As property owners continue to strive for compliance, more questions arise as to what establishes proper verification. The HUD Handbook includes a useful outline of third party verification that may help answer these questions. The IRS treasury regulation 1.42-5 also breaks down the proper documentation for LIHTC. It says:
Documentation to support each low-income tenant’s income certification (for example, a copy of the tenant’s federal income tax return, Forms W-2, or verifications of income from third parties such as employers or state agencies paying unemployment compensation). For an exception to this requirement, see section 42(g)(8)(B) (which provides a special rule for a 100 percent low-income building). Tenant income is calculated in a manner consistent with the determination of annual income under section 8 of the United States Housing Act of 1937 (“Section 8”), not in accordance with the determination of gross income for federal income tax liability. In the case of a tenant receiving housing assistance payments under Section 8, the documentation requirement of this paragraph (b)(1)(vii) is satisfied if the public housing authority provides a statement to the building owner declaring that the tenant’s income does not exceed the applicable income limit under section 42 (g);
For some time, it was thought that a document completed by a third party but provided by the resident was not third-party verification; however, HUD has indicated that this is still considered third-party verification. Some examples of this include paystubs or a tax return. When utilizing paystubs, it is important that you have the minimum required amount (4-6 for LIHTC or 2 months for HOME) and that they are current and consecutive.
Another proper third-party verification of income is a more common one. This form of documentation is sent directly from the third party. There are many ways this can be done. The form can be mailed, emailed, or faxed. No matter what form of delivery, it still needs to be verified that it is from the correct source. If it is mailed, your state agency or management company may require that you include the envelope as backup.
One source that has been in question for some state agencies is information verified from the Internet. This is considered third-party verification if it can be shown and documented that it is from a reliable source. The HUD Handbook states that a printout from the Internet is suitable verification. It is important that if the owner is using this as the verification of income that the reliability of the source is evident.
Finally, it is important to note that verification made over the phone may also be considered third-party verification. It is often suggested that the owner or owner representative be the one calling the third party to ensure it is a reliable source and that the person on the phone is the correct party. When the third party is initiating the call, it is harder to verify the source and caller.
Keep in mind that there are some instances when such information is not sufficient. If the documentation provided is not current and it is not clear if the information has changed, then the household could be out of compliance for failure to provide sufficient verification of income. Another example of when such information may not be sufficient is when the documentation provided, no matter the source, is not complete. If for instance, a resident provides paystubs completed by the employer and the pay isn’t clear, the frequency isn’t listed, or there are not enough check stubs to determine the income, then this form of verification may not be acceptable due to the inability to properly verify the income. With most everything, the state agencies can enforce stricter rules and have specific ways they want documentation obtained. Though knowing the HUD guidance and regulations is important, it is just as important to verify with your state as to how they want verifications obtained and documented.