"The deal closed. What am I on the hook for, for how long, and does Year 15 actually change anything here?"
Four clocks, and the one Arkansas leaves at the floor
An Arkansas LIHTC deal runs the same federal clocks every state runs, plus a state instrument that -- unlike California's 55 years or even Nevada's elective run to 50 -- sits exactly on the federal floor unless the applicant chose otherwise at the scoring table.
| Clock | Duration | Citation |
|---|---|---|
| Credit period | 10 taxable years, beginning the year the building is placed in service or, by election, the following year | IRC Section 42(f)(1) |
| Compliance period | 15 taxable years, beginning with the first taxable year of the credit period | IRC Section 42(i)(1) |
| Federal extended use period | Ends on the later of the agency-specified date or 15 years after the close of the compliance period -- a 30-year federal floor | IRC Section 42(h)(6)(D) |
| ADFA Land Use Restriction Agreement | A fill-in-the-blank field in the recorded document: "____ (minimum 30 years) years following the first day of the Compliance Period" -- not a fixed statutory number | ADFA Land Use Restriction Agreement and Restrictive Covenants, Section 5(a) |
That fill-in-the-blank is the whole story. The 2027 QAP sets a 30-year floor and then offers a scoring incentive, not a mandate, to go longer -- and the three ways to earn those points are mutually exclusive.
| Option | Effect on the term |
|---|---|
| Minimum 35-year affordability commitment, in a signed statement | Extends the recorded LURA term at least 5 years past the federal floor |
| Right of first refusal for eventual tenant ownership under IRC Section 42(i)(7) | No separate term extension -- substitutes the ROFR exit mechanism for the extra years |
| Acquisition/rehabilitation of an existing, operating affordable development | No separate term extension -- the acquisition status itself satisfies the category |
Most competitive Arkansas awards take one of these three for the points, so don't assume every deal in the pipeline is sitting at the bare 30-year floor -- pull the actual recorded LURA.
One more clock nobody prices at underwriting: Arkansas runs its own state low-income housing tax credit on top of the federal award. It's small and competitively capped, and it appears to ride the federal compliance timeline, but neither the QAP nor the compliance manual spells out a separately defined state-credit compliance period in so many words.
ADFA reports state-credit allocations and revocations to the Arkansas Department of Finance and Administration annually. A federal 8823 finding serious enough to feed a federal recapture is the kind of event that pulls the state credit down with it.
The annual machine: certification, monitoring and the 8823
ADFA's LURA and QAP both point owners to its "Compliance Monitoring Policies and Procedures Manual for the Low-Income Housing Tax Credit Program... or any successor provisions." The only document still posted under that exact name is dated 2014-2015. What ADFA actually appears to be operating on is a newer, consolidated "Affordable Housing Compliance Manual" covering LIHTC, HOME and NHTF together -- a preliminary version dated March 31, 2026 was the most current one posted at the time of this research. The QAP's own "or any successor provisions" hedge is why that draft is treated here as the operative source, even though it is still marked preliminary, not formally adopted.
Owners must report annually that the project maintained compliance for the preceding 12 months. The current compliance-manual draft states this repeatedly as due February 1 each year; the executed LURA template, a separate ADFA document, still reads January 15 for the same certification and February 1 for a distinct "LIHTC Compliance Monitoring Status Report." The two documents haven't been reconciled -- treat February 1 as the working date and confirm the live deadline with ADFA Compliance for a specific deal.
| Milestone | Timing | Source |
|---|---|---|
| First monitoring review | By the end of the 2nd calendar year following the year the last building is placed in service | ADFA Compliance Manual, Ch. 10 Sec. G; cf. 26 CFR Section 1.42-5(c)(2)(iii)(A) |
| Ongoing reviews, years 1-15 | At least every 3 years | ADFA Compliance Manual, Ch. 10 Sec. G |
| Ongoing reviews, year 16 on | Every 5 years at ADFA's discretion -- stays on the 3-year cycle if the project still carries active HOME or NHTF funding | ADFA Compliance Manual, Ch. 10 Sec. G |
Sampling runs the opposite direction from California's overlay. Where California requires at least 20% of low-income units -- a floor that becomes materially more sampling than the federal minimum-unit table on any project over roughly 100 units -- Arkansas samples the lesser of 20% of the units or the federal Minimum Unit Sample Size table. On a large project, the federal table's smaller fixed count controls, not 20%. The first monitoring review is the exception: ADFA samples 40% of units specifically to confirm the minimum set-aside was met before settling into the standard cadence.
| Element | Rule |
|---|---|
| Advance notice | No more than 15 days before a file review or physical inspection |
| Inspection standard | NSPIRE, which replaced UPCS in 2023 |
| Scope | All buildings in the project are inspected even if no unit in a given building is in the sample; both occupied and vacant units count toward the sample |
| Who can inspect | ADFA staff or an ADFA contractor -- but a contractor cannot file Form 8823 |
| Step | Rule |
|---|---|
| Standard correction period | 30 days from notice; management must request an extension if it can't meet the deadline |
| Health & safety items | Corrective action and documentation due within 24 hours of the inspection |
| Board-level escalation | Projects still out of compliance after 90 days are flagged in ADFA board reporting |
| Form 8823 filing | ADFA states this is due 45 days from the end of the correction period |
That last line is a direct paraphrase of ADFA's own compliance-manual draft, and it doesn't fully reconcile with the 30-day standard stated two paragraphs earlier -- the same section calls the correction window "the 45 day correction period" when describing the 8823 deadline. Treat 30 days as the correction period and 45 days as the filing clock that starts once it ends; this is an internal inconsistency in a document that is itself still preliminary, not a settled second standard.
Every finding still gets reported on Form 8823, even one corrected inside the window -- only uncorrected findings can trigger recapture, but ADFA files the form either way, then follows with a "back in compliance" 8823 once the issue is resolved.
Bad compliance history follows an owner into the next unrelated application, not just the property that generated it. The 2027 QAP carries two separate point-deduction categories for exactly this.
| Category | Maximum deduction | Basis |
|---|---|---|
| Past Performance Point Deduction | Up to 25 points | Missed deadlines (including 8609/cost certification), poor or slow response to ADFA follow-up, failure to submit final cost certification at or below the awarded TDC, failure to submit inspection reports and draw requests monthly during construction |
| Non-Compliance Point Deduction | Up to 20 points, on a 5-tier schedule tied to the Average Non-Compliance Percentage: 0 points at 0-15%, 5 at 16-30%, 10 at 31-40%, 15 at 41-50%, 20 at 51% or more | Non-Compliance Percentage across every ADFA property reviewed in the trailing 3 years where the applicant, its GP, or any member/partner/shareholder of either was part of the development team |
| Records | Retention |
|---|---|
| Year-1 tenant file | 6 years beyond the due date (with extensions) of the return for the last year of the compliance period -- about 21 years total |
| Years 2-15 tenant files | 6 years beyond the due date of that year's return |
| IRS Forms 8586, 8609, 8609-A, 8611 | 3 years after the end of the compliance period |
All tenant files must be uploaded to ADFA's Property Management Portal (MITAS) -- there is no paper-file exception.
Recapture, and the state credit's own exposure
| Trigger | Definition |
|---|---|
| Qualified basis violation | Qualified basis at the close of any compliance-period year is lower than at the close of the preceding year -- caused by a drop in Applicable Fraction (e.g., an over-income unit) or in Eligible Basis (e.g., removing an amenity that was included in basis) |
| Building disposition | Sale, foreclosure, permanent destruction, or other disposition where the building will not continue to be operated as an LIHTC building |
ADFA's own manual states the qualified-basis recapture math as "the previously claimed accelerated portion of the credit (1/3), multiplied by the decrease in Qualified Basis, plus interest," and 100% of the accelerated portion for a full disposition. Treat that 1/3 as ADFA's own plain-language shorthand, not a substitute for the actual year-specific accelerated-portion percentage that IRS Form 8611 assigns for the compliance year in which the event occurred -- the manual itself points to Form 8611 for the real number.
| Element | Effect | Citation |
|---|---|---|
| Interest | Runs from the due date of each prior year's return at the Section 6621 overpayment rate; not deductible | IRC Section 42(j)(2) |
| Disposition safe harbor | No recapture if it is reasonably expected the building will remain in qualified use for the rest of the compliance period | IRC Section 42(j)(6)(A) |
| Assessment window | Extended to 3 years from IRS notification | IRC Section 42(j)(6)(B) |
| Large-partnership rule | Partnerships with 35 or more partners are treated as the taxpayer for recapture | IRC Section 42(j)(5)(B) |
Federal recapture exposure ends where the compliance period ends -- year 15. Arkansas's own state credit doesn't get a separately defined shorter or longer tail in either the QAP or the compliance manual; it appears to ride the same federal timeline, since ADFA's only stated mechanism is notifying the Department of Finance and Administration of state-credit revocations as they occur. That inference isn't spelled out explicitly in the source material, so confirm it against ADFA's actual state-credit administration rather than assuming it for a specific deal.
The money layer: fees, reserves, and what Arkansas doesn't add
There's no separate fee regulation to cross-check here the way California's 4 CCR Section 10335 works -- the QAP and the compliance manual are the whole fee schedule.
| Fee | Amount |
|---|---|
| Application fee, competitive | 1.0% of the requested annual LIHTC amount |
| Application fee, bond | $10,000 per development site |
| Reservation fee | $150 per low-income unit |
| 8609 issuance fee | $150 per low-income unit |
| Monitoring fee (allocations from 2009 on) | 10% of the total annual LIHTC allocation, one-time, due at final cost certification / 8609 issuance |
| Post-application material change | $500 per change item -- unit size/configuration, project or building location, management company, development team member, or ownership interest |
| Years | Fee |
|---|---|
| Years 1-15 | Covered by the original 6% fee assessed at allocation |
| Years 16-30+ | $50 per tax-credit unit, billed in years ADFA physically inspects (about every 3 years), not annually |
A property allocated credits before 2009 that's now deep into extended use is on a materially cheaper, still-metered fee track than a 2009-or-later deal that already paid its 10% in full at closing. Acquiring the older property means underwriting a recurring per-unit line item a newer deal doesn't carry -- confirm which tier a specific asset is on before assuming either number.
There's no Arkansas equivalent of California's AB 846 rent cap. The LURA restricts gross rent only to the IRC Section 42(g) limit (and to any HOME or NHTF-specific limit where those funds are layered in) -- nothing in the QAP or the compliance manual caps a household's year-over-year percentage increase the way California's 5%-plus-CPI-or-10% rule does. A pro forma that lets Arkansas rents trend to the AMI ceiling every year isn't making California's mistake in reverse; it's correctly reflecting that Arkansas hasn't legislated that layer.
Thirty years, and what actually happens at the far end
California blocks the federal qualified-contract exit by statute. Arkansas doesn't have a statute doing that -- and doesn't need one, because the standard LURA already extracts the same promise contractually.
| Provision | What it says |
|---|---|
| Federal request window | After year 14, an owner may ask the agency to find a buyer (IRC Section 42(h)(6)(I)) |
| Federal consequence if no buyer is found | The extended use period terminates if no qualified contract is presented within the one-year period (IRC Section 42(h)(6)(E)(i)(II)), at the price formula in Section 42(h)(6)(F) |
| Arkansas's mechanism | The Development Owner covenants, in Section 3(m) of the executed LURA, that it "will not apply for relief under Section 42(h)(6)(E)(i)(II) of the Code during the term of this AGREEMENT" |
That's a contract clause the owner signs at closing, not a statute the legislature passed. The practical effect on a current deal is close to California's -- don't model a year-15 or year-30 unrestriction scenario -- but the legal mechanism is different, and it raises a question the source material doesn't answer: whether every LURA ADFA has recorded carries identical Section 3(m) language, or whether older vintages predate it. The current template is dated December 2024. For any deal older than that, read the actual recorded document rather than assuming the clause is in it.
Right of first refusal works the same way: optional, and contractual. Where California mandates a ROFR for any 9% deal with an all-nonprofit GP structure, Arkansas offers it only as one of the three interchangeable Extended Affordability options above. Most competitive awards take the simpler 35-year-term or acquisition/rehab route instead of drafting and administering a ROFR contract -- which means most Arkansas LIHTC properties likely have no ROFR at all. Pull the actual application and LURA before assuming one exists.
The one exit mechanic Arkansas states in terms that mirror the federal statute almost exactly is foreclosure. If a building is acquired by foreclosure or deed-in-lieu, the LURA terminates for that building unless the U.S. Treasury Secretary determines the foreclosure was arranged to end the agreement -- and even then, no existing tenant can be evicted without good cause, and gross rent can't exceed the Section 42(g) limit, for 3 years after termination.
| Change | Requirement |
|---|---|
| Ownership change -- sale, GP/interest transfer, foreclosure, entity reorganization, partner addition or removal, assignment of interest | 30 days' written notice; ADFA Form 920; $500 non-refundable processing fee; org chart, new-owner contact information, executed or draft transfer documents, and an affirmation that the Extended Use Agreement "will remain in effect and fully enforced" |
| Unreported or unapproved ownership change | Additional $500 penalty; may be reported as noncompliance on Form 8823 |
| Management company change | Housing Review Committee approval required before executing the new contract; 45 days' advance notice; no contract signed until written ADFA approval is received |
That LURA-continuation affirmation is Arkansas's version of California's non-subordination rule, done through a certification on each transfer rather than a standing regulatory bar on subordinating the agreement. What's genuinely missing, compared to California, is any state-mandated capital-needs assessment triggered by a transfer. ADFA can deny a change that "jeopardizes compliance," but nothing in the QAP or the compliance manual requires a third-party capital needs assessment, a funded short-term work reserve, or a DSCR-gated long-term reserve schedule the way California's Qualified CNA and Capital Needs Covenant do. In Arkansas, replacement-reserve adequacy at exit is a negotiation between buyer, lender, and seller -- not a state-forced conversation.
What this phase reaches backward into underwriting
| Election made at underwriting | What it locks in at exit |
|---|---|
| Extended Affordability points -- 35-year term, ROFR, or acquisition/rehab status | Whichever one is taken becomes a permanent LURA commitment for the life of the agreement; there's no unwinding it after the 8609 is issued |
| Replacement reserve funded at the $300/unit/year QAP floor rather than a higher lender number | Determines whether the property has real capacity for a mid-life capital event, since Arkansas has no transfer-triggered CNA to force a correction later |
| Senior, assisted-living, or supportive-services commitments taken for QAP points (LURA Exhibit C) | Run for "the term of this AGREEMENT" -- the full 30-plus-year LURA, not just the 15-year compliance period |
| Vintage of the allocation -- 2009-or-later vs. an older acquisition | Sets which of the two monitoring-fee tracks applies for the rest of the extended use period |
| Election to pursue the state LIHTC | Competes for a fixed $250,000 statewide annual pool -- underwriting it as a funding source means underwriting a scarce, competitively allocated resource, not a guaranteed adder |
And one that isn't unique to Arkansas but is easy to forget lives here too: the compliance-period Applicable Fraction is fixed at the end of year 1. An over-income household who slips into a unit during lease-up permanently reduces that fraction for all 15 years of the federal compliance period -- and Arkansas's own first monitoring review doesn't happen until the end of the second calendar year after the last building is placed in service, well after the number is already locked in.
Where this goes wrong
- Assuming every Arkansas LURA runs exactly 30 years. The template leaves the term as a fill-in field with only a 30-year floor -- an applicant who took the QAP's Extended Affordability points may have committed to 35 years or more. Pull the actual recorded document rather than assuming the floor.
- Assuming California's statutory qualified-contract bar applies in Arkansas. There is no such statute here; the standard ADFA LURA achieves the same practical result through a contract clause (Section 3(m)) the owner signs at closing. That clause is dated to the current (December 2024) template -- verify it's actually in the recorded LURA before assuming an older deal's exit is blocked the same way.
- Applying ADFA's own "1/3" recapture shorthand as a fixed multiplier. The manual states the qualified-basis recapture calc that way in plain language, but also points to IRS Form 8611 for the actual year-specific accelerated-portion percentage -- the two aren't guaranteed to match in every compliance year.
- Treating the Form 8823 filing deadline and the correction period as both 45 days. ADFA's current compliance-manual draft states a 30-day standard correction period in one paragraph and describes the 8823 filing clock as running from "the end of the 45 day correction period" two paragraphs later -- an unreconciled inconsistency in a document that is itself still preliminary.
- Ignoring which monitoring-fee track a property is on. A 2009-or-later allocation already paid its full 10% fee at closing; a pre-2009 property is on a legacy 6%-plus-$50-per-unit track that keeps billing every inspection cycle through year 30 and beyond. Acquiring the older property means underwriting a recurring per-unit fee stream a newer deal doesn't have.
- Assuming a mandatory right of first refusal exists. Arkansas's ROFR is one of three interchangeable ways to earn the QAP's Extended Affordability points, not a requirement tied to nonprofit ownership the way California's is -- most Arkansas deals have none.
- Filing an ownership or GP change late, or not at all. It requires 30 days' advance notice, ADFA Form 920, and a $500 fee before closing -- miss it and there's an additional $500 penalty and a possible Form 8823.
- Assuming the post-year-15 inspection cadence is fixed at 3 years everywhere. It stretches to every 5 years after year 15, unless the project still carries active HOME or NHTF funding, in which case it stays on the 3-year cycle regardless of where the LIHTC compliance period stands.
- Modeling Arkansas rents against an AB-846-style annual cap that doesn't exist here. The LURA only holds gross rent to the IRC Section 42(g) limit; there is no state-specific per-household increase ceiling layered on top.
- Trusting a single ADFA document for the annual certification deadline. The current compliance-manual draft repeatedly states February 1; the executed LURA template still reads January 15 for the same certification. The two haven't been reconciled -- confirm the live date with ADFA Compliance.
- Funding the replacement reserve at exactly the $300/unit/year QAP floor and assuming a state mechanism will catch a shortfall later. Arkansas has nothing like California's transfer-triggered Qualified CNA -- a thin reserve here is a problem for the buyer and lender to discover on their own, not one ADFA is set up to force into the open at exit.
- Discounting the QAP's Past Performance and Non-Compliance point deductions as boilerplate. They're real, named scoring categories -- up to 25 points off for missed deadlines or cost-certification failures on a prior deal, up to 20 more on a 5-tier schedule tied to a portfolio-wide noncompliance percentage -- and they attach to every member, partner, or shareholder of the applicant and its GP, not just the property that generated the finding.
- Treating the applicable fraction locked at the end of year 1 as a lease-up problem rather than a Year-15 one. An over-income household seated during initial lease-up permanently reduces that fraction for the whole 15-year compliance period, and Arkansas's own first monitoring review doesn't occur until the end of the second calendar year after the last building is placed in service -- well after the number is already fixed.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies