Avoid 8823’s When Tenants Commit Fraud

Written by Cathy Turner, Director of State Monitoring in West Virginia

The IRS stated in the October 2009 Audit Guide that if a tenant has committed fraud and the owner addresses the issue prior to notification of a state agency review then the noncompliance is not reportable. (Audit Guide page 25.2)

So how do you avoid getting an 8823 when a tenant misrepresents themselves?

The first step is having strong move-in procedures.  Be sure all income and assets are fully verified.  Be sure that the file addresses all anticipated changes in the next twelve months.  You do not want to run into a situation where the tenant starts a new higher paying job the day after they sign the move-in certification.

Generally, fraud is found during the first annual certification.  It is important to have procedures in place so that the site staff is not only verifying income and completing a TIC but actually reviewing and comparing the information to the move-in certification.

While interviewing the tenant, compare the current circumstances to the prior year.  If changes have occurred, document WHEN the change happened.  Be sure to document the file as to when the change took place.   

 For example:

  • If tenant changed employment from part-time to full-time.  When did the change occur? 
  • If the tenant was not employed at move-in, when did they start the new job?
  • The tenant is working over-time each week.  When did the increase in hours occur?
  • Tenant is receiving child support.  When did payments begin?

If you find that the tenant deliberately misrepresented their income, then it is time to act! Legal action may be necessary.

As State monitors we look very closely at households that have a significant increase in income during the first twelve months of occupancy. Owners/Managers should be looking at the files closely as well.  Do not wait for us to ask the questions.    

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