GAO Provides Recommendations and Observations in Second LIHTC Report; Conference Remarks

Published by Mark Shelburne on Friday, June 17, 2016 - 12:00am

Despite its headline, the second of three planned reports about the low income housing tax credit (LIHTC) released last week by the Government Accountability Office (GAO) found the program was largely being administered appropriately at the state level and–in some cases– LIHTC allocators exceed requirements.

In “Low-Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS Could Improve Noncompliance Reporting and Data Collection,” the GAO noted three main areas where LIHTC allocators could improve:

  1. Not all states explicitly state all selection criteria in their qualified allocation plans (QAPs).
  2. Some states require letters of support from local governments and the Department of Housing and Urban Development (HUD) has raised fair housing concerns about this practice.
  3. The criteria used to award boosts varied, with some allocating agencies allowing boosts for specific types of developments and one allowing boosts for all developments in its state.

That said, the GAO’s recommendations actually focus on additional Internal Revenue Service (IRS) oversight. To that end, the report recommends the IRS:

  • clarify in collaboration with LIHTC allocating agencies when they should report noncompliance;
  • participate in the interagency Rental Policy Working Group (established by the White House Domestic Policy Council in 2010); and
  • evaluate possible use of the Real Estate Assessment Center database, including analysis of which noncompliance categories have to be reviewed for audit potential.

In addition, the GAO also reiterated its earlier recommendation that oversight of the LIHTC be jointly administered with the IRS and the Department of Housing and Urban Development’s (HUD). In remarks yesterday to attendees at National Council of State Housing Agencies’ (NCSHA) Housing Credit Connect 2016, the GAO’s Dan Garcia-Diaz said HUD should only have oversight of the areas the GAO specifies in the report, e.g., reviewing QAPs to ensure they comply with Section 42.

When it comes to what may come out of this discussion, as noted previously in this space, it is unlikely Congress will give more resources to the IRS for LIHTC oversight, or propose joint IRS-HUD administration. Nonetheless, the report could have some effect in LIHTC practice. NCSHA will update its recommended practices in part to respond to the GAO findings.

Regarding the third report in the series, Garcia-Diaz also spoke about the challenges in evaluating development costs. Difficulties include contrasting with market-rate buildings, since the data is largely unavailable, and comparisons among affordable rental housing developments because of different types and locations. The target release for the third report is early 2017 but there is no set deadline for its publication.