June 08, 2016
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Earlier today, the U.S. Government Accountability Office (GAO) released the second in its three-report series on the Housing Credit program. This report focuses on state administration of the program.

Despite its title, Low-Income Housing Tax Credit: Some Agency Practices Raise Concerns and IRS Could Improve Noncompliance Reporting and Data Collection, the report finds that states are administering the program in a manner largely consistent with federal laws and regulations, and in many cases, going above and beyond their requirements. The report is based on GAO’s review of all agencies’ 2013 Qualified Allocation Plans (QAPs) and site visits to and more extensive reviews of eight state agencies and one subrecipient agency.

GAO makes the following three recommendations for executive action in the report, all of which focus exclusively on Internal Revenue Service (IRS) oversight of the program:

  • The IRS Commissioner should collaborate with allocating agencies to clarify when those agencies must file Form 8823 (report of noncompliance or building disposition) with IRS; and IRS should collaborate with Treasury in drafting such clarifications to help ensure that any new guidance is consistent with Treasury regulations;
  • IRS should ensure that staff from the Small Business/Self-Employed Division participate in the physical inspection alignment initiative of the interagency Rental Policy Working Group, which the White House Domestic Policy Council established in 2010; and
  • The IRS Commissioner should evaluate how IRS could use HUD’s Real Estate Assessment Center databases, including how the information in those databases might be used to reassess reporting categories on Form 8823 and to analyze which categories of noncompliance information have to be reviewed for audit potential.
     

GAO does not direct any of its recommendations to state allocating agencies. However, the report notes that states did not consistently include all statutorily established preferences and selection criteria in their QAPs; some states require letters of support from a local official as a threshold requirement for receiving Credits or award points in the scoring process for such letters, practices that can result in effectively giving localities a veto option over projects and raise fair housing concerns; and a minority of states did not include in their QAPs specific criteria for awarding discretionary basis boosts, which though not required by the statute, is suggested by House report language (House Report No. 110-606) and NCSHA’s recommended practices.

GAO reiterates in this report criticisms it made of IRS oversight in its first report in this series and restates its recommendation that Congress designate HUD as a joint administrator of the program. Specifically, GAO maintains that it would be appropriate for HUD to provide guidance to states on the discretionary basis boost and regularly review agencies’ criteria for awarding the basis boost.

GAO provided NCSHA the opportunity to comment on an advance draft of the report in early April, but did not allow us to share any details of the report until its publication. Our comments are published in the final report, along with comments from IRS and HUD.

GAO is currently working on the third and final report in this series, which will focus on Housing Credit development costs and the role of syndicators. We expect GAO to issue that report in early 2017.

Senate Judiciary Committee Chairman and Finance Committee Member Charles Grassley (R-IA) requested that GAO undertake the three studies.