How to Handle Inconsistencies that Turn Up During Recertification
An income discrepancy could trigger the NAU rule and jeopardize your site’s tax credits.
At a mixed-income site, when you’re recertifying households, household members may give you information that doesn’t match the information you get from verification sources. For example, a household member may tell you that his weekly salary is $400. But his employer may tell you that his weekly salary is a slightly different amount. This puts you in a tough spot. If you do nothing to resolve this inconsistency, you’re inviting trouble, because you won’t know whether the household income is high enough to bring the Next Available Unit (NAU) rule into play. State housing agency auditors could get the message that your site is lax about tracking the NAU rule. And if they find you haven’t complied with the NAU rule, you could lose tax credits on one or more units in the building.
But this doesn’t mean you should take a heavy-handed approach as soon as you spot an inconsistency. Regardless of the household’s income level at recertification, the household still qualifies for its tax credit unit. All you want to do is find out which income amount is correct so you can comply with tax credit requirements and keep accurate recertification records. You could create needless ill will if a household member made an honest mistake or if the information from the verification source turns out to be inaccurate.
To help you avoid friction but satisfy tax credit requirements, we’ll tell you how to handle inconsistencies that turn up during recertification. And we’ll tell you how to document your actions in case you’re audited.
Why Inconsistencies Matter
If a discrepancy exists between the income a household member claims and what the verification source says, you’re in a bind. You need to have an agreed-upon number to calculate the household’s income. Even though tax credit rules permit over-income households to stay in their units, you need to know about any increases in income to avoid problems with the NAU rule in that household’s buildings.
The NAU rule applies whenever a household’s income rises about 140 percent of tax credit program limits (or 170 percent in deep rent-skewed units.) The rule permits these households to remain eligible for their units, but only if you rent the next available unit of comparable or smaller size in the same building to a qualified low-income household [IRC §42(g)(2)(D)]. Every next available unit in the building must be rented to a qualified household, or you’ll lose the tax credits on all units where household income exceeds 140 percent of tax credit limits.
Remember that the NAU rule also applies if your site has chosen the average-income minimum set-aside option. The provision allows sites to take LIHTCs on units that have designated an imputed income limitation that allows tenants with incomes at 70 percent or even 80 percent of area median income (AMI) as long as there are additional units with designated imputed income limitations at 30 percent, 40 percent, 50 percent, or 60 percent of AMI so that the overall average for all units doesn’t exceed 60 percent of AMI. The NAU rule at these sites means that if a low-income resident has income in excess of 140 percent of the 60 percent, 70 percent, or 80 percent limit, and the next available unit in the building that is comparable or smaller in size to the over-income unit is a market unit, it must be designated with an income limit such that the average of all imputed income designations of residential units in the project does not exceed 60 percent of the AMGI.
So, if the verification source gives you an income amount that differs from what a household told you and that discrepancy could trigger the NAU rule, you need to take steps to resolve the difference. Otherwise, you could be jeopardizing the tax credits on one or more of the units in the building if an audit reveals that you did nothing to comply with the rule. You may be able to avoid problems with your state housing agency or the IRS by taking the following steps.
Contact Household Member
If you discover an inconsistency when verifying information a household member gave you during recertification, talk to the household member involved and see if you can handle the problem without a lot of hassle. Politely tell the household member about the inconsistency you’ve found. Without placing blame on the household member, ask if he can explain the inconsistency. Here’s an example of what you could say:
I’m afraid there’s an inconsistency in the recertification information we have. You have told us you work 20 hours per week, but your employer says you work 30 hours per week, which would make your weekly income higher than you said it was. Before I double-check with your employer, I want to ask you about this. Can you explain the discrepancy? And if you have any documents that show how many hours you work each week, it would be helpful for me to see them.
Telling household members you’re going to contact the verification source again to clear up any discrepancy makes it more likely that they’ll own up to any false statements. And asking for documentation shows that you’re willing to give members a chance to provide their side of the story. If a household member concedes that the information from the verification source is correct, then process the recertification paperwork using the correct amount.
Contact Verification Source
If household members dispute what the verification source told you, contact the source again. Tell the verification source about the inconsistent information and ask it to confirm that it gave you the correct information. For instance, if a government agency says it’s paying more benefits to a member than she says she’s getting, explain the problem to agency staffers and ask them to double-check their records. If staffers say they made a mistake and the member is right, ask them to complete another verification form with the correct information, so you can finish processing the household’s recertification paperwork. Just be sure to document your investigation in a memo, as described below.
But if the verification source stands by its information, then process the recertification amount using the higher amount. If this brings the household’s income above 140 percent of tax credit limits, you’ll have to be careful which unit you lease next and to whom in order to comply with the NAU rule.
Send Memo to Clarify File
After you look into a recertification inconsistency, document what you find out. Write a short memo to your files describing the inconsistency and any explanations given by the household member and the verification source. Even though the household member may appear to have made an innocent mistake in this instance, if you repeatedly get false information from a household member later, you’ll have multiple memos to help you prove that the member is committing fraud. Here’s what a memo might say:
When processing a recertification for John Resident, we received inconsistent information concerning his employment income. Resident told us on Aug. 1, 2023, that he works 20 hours per week for General Telecommunications. In a verification form dated Aug. 15, 2023, General Telecommunications told us that Resident works 30 hours per week. When I discussed this inconsistency with Resident, he stated that the employer was mistaken and his information was correct. I contacted the employer again and was told that they made a clerical error and that the Resident does in fact work 20 hours per week. At my request, the employer forwarded an updated version of the verification form with the correct information. We processed the recertification using the correct income amount.