Child Support and Alimony for LIHTC
I have received an onslaught of questions of late regarding child support and alimony as it pertains to income for the Low-Income Housing Tax Credit Program. Let me begin by saying that, though I am up to speed with the pertinent regulations, I don’t claim to have all of the answers; these types of issues often come down to individual circumstances. There is no ‘one size fits all’ solution. (I’m afraid that the longer you work in compliance, the more you have to learn that lesson over and over again!)
Starting with HUD Handbook 4350.3 Rev. 1, we find several citations for child support and alimony, mostly in Chapter 5. We know that the Section 42 regulations defer to the HUD Handbook for guidance on income and asset determinations and calculations, so by default these citations are applicable to LIHTC as well.
The first and most frequently referenced citation is from page 5-10, Paragraph 5-6F, which instructs us to count the amounts “awarded by the court” unless they are not being received and that reasonable efforts have been made to collect the amounts owed through the courts or agencies that enforce payment. Many of us know from experience that this type of income is problematic because these kinds of mandated payments are often paid infrequently or not at all. The applicant or tenant may be reporting the income just as they should, but feel slighted if we try to count it since they may not have received a payment in quite some time.
That’s where the ‘reasonable efforts to collect the amounts owed’ comes into play. If that has been done and properly verified, then HUD says we only have to count the amounts received.
On that same page, paragraph 5-6F2, it says that sometimes these amounts are “included in the family’s monthly welfare check and may be designated in different ways.” You may have to do a little more verification to figure out the disbursement amounts, but remember that the most basic ground rule for income and asset calculation is never to count anything twice.
So, how do we deal with those who may have garnishments from wages for payment of these amounts? The Handbook tells us on page 5-50, paragraph 5-10F, that they are not supposed to be deducted from employment income. Likewise, exhibit 5-1 (1) advises us to count “the full amount before any payroll deductions of wages and salaries.” Those directives are straightforward and usually don’t cause much confusion.
It is in the IRS’s guidance in the Guide to Completing IRS Form 8823 where I think it gets the trickiest, however. This is because the IRS says that a signed, sworn, and notarized statement from the applicant or tenant is sufficient verification for non-receipt of child support/alimony, which differs significantly from HUD guidance in situations where written third-party verification is required in order to exclude or count less than the amount awarded. The Guide does go on to say, however, that this practice is at the state agency’s discretion and that they may not deem a signed statement satisfactory to prove non-receipt. This, of course, leads to another common LIHTC lesson: when in doubt, consult your state agency’s compliance manual or contact them for clarification.