What Binds You

LIHTC: How a Pest Finding Reaches the IRS

Written for: LIHTC owners, asset managers and compliance officers; Utah housing credit property managers

A housing credit (LIHTC) property is not an NSPIRE program in its own right. Pest conditions still matter to its compliance, through a chain that runs from the state housing credit agency to the IRS. In Utah the agency is Utah Housing Corporation.

Step 1: the agency inspects against one standard

The Treasury regulation tells the agency what to inspect against:

(ii) Whether the buildings and units satisfy, as determined by the Agency, the uniform physical condition standards for public housing established by HUD (24 CFR 5.703). The HUD physical condition standards do not supersede or preempt local health, safety, and building codes. — 26 CFR 1.42-5(d)(2)(ii)

24 CFR 5.703 is now the regulation behind NSPIRE, and it names infestation among the conditions it covers. The Treasury text has not been amended to say “NSPIRE.” The accurate phrase is HUD physical condition standards (24 CFR 5.703).

The IRS adds that an agency picks one standard:

Line 11c. Housing credit agencies must use either (a) the local health, safety, and building codes (or other habitability standards); or (b) the Uniform Physical Condition Standards (UPCS) (24 C.F.R. section 5.703) to inspect the project, but not in combination. The UPCS does not supersede or preempt local codes. — Form 8823 (Rev. 6-2023), instructions, line 11c

The IRS form and guide still use the older name, UPCS, for the 24 CFR 5.703 standards.

Step 2: local code violations still count

Whichever standard the agency picks, local codes keep their force:

A low-income housing project under section 42 must continue to satisfy these codes and, if the Agency becomes aware of any violation of these codes, the Agency must report the violation to the Service. — 26 CFR 1.42-5(d)(2)(ii)

Thus, if a housing credit agency using the UPCS becomes aware of any violation of local codes, the agency must report the violation. — Form 8823 (Rev. 6-2023), instructions

In Salt Lake City, for example, city code bars insect or rodent infestation in violation of county health regulations. See Utah and the Wasatch Front.

Step 3: how the IRS guide treats infestation

The IRS guide for completing Form 8823 does not use the phrase “pest infestation.” It does address infestation in its own words:

The housing must have no evidence of infestation by rats, mice, vermin, or garbage and debris. — IRS Pub. 5913 (1-2024), p. 94

The site must not be subject to material adverse conditions, such as abandoned vehicles, dangerous walks or steps, poor drainage, septic tank back-ups, sewer hazards, excess accumulations of trash, vermin or rodent infestation, or fire hazards. — IRS Pub. 5913 (1-2024), p. 93

The guide itself says it is not an official pronouncement of the law.

Utah: Utah Housing Corporation’s manual

Utah Housing Corporation’s current compliance manual chose the HUD standard and says so in NSPIRE terms:

Housing Credit units must be suitable for occupancy under National Standards for the Physical Inspection (NSPIRE) and local health, safety and building codes. — Utah Housing Corporation, Housing Credit Compliance Manual (Sept. 2025)

For units deemed to be not habitable, no tax credits can be claimed. — Utah Housing Corporation, Housing Credit Compliance Manual (Sept. 2025)

The manual has no pest-specific inspection items of its own; it relies on the NSPIRE standards and local codes. The pest criteria a Utah LIHTC inspector applies are therefore the nine deficiencies on the NSPIRE Infestation reference.

What an owner can control

Professional synthesis, not law

• The inspection is a snapshot. What an owner controls is the record behind it: when each report came in, what was done, and whether the problem was closed. A compliance officer answering an agency finding needs that record by unit and date, and the Pest Response Log is built for it.
• Because local code violations travel to the IRS on their own path, the same pest condition can be a local code issue and an NSPIRE-standard deficiency at once. Treat the local health department’s notice and the agency’s inspection finding as two records of one problem, and close both in writing.