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HUD 4350.3 Change 4 and LIHTC

How income Calculations have changed with 4350.3 Chg 4

One of the recent updates in the HUD 4350.3 Chg4 relates to how income is verified and what is considered to be an acceptable form of verification and what isn't. This change has redefined the term "third-party verification" to include verification materials that have been in the possession of the tenant, whereas in the past, third party verification was considered to be materials delivered directly to the O/A by the employer or institution.

So, how does this affect the Low Income Housing Tax Credit program? Since the LIHTC program refers owners/agents to the 4350.3 Chapter 5 for rules on calculation of income and assets - anything that HUD does directly affectly affects all LIHTC programs. This week, the IRS released a newsletter that clarified the IRS's position - which said, in short, that the IRS will continue to follow the 4350.3 Chapter 5, including the recent changes regarding acceptable forms of verification.
However - it may be not considered appropriate by your state Housing Finance Agency. Your state agency may impose additional requirements on income verification above and beyond what the HUD handbook now states. Many states may opt to continue with their current rules that require third party verification, as hand-carried documentation typically fails to addresses areas of concern such as anticipated increases, bonuses, and other anticipated changes in income that could affect eligibility.

What Should You Do?

Unless your state agency or its representative has stated specifically that you can start using paystubs or other hand-carried documentation, we would recommend that you keep doing what you are currently doing.

Additionally, even if your state agency were to approve the ability to use hand-carried documentation, you may want to consider still seeking alternate forms of verification. If, for example, you moved in a household with four-paystubs and they were found to be over-income a year later, the lack of documentation would make it difficult to show that the owner/agent has done its due diligence. While this change might provide short-term administrative relief, please use caution, as it is still management's responsibility to determine the most reliable method for anticipating income. If you should have any questions about these changes, please do not hesitate to contact us. 

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