Tax Credits:

Opportunities to Improve Oversight of the Low-Income Housing Program

GGD/RCED-97-55: Published: Mar 28, 1997. Publicly Released: Apr 9, 1997.

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Pursuant to a congressional request, GAO provided information on the low-income housing tax credit program, focusing on the: (1) characteristics of the residents and properties that have benefitted from low-income housing tax credits; and (2) controls the Internal Revenue Service (IRS) and states have to ensure that state priority housing needs are met, housing project costs, including tax credit costs, are reasonable, and states and project owners comply with program requirements.

GAO noted that: (1) given the results of its random sample, GAO estimates that about 4,100 low-income housing projects were placed in service during the period 1992 through 1994; (2) for these projects, GAO estimates that the states annually awarded tax credits with a potential value over their 10-year lifetime of about $2 billion, about $1.6 billion in present value terms, or about $6.1 billion over the 3 years combined; (3) GAO estimates that the average household income of residents of tax credit-funded low-income housing projects placed in service between 1992 and 1994 was about $13,000, and that a substantial majority of the households had income levels considered "very low" by the Department of Housing and Urban Development; (4) the low-income housing developments were located throughout the United States in both urban and rural areas and the types of buildings varied from walk-up, garden-style apartments to high-rise apartments; (5) most were new construction, but some were rehabilitated; (6) all the states had developed qualified tax credit allocation plans, required by the Internal Revenue Code to direct tax credit awards to meet priority housing needs; (7) the plans generally targeted the credits to the priority housing needs identified by the states; (8) in ensuring the reasonableness of project costs and estimating the amount of tax credits needed, state allocation agencies are dependent on information submitted by developers about sources of financing and uses of funds; (9) all states had some cost control procedures in place that were intended to help ensure the reasonableness of the tax credits awarded to projects; (10) GAO observed that some projects lacked complete information on the sources and uses of project funds, and some did not include certification of key data used in determining the basis for the tax credit; (11) states have established compliance monitoring programs consistent with IRS regulations, but GAO determined that not all states fulfilled the requirements of those programs in 1995; (12) although IRS conducts various tax credit oversight activities, there is no specific requirement or authorization in the IRC for IRS to evaluate state agencies' tax credit operations for compliance with laws and regulations; and (13) unlike other federal housing programs that are generally administered by state agencies, such as the Community Development Block Grant program, the tax credit program is not covered by the Single Audit Act under which state operations are independently audited for compliance with federal laws and regulations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS' January 1999 revision of Form 8823 Low Income Housing Credit Agencies Report of Noncompliance, which states use in monitoring compliance, shows the number and types of inspections made. The final regulations to require specific steps in state monitoring plans that provide information to help IRS monitor the habitability requirements of the Internal Revenue Code were approved on December 27, 1999.

    Recommendation: The Commissioner of Internal Revenue should amend regulations for the tax credit program to: (1) require that states report sufficient information about monitoring inspections or reviews, including the number and types of inspections made, so that IRS can determine whether states have complied with their monitoring plans; and (2) require that states' monitoring plans include specific steps, such as site visits, that will provide information to permit IRS to more effectively ensure that the Code's habitability requirements are met.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS' revision of Form 8610 Annual Low-Income Housing Credit Agencies Report, which states use to report their credit allocations, contains additional information that IRS can use to determine whether states exceed their credit allocations.

    Recommendation: The Commissioner of Internal Revenue should explore alternative ways to obtain better information to verify that states' allocations do not exceed tax credit authorizations and to evaluate compliance with the requirements of the Code by taxpayers and housing projects.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Not Implemented

    Comments: OMB stated that including the low-income housing tax credit in the Single Audit Act would require legislation.

    Recommendation: To help ensure appropriate oversight of state allocating agencies' overall compliance with tax credit laws and regulations, the Director, OMB, should incorporate the low-income housing tax credit program in the definition of federal financial assistance included in implementing guidance for the Single Audit Act, as amended, so that the program would be subject to audits conducted under the Single Audit Act.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: IRS' final low income housing tax credit regulations to establish requirements to ensure independent verification of key information on the sources and uses of funds submitted to states by developers were approved on December 27, 1999.

    Recommendation: To ensure reliable and complete information for making decisions on tax credit awards, the Commissioner of Internal Revenue should amend tax credit regulations to establish clear requirements to ensure independent verification of key information on sources and uses of funds submitted to states by developers.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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