Report Identifies Weaknesses in IRS Oversight of LIHTC Program

A report from the Government Accountability Office (GAO) identifies oversight weaknesses of the Low Income Housing Tax Credit (LIHTC) program by the Internal Revenue Service (IRS). Examples of IRS oversight weaknesses include insufficient data reliability and minimal monitoring of state housing finance agencies. GAO suggests Congress consider designating HUD as a joint administrator responsible for LIHTC program oversight.

On July 23, GAO released what is expected to be the first of three reports on the LIHTC program. The reports stem from a request by Senator Charles Grassley (R-IA) to review various aspects of the LIHTC program, including federal oversight. The first report, Low-Income Housing Tax Credit: Joint IRS-HUD Administration Could Help Address Weaknesses in Oversight, identifies “severe resource constraints” that could affect the ability of IRS to administer its programs, including the $8 billion-a-year LIHTC program.

LIHTC data reliability is one area of IRS oversight weakness. “We assessed the reliability of the [LIHTC] database and determined that data reliability issues impeded our analysis,” the report says. “The data on credit allocation and certification information were not sufficiently reliable to determine if basic requirements for the LIHTC program were being achieved…Without improvements to the data quality of credit allocation and certification information, it is difficult to determine if credit allocation and placed-in-service have been met by [housing finance agencies (HFAs)] and taxpayers,” the report says. State HFAs administer and oversee the LIHTC program in each state.

GAO also faults IRS oversight of HFAs. “As a result of minimal monitoring, IRS does not know the extent of compliance monitoring by HFAs, which limits its ability to determine if the HFAs appropriately awarded credits to projects,” the report says. In addition to weak HFA monitoring, GAO says the IRS did not sufficiently audit taxpayers who claimed LIHTCs.

In a statement upon the report’s release, Senator Grassley said he was not surprised at the report’s findings. “The federal government is good at giving out money and tax breaks and terrible at checking on results. No one at the IRS or HUD seems to have any way of knowing whether a multi-billion-dollar program for low-income housing has worked as intended. This doesn’t bring accountability, and it may or may not deliver affordable housing for people in need,” Senator Grassley said.

In comments within the appendix of the GAO report, the National Council of State Housing Agencies (NCSHA) is described as opposing GAO’s recommendation that HUD be a joint administrator of the LIHTC program with the IRS, quoting NCSHA as saying HUD has “virtually no experience” with the LIHTC program.

The GAO report is at