Federal Alignment Update
Reduction in State to State Variability for Income
Definition
We appear to be on a roll here with these Federal Alignment Reports (previous articles are at http://www.nchm.org/compliancecorner.html) so I am going to keep the momentum going by referencing yet another one this month: Reduction in State-to-State Variability for Income Definition.
Although the alignment efforts are a joint venture between numerous industry stakeholders, including the Department of Treasury, HUD, and USDA-RD, all of the variability cited in the report pertains to the Low Income Housing Tax Credit Program. One of the overriding issues as it pertains to the variability between how states implement the Federal regulations is whether or not the States’ discretion and inherent flexibility is a strength or a weakness to the program. Personally, I would love to get your feedback on this question. If you feel strongly one way or another, please send me a note through our eHotline at www.nchm.org. I will be happy to follow up with the results in an upcoming article.
In the meantime, there are four points that were analyzed in this particular report that I would like to review and comment on here. Variations in state agency interpretation and requirements is usually a big discussion item in NCHM’s Tax Credit Specialist (TCS) classes, so I was intrigued to see which issues pertaining to income variation were included in the report. The first one cited was the difference in how state agencies want owners/agents to round numbers in their income calculations. From my experience, most states want income amounts recorded on the Tenant Income Certifications (TICs) rounded to the nearest penny as opposed to the nearest dollar, as HUD Multifamily, HUD Public and Indian Housing, and Rural Development require. The argument for variation mentioned in the report is that many state agencies feel it is a more critical calculation for LIHTC in terms of eligibility determination. With rounding to the nearest dollar, you could possibly qualify a family who technically speaking would not qualify had their income not been rounded.
The second point mentioned has to do with variations in the Relation Codes used for individuals in the resident families. Software issues were also cited here, so I am going to leave that one alone as I do not see it as one of the more important issues when it comes to the definition of income for this program. Next up, however, is the variation in the volume of data required for verification of tenant qualification. That one is a huge issue and one that I hear quite a lot about in teaching TCS. Even perusing different state agency websites you can get a feel for who is requiring which verifications and how many of them. As I always tell my classes, we at NCHM are HUD Handbook Purists and since the Section 42 regulations borrow specifically from the Section 8 regulations when it comes to assets, income and their verification, I am not a big fan of over-verifying either. Following the verification guidance in the 4350.3 should be sufficient to prove income qualification for LIHTC.
Finally, differences between states in some of the details of income computation were cited in the Alignment Report as well. I guess that’s not too surprising, but the example that was given in the explanation of this point surprised me a lot. Apparently there is variability in the way that states expect owners/agents to calculate earned income for family members who are turning 18 during the year covered by the certification. Really? Folks, the HUD Handbook, is crystal clear on that one saying that you do not count the employment (or earned) income of minors until they have turned 18. Even at that point in time it would need to be determined if they are full-time students and still considered dependents and if so, then only $480 of their earned income should be counted. I was happy to read that the author of the report wrote that the reason for this confusion appears to be that some state agencies must be confused over the Section 8 requirements in the HUD Handbook.
The Alignment Team will continue to explore which state-to-state variability can be reduced consistent with the statutory rules that implicitly promote state flexibility. Two courses of action that were recommended to rectify some of the differences are either to promulgate specific requirements to that end or create best practices for states to voluntarily adopt. As mentioned in last month’s article, we will continue to keep you posted on the alignment activity and its results. There are a couple of more articles that I want to share with you over the coming months as well.