Each Compliance Stoplight Test presents a real-world scenario. What color is the compliance stoplight for situation: Green Light (tax credits are safe), Yellow Light (proceed with caution), or Red Light (tax credit loss is imminent)?

Scenario

A family reports having no income. Food and clothing are provided by a local food bank, and medical expenses are covered by Medicaid. The family reports receiving no other monetary or in-kind contributions.

What color is the compliance stoplight?

🟢 Green Light – Tax credits are safe
🟡 Yellow Light – Proceed with caution
🔴 Red Light – Tax credit loss is imminent

Food for thought: Most major types of expenses seem to be covered. Is something major missing?

Stoplight Reveal

🟡 Yellow Light – Proceed with caution
No-income certification requires careful review as to how a family will meet major needs, including rent. Whether this situation ultimately represents a compliant issue may depend on how the family is paying rent and whether the unit is receiving rental assistance.

More Details

If the family is required to pay a set rent, it is reasonable that an owner can sign a certification showing zero income on one hand and a lease requiring rent on the other. Receipt of project-based or tenant-based rental assistance, however, may address this concern.
LIHTC income determinations rely on the Section 8 definition of annual income, which excludes many forms of income that may be used to pay normal family expenses, including rent. Noncash in-kind support, such as food, clothing, or toiletries, from a food bank and other benefits, such as Medicaid, are not counted as income. The same is true of other forms of assistance, such as WIC, SNAP benefits, and many other types of support a family may receive. As a result, a family may sometimes legitimately report zero income and reasonably meet normal expenses. Importantly, though, a no-income certification requires management to understand how the family is also meeting its housing costs. If the family receives rental assistance, the absence of income may be easier to explain because the subsidy may cover most or all rent. If there is no rental assistance, management should confirm that the family is not receiving unreported financial support or regular cash contributions that should be included in income to pay the rent.

The key issue is not whether zero income is possible. The issue is whether the file adequately documents the family’s reported circumstances and how expenses are reasonably met. In this scenario, we have a yellow light. We do not know how rent is being paid, and we proceed with caution.

Compliance Insight

Unanticipated income increases after move-in do not disqualify a family from an LIHTC unit. The key compliance question is whether the family was properly income-qualified at move-in.

References

• Treas. Reg. §1.42-5(b)(1)(vii)
• 24 CFR §5.603 and §5.609(b)
• 8823 Guide (2024) IV, G

Did the result surprise you? Watch for next week’s Compliance Stoplight Test.