Many in the affordable housing industry view the Low-Income Housing Tax Credit (LIHTC) program as one of the most important resources for increasing affordable housing stock.
However, the LIHTC program has its own nuances and challenges – ranging from understanding the student rule, realizing verification effective dates, to competing regulations when subsidy layering is present. Quadel’s Helena Widtfeldt specializes in the LIHTC program and helps clients with compliance and program best practices. She offers her thoughts on common mistakes, best practices, and how to maintain compliance and minimize risk.
Not Doing the Research First
The IRS allocates Low-Income Housing Tax Credits to each state based on population. In turn, each state’s housing finance authority (HFA) allocates credits through a competitive application process. Each state creates its own Qualified Allocation Plan, or QAP, which details the application process, program requirements and the HFA’s goals or special targets, amongst other things.
“When it comes to compliance, most states have a compliance manual for LIHTC,” Widtfeldt said. “While the IRS has its regulations, states sometimes differ in their implementation of those regulations and may be more or less restrictive or have different ways they want things verified and/or documented. It’s crucial for everyone to be familiar with their state HFA compliance standards and interact within the compliance team at the HFA.”
To stay as up-to-date as possible on a state’s program regulations, Widtfeldt also suggests owner/agents and management entities sign up for their state’s HFA email list. Often times, an HFA will release new memorandums or changes through this avenue.
Not Being Aware of Deadlines
When a new LIHTC project begins, the investor group will have expectations regarding how many units need to be leased in a certain amount of time. If this information isn’t communicated clearly, it can cause issues down the road for property managers and owners.
“A lot of properties don’t always have an understating of expectations for credit delivery. From a property management perspective, understanding the investors’ expectations for delivering files and getting them completed is important,” Widtfeldt said. “We’ve run into issues where properties don’t even realize they are up against a deadline, and they’ve never been communicated that information. To understand the timeline and expectation for getting units qualified is an important piece of the conversation.”
Not Separating Files by Program Type
Often times, when owner/agents transition their units from public housing to LIHTC and project-based voucher program, documentation can become intertwined and cause issues when files are reviewed.
“Your HUD file should be your HUD file and your LIHTC file should be your LIHTC file. This is particularly important when it comes to Enterprise Income Verifications (EIVs) which are used in HUD files, but cannot be used in LIHTC,” Widtfeldt said. “Most people know that, but they might not know that you can’t have EIVs physically in the file. If an auditor reviewed your files and you had EIV in a LIHTC file, it can be a problem. I think this is a common mistake for properties transitioning from a traditional public housing program.”
Not Having a Standard File Checklist in Place
Widtfeldt and her team complete file reviews for LIHTC programs across the country. Sometimes a review will reveal inconsistent file documentation. Having a standard checklist for all files helps ensure compliance and makes audits or file reviews run smoothly.
“We recommend as a best practice to have a file checklist and a file order because an auditor or our team will want everything to be well organized and organized in a consistent manor,” Widtfeldt said. “A checklist also helps to ensure that you do not include more than you need to in a file. Excess documentation that is not required by the program or the HFA can potential create confusion for a third-party reviewing the file. ”
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