Follow Seven Tips When Recertifying Households at Mixed-Income Sites

Generally speaking, if you manage a mixed-income site, you and your staff must recertify all low-income households at the site each year. Failing to meet recertification requirements is a leading cause of noncompliance that can cost the owner its tax credits. But recertification can be a time-consuming and burdensome process.

Fortunately, there are things you can do to reduce administrative headaches and safeguard the owner’s tax credits when recertifying your households. We’ve come up with seven tips you can follow at your tax credit site to help you recertify households more efficiently and reduce the chances of making a mistake that could trigger noncompliance.

HERA Exemption Applicability

It’s important to note that the Housing and Economic Recovery Act of 2008 (HERA) eliminated the annual income recertification requirement for projects with 100 percent buildings or buildings with low-income housing tax credit units and no market-rate units.

The IRS considers buildings to be separate projects unless the owner elects to treat certain buildings as a multiple-building project. If you’re unsure how your housing agency allocates tax credits to your site, ask the owner for a copy of the site’s IRS form 8609, Low-Income Housing Credit Allocation Certification. Owners make the election for multiple building projects on Part II, line 8b of IRS form 8609.

If your site contains some 100 percent buildings and some mixed-income buildings, you should obtain copies of the filed 8609’s and use caution when determining if 100 percent buildings are exempt from recertification. If the 100 percent buildings are part of a multiple-building project that includes mixed-income buildings, the 100 percent buildings do not qualify for the exemption. If the 100 percent buildings are treated as a separate project or are part of a multiple-building project that contains only 100 percent LIHTC buildings, then they do qualify for the exemption.

Tip #1: Check Your State Housing Agency’s Recertification Deadline

It’s important to know when to recertify your low-income households each year. States’ practices vary. So if you manage tax credit sites in more than one state, you may have to meet different recertification deadlines for your low-income households. To avoid misunderstandings, ask your state housing agency to tell you its recertification deadline.

Tip #2: Adopt Lease Clause Requiring Households to Cooperate with Recertification Requirements

It’s important to get households to do their part—for example, by showing up for interviews and returning recertification forms on time. To help ensure their cooperation, add a clause to your lease requiring households to cooperate with annual recertification requirements.

Your clause should make failure to recertify a material breach of the lease and enable you to take action to secure the household’s cooperation. It should spell out the annual recertification requirement, give the household a deadline or timetable for recertification, and warn the household that not living up to its recertification responsibilities is a material breach of the lease. If households understand that a lack of cooperation during recertification can give you the right to not renew their lease or to evict them, they’ll be more likely to appreciate the seriousness of this requirement and comply.

For a Model Lease Clause you can adapt and use at your tax credit site, see “How to Encourage Resident Cooperation with Recertification Requirements.”

Tip #3: Send Notices Reminding Households to Report for Recertification

Some households make the recertification process harder by not showing up for your recertification meetings. In addition to adopting a lease clause requiring households to cooperate with the annual recertification requirement, it’s also a good idea to send reminder notices to all low-income households to make sure they know when and where to show up.

To avoid a last-minute scramble, send each household a reminder notice at least 120 days before your deadline for recertifying the household, reminding the household of the recertification requirements and telling it to report to your office to complete the paperwork. If a household doesn’t report by the date you specify in your notice, send a second reminder notice 90 days before the deadline, using stronger language. If the household doesn’t respond within 30 days of the date of the second reminder notice, HUD says you must send a third reminder notice. If the resident doesn’t respond within 30 days of the date of the second reminder notice, HUD says you must send a third reminder notice. HUD Handbook 4350.3 says to send this notice no later than 60 days before the recertification anniversary date. It’s important to take action early. This way, you’ll have time to follow up and, if necessary, get tough with households that don’t take their responsibilities seriously.

Tip #4: Keep HUD Occupancy Handbook Nearby

As a tax credit manager, you must follow the provisions of HUD Occupancy Handbook 4350.3: Occupancy Requirements of Subsidized Multifamily Housing Programs (commonly known as the “HUD Handbook”) to calculate and verify household income at your tax credit site. So have a copy handy. If you don’t follow the Handbook, you won’t properly recertify your low-income households, which will put the owner’s tax credits at risk.

You can get download a copy of the Handbook at https://portal.hud.gov/hudportal/documents/huddoc?id=43503HSGH.pdf.

Tip #5: Check for Updated HUD Income Limits

You must use current HUD-issued income limits to certify and recertify low-income households at your tax credit site. In 2011, HUD committed to releasing the income limits on Dec. 1 every year. However, the definition of “extremely low-income” (ELI) was changed by the 2014 Consolidated Appropriations Act to incorporate the Department of Health and Human Services (HHS) poverty guidelines into the extremely low-income limits (30 percent limits). The HHS poverty guidelines are usually not released until late January. And after the release of the HHS data, HUD needs time to incorporate the data into their calculation. Therefore, HUD doesn’t release the limits in December because it has to wait for data from HHS.

Although the poverty adjustment affects only the ELI income limits and doesn’t impact very low-income (VLI) or low-income housing tax credits (LIHTCs), HUD has stated multiple times that it will continue to release the Section 8 and Multifamily Tax Subsidy Project (MTSP) (the income limits used for LIHTC and tax-exempt bond developments) income limits at the same time.

After HUD issues the new limits, you then have 45 days from the date HUD issues the new limits to begin using them. If your state housing agency discovers that you’re still using outdated limits to recertify your low-income households, it must report you to the IRS for noncompliance because those recertifications aren’t valid. The easiest way to check for updated MTSP limits is by visiting https://www.huduser.gov/portal/datasets/mtsp.html.

Tip #6: Follow Up on Income or Asset Discrepancies

Sometimes the information household members give you at recertification doesn’t match the information you get from their employers and other third parties that complete verification forms. If this happens, you must act promptly to resolve the discrepancy.

It may seem that discrepancies don’t matter because households that are over-income at recertification stay income-eligible for the tax credit program. But sloppy follow-up could lead you to violate the next available unit (NAU) rule. Under this rule, if a household’s income exceeds the limits by 140 percent (or 170 percent in the case of deep rent-skewed units), the owner of your site may still claim credits for the unit so long as you continue charging the tax credit rent for that unit and you rent the next available unit of comparable or smaller size in the building to a new qualified, low-income household.

Here are three steps you should take to resolve discrepancies that may prevent you from knowing whether you must follow the NAU rule:

Contact household member. Household members sometimes make honest mistakes. So without placing blame, tell the household member politely that you found a discrepancy. Say that you plan to contact the verification source to clear up the discrepancy, but that you first want to see if the household member can explain the discrepancy.

If the household member falsified information on his recertification form, he’ll more likely come clean if you take this approach. If the household member concedes that the amount you got from the verification source is correct, process the member’s recertification using that amount. On the other hand, if the verification source made an error, this gives the household member a chance to get in touch with the verification source to correct the error. Ask the member for supporting documentation—such as pay stubs that show the number of hours worked—to show the household member that you’re willing to give him a chance to prove his side of the story.

Contact verification source. You must contact the verification source again if the household member disputes what the source told you. Tell the source about the discrepancy and ask it to double-check its records to confirm that the information is correct. If the verification source admits it made a mistake and that the household member is right, ask the source to complete a new verification form with the correct information, so you can process the household’s recertification. But if the verification source says the information it gave you is accurate, process the household’s recertification using the higher amount—even if it means that the household’s income is high enough that you need to follow the NAU rule.

Write memo describing how you resolved the discrepancy. Document your investigation into a discrepancy by writing a short clarification memo to the household file. Describe the discrepancy and the explanations given by the household member and the verification source. This way, you can show your state housing agency what steps you took to resolve the discrepancy if a question arises during an audit.

Tip #7: Use Optional ‘$5,000 or Less Affidavit’

IRS Revenue Procedure 94-65 allows the use of a tenant-signed affidavit to verify assets if the household total net value is lower than $5,000. This optional form is intended to reduce your paperwork burden when certifying and recertifying low-income tenants. We’ve prepared a Model Form: Under $5,000 Household Asset Affidavit, that you can use if the household’s assets are less than $5,000.

It’s important to note that in IRS Revenue Procedure 94-65, this form may not be used to verify assets “if a reasonable person in the Owner’s position would conclude that the tenant’s income is higher than the tenant’s represented annual income.” If a household clearly misrepresents their income, third-party verifications of all assets are required.

Currently, the passbook savings rate to be used for annual recertifications when a family has net assets over $5,000 is .06 percent. Therefore, it’s important to note that households whose assets do not exceed $5,000 will count the actual income the household’s assets generate from interest or dividends instead of an imputed asset income, the amount when you multiply the total cash value of all assets by the HUD passbook savings rate.