale: While the IRS oversees the LIHTC program at the federal level, most
regulatory administration is carried out by State Housing Finance Agencies. SHFAs
allocate tax credits, monitor compliance, conduct inspections, and ensure
properties meet program requirements .
3. The initial Compliance Period for LIHTC properties combined with the
Extended Use Period must provide affordability for a minimum of:
A. 15 years
B. 20 years
C. 30 years
D. 40 years
Correct Answer: C
Rationale: The statutory compliance period is 15 years. The extended-use
agreement required by §42(h)(6) must extend affordability for at least an
additional 15 years, producing a minimum 30-year affordability period .
,3|Page
4. What is the primary purpose of the "Applicable Fraction" in LIHTC
compliance?
A. To determine tenant screening eligibility
B. To calculate the percentage of low-income units qualifying for credits
C. To set utility allowance standards
D. To establish property insurance premiums
Correct Answer: B
Rationale: The applicable fraction determines the portion of a building eligible for
credits based on unit or floor space set aside for qualified tenants .
5. A property participating in the LIHTC program elected the 40-60 minimum
set-aside test. During recertification, a tenant's income is discovered to exceed
140 percent of the current applicable median gross income limit. What
regulatory rule governs this situation?
A. The unit immediately loses its tax credit status and incurs recapture
B. The Next Available Unit Rule (NAUR) applies, requiring the next available
comparable unit to be rented to a qualified low-income household
C. The tenant must be evicted within thirty days
D. The owner may permanently convert the unit to market-rate status
, 4|Page
Correct Answer: B
Rationale: Under IRC Section 42, when an existing low-income tenant's income
rises above 140 percent of the current income limit, the unit remains a low-
income unit as long as the Next Available Unit Rule is followed for any comparable
unit in the same building .
6. Which form must state agencies file with the IRS to report noncompliance in
LIHTC properties?
A. Form 8821
B. Form 8823
C. Form 1099
D. Form 50059
Correct Answer: B
Rationale: Form 8823, "Low-Income Housing Credit Agencies Report of
Noncompliance," is used to notify the IRS of LIHTC noncompliance .
7. The two most important line items for management purposes under Part II of
IRS Form 8609 are:
