Having spent the majority of my career in affordable housing working with the Low-Income Housing Tax Credit (LIHTC) program in one capacity or another, I always find it interesting how conventional wisdom on program topics changes over time. Issues that for many years were thought to have been resolved have a way of coming back around and morphing into new issues that demand fresh resolution.
Case in point: Over the past couple of years, income verification for LIHTC has been revisited, with new questions raised and much discussion among industry professionals. Conventional wisdom once told us to simply follow the HUD guidance in Chapter 5 of HUD Handbook 4350.3 REV-1 as it applies to income verification, but then Enterprise Income Verification (EIV) and Change 4 to the Handbook came along, resulting in significant changes to HUD’s definition of third-party verification and sparking debate within the world of LIHTC.
In response, the IRS stepped in fairly quickly after the publication of Change 4 in 2013 with a reminder that the verification guidance in Chapter 5 is simply that for LIHTC – good guidance, but not codified as part of Section 42 as the authority on income verification. This means that it may be followed, but also allows for state housing agencies to be more specific in their verification requirements for LIHTC properties in their states. In fact, the IRS has stated that, “in general, all taxpayers are held to a documentation standard of ‘sufficiency.'” It is up to the state agencies to define that standard of sufficiency and they have chosen to do so in a number of different ways. That leads us back to the Change 4 guidance in the 4350.3 itself.
Specifically, under Paragraph 5-13B on page 5-54, which is entitled Third-Party Verification, HUD says that “the following describes the types of third-party verification in order of acceptability.” Then it goes on to discuss Upfront Iincome Verification (UIV), including EIV and other non-HUD UIV tools such as The Work Number and other state government databases. This is where we all need to remember that the HUD Handbook was written for HUD programs and that, as LIHTC practitioners, we are only borrowing from its guidance; certain components will not be applicable to LIHTC. EIV, of course, is one of these, since the IRS is not a party to the matching agreements that HUD has with SSA and HHS for this data.
It’s the change that comes next, however, where written third-party verification sources are described that has led to the current debate. Where once tenant-provided documentation was considered an alternative when written documentation sent directly by a third-party source was unavailable, now HUD states that “an original or authentic document generated by a third-party source” is a valid form of third-party verification. Some states have since adopted this as their standard of sufficiency for income verification by allowing paystubs, for example, to be used as sufficient verification of income for applicants and tenants at LIHTC properties. Others have not.
Do you know where your state agency stands on this issue? To learn more, I urge you to join me for NCHM’s upcoming webinar on LIHTC Verifications on Thursday, April 9, at 2:00 p.m. EST. We will delve more deeply into the issue of income verification to help answer your questions and provide a better understanding of everything it entails for successful compliance management. Register here.