Conduct Detailed Interview of Households Claiming Zero Income
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.
Typically, it’s not a problem to gather the necessary income certification documents. But there may be instances in which a household member tells you that she has no income in order to reduce the household’s total income and qualify it for the unit. Or a tax credit household that’s also subject to Section 8 subsidies may claim that the entire household has no income so as to reduce the portion of the rent that the household must pay.
Some residents claiming zero income may be willing to sign an affidavit attesting to the fact that they have no income. But, like verifying assets with a value of $5,000 or less with affidavits, owners may not rely on a low-income tenant’s signed, sworn statements if a reasonable person would conclude that the resident’s income is higher than what the resident has represented. In such cases, the owner must obtain other documentation of the low-income tenant’s annual income to satisfy the documentation requirements.
If you suspect that a reasonable person would conclude that the resident’s income is not, in fact, zero, you should conduct a detailed interview with the resident or prospective resident. An interview can be used to follow up on information disclosed on the application, surface information that wouldn’t otherwise be known, and help you make an informed decision. Here are some questions that may help your decision making.
Work history. You should get a sense of the prospective tenants work history. Ask if the prospective tenant has held a job or worked in the past. If the tenant has a work history, why isn’t the tenant working now, or seeking employment? If the tenant doesn’t have a work history, ask how the prospective tenant covered his or her expenses for the past year.
Sources of income. Ask whether the prospective tenant has income from specific sources such as workman’s compensation, unemployment insurance, an inheritance, or an allowance from a trust, for example.
Method of paying for living expenses. Ask how the prospective tenant intends to pay for living expenses, such as groceries and clothing in addition to rent for the next year (less than $5,000 per year equates to total expenses of less than $417 per month).
Money accounts. Ask to see documentation of checking and saving account balances. If bank statements are provided, inspect the extent of deposits and withdrawals into and out of the accounts provided. Follow up to determine how the prospective tenant was able to save money.
Loan information. Ask to see loan documents. Who is making the loan, and how does the prospective tenant intend to repay the loan?
Roommate history. Ask whether the prospective tenant has had roommates in the past. Any additional roommate can share living expenses and make a big difference. A tenant may not be hiding income from you, but he or she may be hiding the fact that an additional tenant will be occupying the unit.
There will always be situations where it will be difficult to estimate income or determine the prospective tenant’s intent. While we are discussing prospective tenants with zero income, the concept is equally applicable to tenants who work sporadically or seasonally. In such cases, site managers and owners are expected to make reasonable judgments as to how to best estimate the income the tenant will receive in the coming year.
Ultimately, the prospective resident may be accepted as a resident of your site. If you certify a household in which one or all of its adult members claim to have no income, it’s important to keep detailed and well-documented records of the steps you took in response to that claim. This includes a list of the questions you asked, the verification forms you sent out, and any signed affidavits you obtained. Show the list to your state housing agency auditors if they ask what steps you took to deal with household members who claimed no income.