"We just received our Carryover Allocation letter — the QAP calls the next 12 months a '10% Expenditure Test,' but is that the same test the IRS applies, can we buy more time if we fall behind, and does our recorded Covenant really have to run 40 years when the QAP itself defines the 'Extended Use Period' as 30?"
Reservation or allocation — which one you get depends on the calendar, not the round
The QAP splits the award instrument by date, not by round: "for projects competing in any round of rating and ranking with awards made before July 1 of any calendar year," CDA issues a reservation letter — "a conditional commitment to reserve LIHTC for the project," not binding on the IRS. "For projects competing in any round of rating and ranking with LIHTC awards made on or after July 1, allocations, not reservations, may be issued by CDA" instead. A reservation is a step in the process, not the final word — either way, the amount reserved or allocated is, in DHCD's sole determination, "only the amount of LIHTC ... necessary for the financial feasibility of the project."
Two adjustment mechanisms operate on the reservation itself before Carryover. CDA may approve an increase in reserved LIHTC of up to 10% of the amount the Secretary already approved, at any point between the reservation letter and the Carryover Allocation, without re-evaluating the project against the Threshold or Competitive Scoring Criteria — but the aggregate of every such increase CDA approves statewide "may not exceed 10% of the State's LIHTC ceiling for the year of the increase." Separately, a Forward Reservation lets CDA reserve credit from a future year's ceiling in three defined situations: a project already holding a reservation letter that cannot place in service or meet the 10% Expenditure Test on schedule (subject to the same extension fee described below); a high-ranking project for which the current year's ceiling has run out; or a project CDA determines should be intentionally staged over two or more years.
The Carryover Allocation and the 10% Expenditure Test's Affidavit
"Unless ready to be placed in service," a project holding a current-year reservation "will receive a Carryover Allocation from CDA by December of that year," conditioned on the sponsor providing an updated project budget on CDA Form 202 upon request. From the date of that Carryover Allocation, the sponsor has a fixed clock: CDA "requires sponsors to complete an Affidavit of Utilization of a Reservation ... no later than twelve (12) months from the date of the Carryover Allocation," certifying that the sponsor "has incurred costs in excess of 10% of the reasonably expected basis of the project." That certification must come from a third-party attorney or CPA, or from the sponsor itself with DHCD-acceptable supporting documentation. Miss the deadline, and "the Carryover Allocation will be canceled" outright — there is no grace period built into the base rule.
CDA is careful to draw a line around what its own sign-off means: "while CDA is required to verify that a project has satisfied this 10% Expenditure Test, CDA makes no determination of the test's sufficiency with respect to the Internal Revenue Code or the IRS." The QAP tells sponsors and investors directly that "as with all other matters under §42 of the Internal Revenue Code, sponsors and investors must rely on their own professionals to determine whether the 10% Expenditure Test has been satisfied." CDA's Affidavit process keeps the state-level Carryover Allocation alive; it is not itself a federal determination.
Placed-in-service, Form 8609, and the haircut CDA can still take
To keep a Carryover Allocation and receive Form(s) 8609, a project must be placed in service "by the end of the second year following the date of the Carryover Allocation." Once placed in service, the sponsor must request Form(s) 8609 "no later than ninety (90) calendar days after the first year the credit is claimed for the first building," or notify CDA in writing within that same 90-day window if choosing to defer the first credit year to the following tax year. CDA then completes its own final feasibility evaluation — a process the QAP warns "may take as long as ninety (90) days to complete" — and the outcome is not guaranteed to match the amount already reserved and carried over: "only the amount of LIHTC needed for financial feasibility and viability of the project ... will be allowed. Any additional LIHTC previously allocated to the project will be returned to CDA."
| Item | What's required |
|---|---|
| Placed-in-service evidence | Use and occupancy permits per building (or CDA-accepted equivalent for rehab or jurisdictions without such permits); settlement statement for the acquisition placed-in-service date |
| Cost certification | Third-party-prepared statement of total sources and uses and eligible basis, per building |
| LP/LLC agreement | Most recent fully-executed limited partnership agreement or operating agreement, with all amendments and exhibits |
| LIHTC Covenant | Recorded copy; multi-building projects need a recorded amendment specifying each building's actual applicable fraction |
| Fee evidence | Proof of full payment of all LIHTC fees |
| MDHousingSearch.org | Evidence of project registration |
| Final Determination of Loan Proceeds | Fully executed, if the project carries other CDA financing — 8609s will not issue without it |
| Compliance | All unresolved compliance issues satisfied |
8609s will not issue until this documentation is complete and CDA's final feasibility evaluation is finished, even where the project already has an executed Carryover Allocation Agreement in place.
Fees attach at each of these checkpoints. The LIHTC Allocation Fee is 5% of the annual tax credit amount allocated — the same rate for the 9% competitive track and the 4% noncompetitive/bond track. A separate LIHTC Credit Exchange Fee of 1% of the annual credit amount applies when a sponsor requests to cancel an allocation for reallocation from a future year's ceiling in the same amount. An IRS Form 8609 Amendment Fee of $4,000 per project applies to any change requested to an already-issued Form 8609, "waived if amendment results from an administrative error by CDA."
The Covenant runs longer than the QAP's own "Extended Use Period" — a real ambiguity worth flagging
The QAP's own defined term is narrower than the actual commitment a competitive project signs. Section A.3 defines the "Extended Use Period" as the Internal Revenue Code's own floor: a 15-year Initial Compliance Period, plus a required LIHTC Covenant continuing the restrictions "for an additional period of at least fifteen (15) years beyond the Initial Compliance Period" — 30 years total. But Guide Section 3.2.3, a Threshold Criteria item that governs whether a project is even eligible to compete in the first place, requires that any project requesting competitive LIHTC, RHFP, or RHW "agree to at least forty (40) years of low-income occupancy restrictions," unless a structured 15-year homeownership transition applies; only non-competitive LIHTC/MBP-only deals use the shorter 30-year floor the QAP's own defined term describes.
This is a real discrepancy between two documents attached to the same QAP, not a drafting quirk to smooth over: a competitively-awarded sponsor's recorded LIHTC Covenant runs on the Guide's 40-year occupancy-restriction commitment, while the QAP's own front-matter "Extended Use Period" language describes a 30-year federal floor that governs the non-competitive track instead. Confirm at closing which figure the actual recorded Covenant enforces for a specific deal, rather than assuming the QAP's own named term is what CDA will record for a competitive award.
That distinction also touches the ongoing Compliance Monitoring Fee ($50 per unit per year), which the QAP states applies "during Compliance Period and Extended Use Period" — language keyed to the QAP's own 30-year definition. This research did not find an explicit statement reconciling that fee's duration against the Guide's longer 40-year competitive-track commitment; confirm directly with CDA which years the fee actually covers on a competitive deal rather than assuming either the 30-year or the 40-year figure controls by default.
What actually revokes an award, and the one path back after a delay
The QAP's own cancellation language (Sections D.6 and E.10) is broad and representation-based: a sponsor must show that "all of the representations and undertakings made in the application and all Competitive Scoring Criteria are and will continue to be fulfilled to CDA's satisfaction," and failure to do so — or "substantial delays" in construction or completion, or failure to certify federal/State/local subsidy amounts at required checkpoints — "may result in cancellation."
The Guide's Section 6.1.1 is more specific, listing six grounds on which a reservation may be canceled and a project withdrawn from processing: missing the loan-processing and submission-kit timeframes; a "substantial change," which the Guide defines to include a score drop of the lesser of 3% or an amount sufficient to fall below the round's cut-off score, a significant design/financing/amenity change, a material reduction in income targeting or unit count, a Development Team or sponsor change made without the Director of Multifamily Housing's prior written approval, or a site change; loss of Threshold Criteria compliance; bankruptcy (including involuntary) of the Developer, sponsor, owner, or a general partner/managing member; the project becoming infeasible "for any reason"; or the submission of false, misleading, or incomplete information.
One recovery path exists for delays genuinely outside a sponsor's control. Under QAP Section E.10, where a project cannot place in service on time "due to circumstances beyond the sponsor's control," and the sponsor returns its Carryover Allocation in the last quarter of the calendar year (or earlier, at CDA's discretion) following a specific written-notice process — certified-mail notice describing the delay and the sponsor's remedial efforts, followed by an affirmative finding from the CDA Director, a Deputy Director, or the Director of Multifamily Housing that the delay was beyond the sponsor's control, that the sponsor exercised due diligence, that the project otherwise still meets its original award conditions, and that the project remains desirable — CDA "may reserve LIHTC in an amount not to exceed the amount of LIHTC returned and may allocate such LIHTC to the sponsor from the current or future year's LIHTC ceiling." The notice and determination can be executed in advance of the actual return, timed to a future closing date, which makes this closer to a structured reset than an automatic loss — provided the paperwork sequence happens in the order the QAP describes.
Where this goes wrong
- Treating CDA's sign-off on the Affidavit of Utilization (10% Expenditure Test) as a guarantee the IRS will also accept that the federal test was met. CDA states directly it "makes no determination of the test's sufficiency with respect to the Internal Revenue Code or the IRS"; the state-level Affidavit only keeps the Carryover Allocation from being canceled at the state level.
- Assuming the 10% Expenditure Test deadline is fixed at 12 months with no room to move. It can be extended in monthly increments up to the full 12-month cap, but only via a $1,000/month non-refundable fee submitted with the extension request on the Affidavit form itself, approved specifically by the Tax Credit Program Administrator.
- Assuming the QAP's own defined "Extended Use Period" (a 15-year Initial Compliance Period plus a minimum 15 more years, a 30-year floor under Section A.3) is the length of the recorded Covenant for a competitively-awarded project. Guide Section 3.2.3 instead requires at least 40 years of low-income occupancy restriction for any project that requested competitive LIHTC, RHFP, or RHW, unless an accepted 15-year homeownership-transition plan applies; only non-competitive LIHTC/MBP-only deals use the shorter 30-year floor.
- Assuming Form 8609 issuance locks in the full previously-allocated credit amount. CDA's own final feasibility evaluation before issuance can still reduce the amount to only what's "needed for financial feasibility," with any excess previously-allocated credit returned to CDA, even after a Carryover Allocation has already been in place for up to two years.
- Treating a missed placed-in-service or Carryover deadline as an automatic, final loss of the credit. Section E.10 describes a specific recovery path — advance written notice by certified mail and an affirmative CDA finding that the delay was beyond the sponsor's control, paired with return of the Carryover Allocation in the last quarter of the year or earlier — that lets CDA reallocate an equivalent amount back to the same sponsor from the current or a future year's ceiling.
- Assuming any project change is minor enough not to require the Director of Multifamily Housing's prior written approval. Guide Section 6.1.1 defines "substantial change" broadly enough to include a Development Team member swap, a site change, or a score drop of just the lesser of 3% or the margin needed to fall below the round's cut-off score, any of which can trigger cancellation and withdrawal from processing.
- Assuming the LIHTC Allocation Fee differs between the 9% competitive and 4% noncompetitive/bond tracks. Both are charged at the same 5% of the annual tax credit amount allocated, per DHCD's own fee schedule.
- Requesting Form 8609 without first confirming the Final Determination of Loan Proceeds has been executed on any deal with other CDA financing. CDA will not issue the Form(s) 8609 until that document is fully executed, regardless of how complete the rest of the placed-in-service package is.
- Assuming the $50/unit/year Compliance Monitoring Fee stops at the QAP's own 30-year "Extended Use Period" figure for a competitive-track project bound to the Guide's 40-year occupancy restriction. This research found DHCD's fee language keyed to "Compliance Period and Extended Use Period" but no explicit statement reconciling the fee's duration against the longer 40-year competitive-track commitment — confirm directly with CDA rather than assume either number controls.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies