Over the last few weeks, AHACPA has received numerous requests for an update on the status of HUD’s initiative to recapture residual receipts on expiring PRACs. Practitioners and their clients must make a determination on the accounting for amounts related to expiring contracts, specifically whether a loss should be reported for the future recapture. Previous authority for recaptures expired on September 30, 2015. HUD had been anticipating additional authority from Congress to continue the recapture.

With the passage of the Consolidated Appropriations Act, 2016 (ACT) in December, HUD received the authority to continue the recapture in fiscal year 2016. The specific language from TITLE II of the ACT is as follows:

“HOUSING FOR THE ELDERLY

 …Provided further, That upon request of the Secretary of Housing and Urban Development, project funds that are held in residual receipts accounts for any project subject to a section 202 project rental assistance contract, and that upon termination of such contract are in excess of an amount to be determined by the Secretary, shall be remitted to the Department and deposited in this account, to be available until September 30, 2019…”

“HOUSING FOR PERSONS WITH DISABILITIES

 …Provided further, That, in this fiscal year, upon the request of the Secretary of Housing and Urban Development, project funds that are held in residual receipts accounts for any project subject to a section 811 project rental assistance contract and that upon termination of such contract are in excess of an amount to be determined by the Secretary shall be remitted to the Department and deposited in this account, to be available until September 30, 2019…”

Although HUD has not issued additional clarifying language as a result of the ACT, we anticipate that they will continue to recapture amounts in excess of $250 per unit. As with the prior guidance, amounts will be required to be repaid upon termination of the contract. Accordingly, each contract expiring in this fiscal year, will likely be required to remit excess residual receipts this year.

Owners and their CPAs should consider this additional information when determining how to account for excess residual receipts monies in audits for calendar years through September 30, 2016. Previous discussions indicated that the absence of such authority may be sufficient grounds to not record a loss/liability at year end. Now that evidence of such authority exists, owners and CPAs may desire to change their approach. Under this language fiscal years ending after September, 2015 would likely be considered to be expiring in the Government’s 2016 fiscal year.

Reminder of Preferred Accounting Treatment

REAC has indicated that the preferred accounting treatment for the recognition of these costs is to record any expense/loss to account 7190 – Other Entity Expenses. Be sure to give an adequate explanation in the details.