What About Fraud?

Written by Jennifer Borland, Spectrum Enterprises

Sometimes it’s a challenge to get a clear picture of a household’s income, assets, and student status.  The tenant certification process can become even more challenging when information provided is not completely true. It can be difficult to determine when a person has intentionally lied versus making an innocent mistake.

For example, if a household has seven bank accounts and only lists six on the Application, it’s possible that this was an oversight. Is it possible they forgot about a savings account with a $10 balance? Absolutely.

However, it would seem that a person who states no employment on the Application, Unemployed Status Affidavit, and Cert of Zero Income turns out to have been employed at the time of initial certification deliberately misrepresented his income. Is it possible to complete four forms (including TIC) stating no income because they forgot about the job they were actively working at the time? Not likely.

The IRS takes fraud very seriously. Page 25-1 of the Guide for Completing Form 8823 states:

“LIHC property owners should demonstrate due diligence to prevent tenant fraud. Fraud includes deliberate misrepresentation of fact in order to induce someone else to part with something of value or surrender a legal right. In this case, the outcome of deliberate misrepresentation by a tenant can result in the property owner renting a residential unit to an ineligible tenant at a below market rate.”

The Guide goes on to tell you what to do to correct the issue – get the unit back to a credit-worthy status:

“If an owner discovers that a tenant has deliberately misrepresented their income level, student status, household size, or any other item used to determine eligibility, the owner should consult state or local landlord-tenant laws to determine whether the tenant can be asked to vacate the LIHC unit or the rent raised to the market rate.  The owner is not expected to complete the annual recertification if a tenant is asked to leave or an eviction proceeding is in process.”

Fraud is taken so seriously that the IRS has instructed that fraud be reported to their Whistleblower Office:

“Report any suspected or known deliberate misrepresentation of income to the Internal Revenue Service’s *Whistleblower Office. Complete Form 211, Application for Award for Original Information, and submit the form to the address identified on the form.*

As with credit ratings, criminal history, and landlord references, be sure your company has a clear written policy about how to document and handle fraud. Before accusing a person or household of fraud, it is important to have irrefutable evidence.  Gather as much documentation as possible to illustrate the fraud and maintain documents in the tenant file or with the application.

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