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SOCIAL SECURITY COLA FOR 2021

October 13th, 2020

October 13, 2020:
The Social Security Administration has announced the Cost-of-Living Adjustment (COLA) for 2021. 

The PRESS RELEASE states:

Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 1.3 percent in 2021.

The 1.3% COLA can be applied by multiplying the current award amount by 1.013.

For management staff, be sure to apply the COLA to benefits for the appropriate number of months based on the effective date of the certification.

Example:

Mrs. Smith would like to move in on November 1, 2020.  Her 2020 gross Social Security monthly amount is $1,050.  You will calculate her Social Security income as follows:

$1,050 x 2 = $2,100 (November and December 2020)

$1,050 x 1.013 = $1,063.65 (2021 monthly amount)

$1,063.65 x 10 = $10,500 (January to October 2021)

$2,100 + $10,500 = $12,600 (12 months)

If you have already processed files for move-in during January 2021, it is recommended that you review the household income and apply the COLA to benefits issued by the Social Security Administration since it is a known anticipated change in income.

PRE-APPROVAL LIMITS & UA REQUIREMENTS

October 2nd, 2020

In order to provide a comprehensive pre-approval review to our clients, Spectrum is requiring the following documentation be included with all pre-approval submissions: 

  • Income and rent limits
  • Utility allowance (if applicable)

This information is needed for Spectrum to determine income eligibility and gross rent compliance and can be provided on the Spectrum Cover Sheet. 

INCOME LIMITS:

Income and rent limits can be found on the HUD website. Please refer to this blog for instructions on how to determine the correct limits for your property. 

UTILITY ALLOWANCE:

The utility allowance used will depend on the type of property: 

  • In a HUD regulated building, use the HUD approved utility allowance.
  • In an RD regulated building, use the RD approved utility allowance.
  • In a conventional building with Section 8 Certificates or Vouchers, use the Public Housing Authority approved utility allowance. This applies to those Section 8 units only. 
  • In a conventional building or unit without Section 8, use either the PHA utility allowance or utility company data, if lower. 

SPECTRUM COVER SHEET:

The Spectrum Cover Sheet can be used to document and submit the limits and utility allowance. The 20% to 80% limits will auto populate when the 50% income limits are completed on the highlighted line.

There is a separate chart to manually enter the utility allowance amounts and effective date.

The Spectrum Cover Sheet should be included with all submissions.  To obtain a copy of Spectrum’s cover sheet please click here!  In addition to documenting the limits and utility allowance it also identifies the project name, site manager name, contact information and if the file is a new file or correction. Please ensure the cover sheet is completed in full to avoid delays in processing files. 

AVOID DELAYS!

Beginning 10/1/2020 files submitted without income and rent limits will not be reviewed. 

Beginning 10/1/2020 files submitted without utility allowance documentation will be reviewed but it will be noted that the utility allowance was not provided. Even if approved for income eligibility these files will be rated a 1 because Spectrum cannot confirm that the correct utility allowance was used on the tenant income certification.

CORRECTIONS:

When submitting corrections please include the previous Spectrum pre-approval report in the PDF file. This allows us to locate the audit in our software. Corrections submitted without the previous Spectrum pre-approval report will not be reviewed. 

Please note that items noted under the PROCEDURAL ISSUES heading do not require any corrections to be submitted.  These items are informational only.

Thank you in advance for providing the necessary documentation so Spectrum can perform a complete, comprehensive review of your files. We appreciate your business and look forward to working with you. 

Pre Approval Report Formatting – 8/17/2020

August 17th, 2020

Written by Deb Bechetti & Lainey Nadeau

Spectrum is using a new format for documenting comments and corrections on the pre-approval report.  These changes are being made in an effort to have consistent formatting and wording in all pre-approvals, regardless of the assigned analyst.  These changes also make the outstanding issues more apparent to the property so that corrections can be more precise.

There are now 2 headings under COMMENTS on the report when corrections are required. 

RESPONSE REQUIRED

PROCEDURAL ISSUES (Informational only) 

When the corrections are received the analyst will add a response and date to the report addressing each numbered item. If the correction is adequate ISSUE CLEARED will be noted next to the response.  

If the correction is not adequate Spectrum will add additional comments.

Files will be rated 2 until all comments under RESPONSE REQUIRED have been CLEARED. 

The comments under PROCEDURAL ISSUES are informational only. Files with procedural comments only will be rated 1 and corrections should not be resubmitted. 

If a file is not approved it will be rated 3 with the following comment and should not be resubmitted. 

KEEPING IN COMPLIANCE: LIHTC TENANT FILES – LIVE ONLINE

August 11th, 2020

Spectrum’s new 6-hour course covering common issues related to tenant files is now being offered live monthly.

No need to take a full day away from your regular responsibilities for training: this course is structured as four sessions, running approximately 90-minutes each, two sessions daily for two consecutive days.

Live session attendees will have a chance to ask questions and will receive a certificate of attendance good for 6-hours of continuing education and accepted as recertification for the Spectrum Seminars’ C3P.

Live Registration Cost: $400 per attendee


8/11/2020 & 8/12/2020 – LIVE – SOLD OUT!


9/15/2020 & 9/16/2020 – LIVE – REGISTER HERE!


10/13/2020 & 10/14/2020 – LIVE – REGISTER HERE!


11/9/2020 & 11/10/2020 – LIVE – REGISTER HERE!


12/15/2020 & 12/16/2020 – LIVE – REGISTER HERE!


This course is also offered as pre-recorded and it can be conducted as a private training for your group, tailored to your needs.  See the Training page (https://spectrumlihtc.com/training/keeping-in-compliance/) for more details.

 

Presented by Jennifer Robinson, Spectrum’s Director of Education & Training Development. With a background in property management, Jen has been part of the Spectrum team since 2006 and has extensive experience reviewing applicant and tenant files, performing compliance reviews on behalf of State Credit Agencies, and conducting LIHTC training seminars and workshops nationwide.

NEW! WEDNESDAY WEBINARS – LIVE

August 11th, 2020

Spectrum Enterprises is pleased to announce a series of live webinars monthly starting August 2020.

These 60 to 90-minute session will cover an array of common topics related to LIHTC tenant file compliance using examples from actual file reviews and drawing on the experience of seasoned compliance analysts.

Wednesday Webinar Cost: $75 per session


August 19 at 1:00 pm EDT (10:00 am PDT)

BACK TO SCHOOL: Understanding the LIHTC Student Status Rule & Exceptions 

REGISTER HERE!


September 23 at 1:00 pm EDT (10:00 am PDT)

10 Tips for a Successful Compliance Review

REGISTER HERE!


October 21 at 1:00 pm EDT (10:00 am PDT)

Annualizing YTD Earnings & The COVID-19 Impact

REGISTER HERE!


November 18 at 1:00 pm EDT (10:00 am PDT)

How to Document Unanticipated Changes & Tenant Fraud

REGISTER HERE!


December 23 at 1:00 pm EDT (10:00 am PDT)

LIHTC Leases 101: Terms, Language, Fees & Mistakes

REGISTER HERE!


Presented by Jennifer Robinson, Spectrum’s Director of Education & Training Development. With a background in property management, Jen has been part of the Spectrum team since 2006 and has extensive experience reviewing applicant and tenant files, performing compliance reviews on behalf of State Credit Agencies, and conducting LIHTC training seminars and workshops nationwide.

Let’s Talk About Tips, Baby

July 17th, 2020

Written by Madeline Groeger & Jennifer Robinson

We are all familiar with the fact that “employment income includes (but is not limited to) hourly wages, salaries, overtime pay, tips, bonuses, and commissions before any payroll deductions.” (Page 4-8 IRS Guide to Completing Form 8823).  Whether referred to as tips or gratuity, any discretionary payments a person receives from customers is considered income. According to the IRS, tips include:

  • Cash tips received directly from customers.
  • Tips from customers who leave a tip through electronic settlement or payment.  This includes a credit card, debit card, gift card, or any other electronic payment method.
  • The value of any noncash tips, such as tickets, or other items of value.
  • Tip amounts received from other employees paid out through tip pools or tip splitting, or other formal or informal tip sharing arrangement. 

(https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting)

That means tips can take many forms.  It also means that tips can appear in many different ways on an employee’s pay stubs, and it can be very confusing.  Quite often the total pay on a pay stubs is less than the sum of its parts, and that often goes unnoticed.

Follow this example:

Type

Hours

Rate

Total

Regular

80

$2.75

$ 220.00

Over Time

20

$4.13

$   82.60

Charge Tips

 

 

$ 274.40

Cash Tips

 

 

$ 200.00

Less Tips

 

 

$-190.00

TOTAL

 

 

$ 587.00

 

What amount do you use for gross income?

None of the above.  Also, most of the above.

We have to consider the hourly pay: $220 Regular + $82.60 OT = $302.60

It’s the tips that add confusion: $274.40 Charge + $200 Cash = $474.40

Gross income is $302.60 + $474.40 = $777.00

That number does not appear anywhere above.

 

What about the $190 on the “Less Tips” line?

Of the $200 in cash tips reported, the employee kept $190 in cash during this pay period.  The other $10 was turned in to the employer.  The cash tips they kept are reported on the pay stubs, but it does not show up in the total pay because they already kept the cash.  The employee will be taxed on the total cash tips because it is income.

 

Do all pay stubs for tipped employees look like this?

No.  There are a million different variations.  Depending on where the person works, this type of income could appear as cash, charge, tokens, credit, gratuity, or under a number of other names on pay stubs.

 

Are all tips always reported on pay stubs?

Again, no.  Many tipped employees do not report their cash tips.  This is a violation of tax code, but a fact of life.  Which is why it is important to ask some follow up questions:

  1. Do you receive tips or gratuities at this job?
  2.  Please list the average amount of tip/gratuity received:
  3.  Are all tips reported to the employer?                 

On our website you will find the Tip & Gratuity Affidavit designed specifically for this purpose.

https://spectrumlihtc.com/wp-content/uploads/Tip-Affidavit-2.pdf

The answers should make sense.  Is this person a hairdresser reporting no tips?  Are they a bartender at a popular cash-only bar claiming they barely clear minimum wage?  Don’t be afraid to ask follow-up questions and get the household member to answer them in writing.  If it just doesn’t add up, or leaves you feeling uncomfortable, get a second opinion from a colleague, the state credit agency, or a consultant.

Additional Fees Charged at Tax Credit Properties

July 13th, 2020

Written by Laurie Palmeira

It isn’t always clear what fees can be charged at a tax credit property. Spectrum analysts are often asked: “Can we charge for the use of _____?”

The only way to answer this question is by asking a question: “Is _____ included in the eligible basis?”

One of the ways tax credit properties find themselves out of compliance is by charging fees for use of amenities that were included in the property’s eligible basis.  As a component of the qualified basis, the eligible basis of a property includes the portion of the property for which credits were allocated. Often times, in addition to tax credit units and common areas, the qualified basis of a project includes parking areas, swimming pools, garages, and other fixed assets.  A basic explanation is that if it’s in the eligible basis, you cannot charge for it. 

Prior to charging any fees at a property, be aware of which fixed assets were included in the basis.  If the property received credits for the tennis court and garage, they are part the eligible basis therefore fees cannot be charged for use of those amenities. 

Since fees cannot be charged to tenants, can they be charged to individuals visiting tenants or to people in the community? 

Unfortunately, the answer is no.  If the parking lot is part of your eligible basis, fees cannot be charged to visiting individuals wishing to park there.  The same is true for tenant visitors wishing to use the swimming pool.

What about fees for optional services at your project, such as housekeeping or meals? 

As long as the services are optional and not a condition of occupancy, then fees can be charged for those services.  If, however, there are non-optional services that all tenants must pay for as a condition of occupancy, then the fees associated with such must be included in the gross rent. Keep in mind that tax credit rents are restricted, and that a maximum allowable rent according to the IRS formula must include all those non-optional utilities, fees, and services. 

Under Treas. Reg. 1.42-11(a)(3), the cost of services that are required as a condition of occupancy must be included in the gross rent even if federal or state law required that the services be offered to tenants by building owners.  According to the IRS Guide for Completing Form 8823, assuming the charges are optional, pet fees, laundry room fees, and storage fees may be charged in addition to the rent; i.e., they are not included in rent computation. (Give Page Numbers for reference). Best practice would always be to inquire with your state agency prior to implementing any new charges. There may be an additional lease addendum or separate agreement required by the state agency for optional services and charges.

Are application fees acceptable?

As far as application fees go, only the amount the owner incurs for processing the application may be charged to the prospective tenant.  For example, if the real cost of processing an application including background and credit checks only amounts to $25.00, the owner cannot charge $50.00.  No amount may be charged in excess of the expected out-of-pocket costs.

As with many issues in the tax credit world, it boils down to excellent record keeping and a thorough knowledge of your project and how credits were allocated to most certainly save you from fee-related compliance issues down the road.

Spectrum’s 2020 Online Learning Opportunities

June 8th, 2020

SPECTRUM ENTERPRISES IS EXCITED TO ANNOUNCE NEW ONLINE LEARNING OPPORTUNITIES!

The Spectrum Companies have been specializing in LIHTC compliance for decades. Our team of analysts work as authorized delegates on behalf of state credit agencies as well as in consulting capacities for management companies, developers, and investors nationwide.

We know staying in compliance while maintaining tenant files (and your sanity) can be difficult!


Keeping in Compliance: LIHTC Tenant Files

Our new 6-hour online course is designed as a comprehensive overview of common compliance topics related to tenant file contents and reviews. Including review of rules and regulations, helpful hints and best practice reminders from experienced analysts, and resources and tools for those in the industry who work directly with applicant and tenant files.

Course content is divided into four sessions, running approximately 90-minutes each.
SESSION TOPICS INCLUDE:
Preparing for a Review
Determining Household Composition
Income & Rent Limits
Application & Interview Process
Student Status Rule & Exceptions
Employment Income
Self-Employment
Other Common Income Types
Common Assets

This course is pre-recorded and currently available on-demand online. Attendees will receive an electronic version (PDF) of the course contents and a certificate of continuing education.

Visit the TRAINING section of our website for details and registration.


Beginning in August 2020, Spectrum Enterprises will be offering live webinars on LIHTC compliance topics, including the new Keeping in Compliance course.

Keep an eye on our website, and subscribe to our blog for dates and details.


Looking for LIHTC training sessions tailored to your group’s needs?

Spectrum Enterprises has offered in-person training sessions for years, and now this option is available online. Jennifer Robinson is happy to design training sessions to suit your needs.

Visit the TRAINING section of our website for details

2020 Income Limits

April 1st, 2020

Written by Lesley Murray, Spectrum Enterprises

HUD has announced the 2020 income limits for the MTSP housing programs effective April 1, 2020. This includes low income housing tax credits and tax exempt bond financing. HUD allows for a 45 day grace period, which means these limits must be in use by May 15, 2020.

Our advice to all housing professionals is to immediately check for an increase for your sites. If the income limits in your area have increased go back through any files denied over the past few months to see if any slightly over income households may qualify under the new limits.

To find your 2020 income limits visit this site (and make sure to bookmark it!):

https://www.huduser.gov/portal/datasets/mtsp.html

Choose FY2020 MTSP Income Limit Documentation System then click on the grey button on the next page.

On the next page choose your state and then your county or city.

The result will look something like this:

Depending on the placed in service (PIS) date for your project you will use either the HERA special limits (top chart) or the FY (Fiscal Year) limits on the bottom chart. Or you could be held harmless to a prior year.

HUD provides the 50% and 60% income limits. HUD does not provide rent limits or limits for lower set asides such as 40%. Spectrum has created an Excel spreadsheet, see LIHTC Income & Asset Worksheet under Spectrum resources page (***Spectrum Forms***) to accomplish this. After you download the spreadsheet you can enter the placed in service date for your project; the State; the city/town/county; and then you enter the 50% income limits from the HUD page into the yellow shaded line in the spreadsheet. Formulas written into the spreadsheet will calculate the 40% and 60% income limits along with all corresponding gross rent limits.

If you want to manually calculate your rent limits this is the formula:

  • 0BR: (1 person income limit x 0.3)/12
  • 1BR: (1.5 person income limit x 0.3)/12
    *1.5 person income limit = (1 person + 2 person)/2
  • 2BR: (3 person income limit x 0.3)/12
  • 3BR: (4.5 person income limit x 0.3)/12
    *4.5 person income limit = (4 person + 5 person)/2
  • 4BR: (6 person income limit x 0.3)/12

We frequently see properties using the incorrect income and rent limits. There is a lot of confusion surrounding this. Fortunately, there are many resources available to provide guidance.

  • This blog (originally posted in December 2012) provides guidance on what to do if income limits in your area have decreased.
  • This blog (originally posted in January 2013) provides good explanation on choosing the correct income limits based on the building placed in service date.
  • IRS newsletters #47, 48, and 50 all contain helpful guidance on how to correctly apply income limits.

As a final note, we always suggest updating your utility allowances at the beginning of the year or when new income limits are published. If you are not sure how to determine the correct UA for your property please refer to Chapter 18 of the 8823 Guide.

Anticipated Income and Rideshare Drivers

March 25th, 2020

Written by Jennifer Robinson, Spectrum Enterprises

Nowadays, many of us have apps on our smartphones that allow us to, within seconds, hail a ride from our exact location to our desired destination using only our fingertips. The ridesharing industry exploded onto the scene and changed the way millions of people get from Point A to Point B. Individuals worldwide now have the opportunity to work for themselves from the comfort of their own vehicles, and this has had a major impact on the work we do.

For decades, self-employed applicants and/or residents were rare. The most common examples were hairdressers and barbers or those selling products like cosmetics or food storage containers from catalogue companies. With the rise of the “gig-economy” has come a significant increase in self-employed individuals. It is important to understand that rideshare drivers are not employees of the companies that own the apps/services, they are considered “self-employed partners.” Instead of the pay checks that regular employees receive with taxes withheld, they are responsible for paying their own taxes on the payments they receive. At year end they are issued a Form 1099 or 1099K instead of a W2, and they file a Schedule C with their tax returns.

The HUD Handbook instructs that income from a business is handled differently than pay from regular employment. Instead of using the gross income from pay checks (as with regular employees), the net income from a business is used to determine income for self-employed individuals. It is not required that third-party verification be obtained or attempted and a series of pay checks is not sufficient proof of income. Instead, the individual must provide proof of their gross receipts/income and expenses. Many agencies also require copies of tax returns and current year-to-date income and expenses.

So, what does this really look like for rideshare drivers? Drivers can access and print their complete history. Should we request every last detail, the payments and tips received for every single ride they’ve given since they started working this gig – NO! A million times NO! Keep it as simple as possible, minimize the amount of paper used, and make the whole scenario easy to follow for anyone who may later review the resident’s file. Let’s start with the basics.

What you need to know:

  1. When did this person start driving as a rideshare “self-employed partner”?
  2. Do they drive using more than one company/app?
  3. Since they started, did they stop for any substantial period of time?
    • If so, when and how long?
    • Is another pause or decline expected to repeat/continue? If so, why?

What documentation to request:

  1. A Self-Employment Income Affidavit
    • Completed by the individual and detailing dates active, past gross income and expenses, and estimated income and expenses for the next 12 months.
    • If driving for multiple companies, a separate affidavit for each.
  2. Tax Return(s) including Schedule(s) C
    • Recommended for at least 3 years
    • Or all years active if less than 3 years
    • And corresponding Form(s) 1099/1099K
  3. Monthly Print Outs of Ride Income
    • This is a summary of the month, not a ride-by-ride or weekly or daily breakdown (remember, we are attempting to reduce the amount of paper in your file and make this simple and clear).
    • If they have been driving for multiple years, Spectrum recommends monthly history for the current year to date and the previous year.
  4. Proof of Expenses
    • This is included on the Schedule C for previous years.
    • Receipts may be needed for current year if the income source is new and a full year’s tax return is not available.
    • Several ridesharing companies allow drivers to upload receipts, etc. to track their expenses along the way instead of having to keep separate records. The driver should be able to include this in their monthly summary if using this feature.

Remember it’s perfectly fine to tell someone they need to organize their shoebox of receipts into an organized format that you can follow, you are not their accountant and are not expected to act as one. That said, if they do have an accountant, a letter on letterhead from an accountant stating past, current, and expected future earnings can serve in place of actual receipts.

Remember, if they did not work in this field or for the same gig company for all of the previous year, the total net income on their tax return is not an exact estimation of what they will earn in the next 12 months. If they only drove for eight months in 2019, the amount from the tax return should at least be divided by eight and multiplied by twelve to represent a full year’s income. A more accurate approach would be to collect the monthly print outs from when they started through present to look for patterns, fluctuations, increases, etc.

Just as we were really starting to understand how to cope with this new form of income, the coronavirus (COVID-19) pandemic hit and it is important that we are aware of how this will impact our approach to determining income for rideshare drivers. It is not expected that the slow-downs will continue forever, using March-April 2020 income as a snapshot to represent the next 12 months is likely not accurate or appropriate.

In light of recent shutdowns and “social distancing”, it seems that income from this gig-economy source will need some additional analysis. As of March 17, 2020, Uber and Lyft have temporarily suspended their carpooling services (Pool and Shared) so that strangers cannot ride with one another in an attempt to flatten the curve of COVID-19. In large cities like New York and Seattle, this type of service was a substantial portion of several drivers’ fares.

Uber has reported as much as a 70% decline in trips in cities hardest hit by COVID-19. In an attempt to offset the income loss, several traditional rideshare drivers are turning to take-out food delivery services like DoorDash, Postmates, GrubHub, and UberEats. Don’t forget to ask about these.

It has always been important to analyze income and expenses related to self-employment, but the rise of the gig-economy has significantly increased the frequency of doing so in the LIHTC management and compliance industry. Don’t be afraid to ask for more information or documentation. If an applicant cannot provide enough organized detail, you may not be able to rent to them.


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