Certification

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When interviewing households at certifications or recertifications, residents are required to report all income from all sources to the owner or manager. One component of annual income is any income the household’s assets generate. And sometimes, households may dispose of assets for less than fair market value (FMV). These can include cash gifts or property. You must find out whether they have disposed of or sold, given away, or put in trust assets for less than fair market value within the past two years.

When certifying and recertifying low-income households at your tax credit site, you may encounter situations that require you to use special forms to get more information about household income. Sometimes, you’ll need to get household members to complete and sign these forms. These forms can be the right documentation to prove to your state housing agency and the IRS that a household meets the tax credit program’s income-eligibility requirements.

Site managers have to deal with countless situations presented to them by residents, one of which is shared custody of children. A low-income household may report to you that its members include children who are covered by a joint custody arrangement—that is, the children live part of the time with the household and part of the time with their parent (or other legal guardian) who doesn’t live in the unit or at your site. For example, a household head may report that she has two sons who will be living in the unit during the week and with their father on weekends.

Under Treasury Regulations 1.42-5(b)(1)(vii), LIHTC site owners must document each low-income tenant’s income certification with documents such as federal income tax returns and W-2 forms. The regulation makes an exception for tenants receiving housing assistance payments under Section 8. The requirement is satisfied if the public housing authority provides a statement to the owner stating that the tenant’s income doesn’t exceed the income limit.

Certifying a household that includes dependents—most often children under age 18 or full-time students—isn’t complicated. But if you don’t know the specific rules on counting a dependent’s annual income, it’s easy to make mistakes. And one mistake can lead to an incorrect decision on whether a household meets income limits. Here’s an overview on how to calculate a dependent’s income correctly.

When certifying or recertifying household income, knowing how to count assets properly is an area that often throws site staff. It can be tricky, but understanding when to treat an item as income or an asset is essential—counting an item as an asset when it's not may lead you to falsely disqualify a household for being over-income, or you may inadvertently certify an ineligible household, jeopardizing your site's tax credits.

At a household's annual recertification, you may discover things that have changed since the prior year. For example, a household's income may have increased, or its members may have become full-time students. Very often, these changes threaten noncompliance and put the owner's credits at risk, unless you take certain actions.

As a site owner or manager, you probably know that IRS auditors are entitled to look at your resident files to see whether you have obtained asset disposition statements from households at your site.

The IRS requires these statements because households have been known to shrink their assets—that is, reduce the value of their assets—to qualify for tax credit housing. A standard method of shrinking assets is selling the family home to a relative for a fraction of its value.