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Good File Organization

Thursday, December 13th, 2012

by William Whalen, Compliance Analyist

Recently, I conducted a file audit /unit inspection of a tax credit property. The audit took longer than I anticipated because each file was set up different, there were no calculation sheets and no clarification sheets in the files.  I could have easily finished the files in just over half that time had the files been organized well or even uniformly. As a compliance monitor, I will say that file reviews go the quickest when each of the files are organized and set up the exact same way.

All of your files should be uniform.  Each file should be set up the exact same way. Create a template for the tax credit files so each employee knows exactly how the files should be organized. A good way to do this is with a “dummy” file. A dummy file is a file that contains blanks paperwork showing the exact order it should be placed in each file.  This should be updated as new forms and regulations come out, but an up to date and accurate dummy file is a great model for all employees to refer to when putting together a tax credit file in your office.

Here are some helpful hints to keeping your files organized:

1. The most recent tenant income certification (TIC) should be on top. This is what we use to obtain the information we put in our software from each file. Make sure the TIC is complete, signed and dated. We use the rest of the file to verify the information we take from the TIC.

2. Calculation sheets are not required, but they certainly make a file easier to review. Often when going through a file, we spend a lot of time with a calculator trying to figure out how management came up with the income totals. A calculation sheet in the file just after the TIC shows us your math. And be sure to list the math here, don’t just list the total. Just listing the total negates the usefulness of the calculation sheet.

3. As for third party verifications, it’s quite helpful to have them in the same order in the file as they appear on the TIC. This goes for both income verifications, as well as asset verifications.

4. Also, even if you cannot get someone to respond to your a third party verifications, make sure your attempts are documented in the file.  And this is where you would place the documents you used instead of the third party verifications, along with a clarification sheet as to why the third party documents are blank.

5. Clarification sheets are an amazing tool to give a difficult file a narrative. Not every file is going to be straight forward and easy. Files where a tenant only receives social security benefits and has little to no assets are easy for everyone involved. However, many files contain various jobs, pensions and public assistant amounts. And there are those files that have multiple assets all varying in type and amount. These are the files that can be a nightmare to review without clarification sheets. Good clarification sheets can make even the thickest file easy to review.

6. Also, make sure you have supporting documentation for each income amount on the TIC. Nothing is more frustrating than seeing a significant amount of income on a TIC without one single piece of documentation verifying this income.

7. A good rule of thumb to remember is if an auditor has a question while reviewing a file, the next page in the file should contain the answer. For instance, if I’m looking at the employment verification and I see the employer did not answer the question regarding tips, commissions and bonuses, the next page in the file should be a telephone clarification sheet listing the missing information.

8. Everything you do in the file should be documented in one way or another. The obvious information will be documented on the various tax credit forms when filled out correctly. However, often management will make a change somewhere and just assume the auditor will figure it out. For instance, I had a property that included the COLA when calculating the anticipated social security income. However, there were no calculation sheets, adding machine tape or even a note on the social security benefit letter. Not only did they not list that they added the COLA, but they didn’t list that they had only used two months at the current benefit rate and ten months with the COLA added to it. It turned a simple equation into Algebra. And a quick review into a lengthy one.

There’s no better feeling for the site staff then when they can confidently give their files to an auditor and know the files are in good order and all necessary documentation is in place. Well maybe that feeling comes second to how it feels when the auditors finishes your files and tells you that they were in great shape and there were no issues to report.

Good file management is key to running a good tax credit property. It’s a snapshot of your tenants and their income. Files organized efficiently at move in will make for an easy and smooth recertification process. If something is listed on the TIC, there should be a verification supporting it. If something is left blank on a verification document, the next page should have the missing information. Every income amount should have a calculation to back it up. Well organized files not only make life easier for an auditor, they make life easier for the management and the onsite staff.

Extended Vacancies

Thursday, September 13th, 2012

Written by Wil Whalen, Spectrum Enterprises

A very common issue on a tax credit property is extended vacancies.  This is when a unit has been vacant for more than four months.  We are not concerned with market units, but units that are rented solely by the property management staff in the Low Income Housing Tax Credit program.

Here are the most common reasons for an LIHTC unit to become an extended vacancy:

  • The applicant has a criminal background.
  • The property is in an undesirable area.
  • In the case of single room occupancy buildings, often people won’t take the units because they are too small.
  • The applicant is not income qualified.
  • The applicant has bad credit.
  • The property has to work with an external organization on the wait list and the verification process.  Often this is a housing authority that maintains the wait list.  We understand that is can often add several months to the application and verification process.

These are all valid reasons for a unit to remain vacant for an extended period of time.  However, you should still be working to rent these units.  In the case of working with the housing authority, there isn’t much you can do to expedite the process, but it’s still important to ensure that these units are ready should an income eligible tenant apply.

Here are some tips for renting the units with extended vacancy status:

  • Make the unit rent ready as soon as possible after it has been vacated.
  • Aggressively market your property in local news publications, with the housing authorities, on the internet and in apartment rental guides.  Some properties go to the extent of putting a large banner on top of the building advertising vacancies.  Other properties conduct open houses on weekends to show the units and the property.
  • Show the potential applicant the unit prior to the application process.  This way if they’re not interested they can opt out before you spend three months verifying their income.

A few what “not” to do with extended vacancies:

  • Do not use a vacant unit for storage.
  • Do not use a vacant unit for “spare parts.”  If a unit needs a new refrigerator then buy one, Don’t take one out of a vacant unit, because that renders the unit uninhabitable.  And no one wants to see a unit missing a major appliance, light fixtures, or a toilet.  Always be sure your vacant units are rent ready.
  • Do not neglect the safety features in your vacant units.  The smoke and CO detectors should be operable at all times.

Extended vacancies will always be an issue for some tax credit properties.  What’s important is that at any given time, the management staff can show that they are not only aware of the extended vacancies, but they are working hard to rent the units.

There’s No Place like Home

Thursday, June 21st, 2012

Written by Wil Whalen, Spectrum Enterprises

Last week I was conducting an inspection in a high rise building.  As the property manager, the maintenance supervisor and I rode the elevator to the top floor of the building, they began talking about which tenants would give us a hard time or be upset about being chosen for the inspection. As it went, no matter how gruff the tenant was when they let us in, they were wishing us well as we walked out the door.  At the end of the inspection the property manager turned to me and said, “Wow, I wish I could take you with me on every inspection.  They loved you.”

At Spectrum, we inspect thousands of units each year.  We’ve walked into units where we didn’t want the bottoms of shoes to touch the floor and we’ve seen units that were immaculate.  Some units are covered with “Godfather”posters and others look as though Martha Stewart decorated them herself.  This is because the tenants are individual people and the units are their homes.

I’ve found that if you treat the tenant with respect and kindness and be conscious of the fact that you’re in their home and not just a unit, that you’ll have a much better experience.  I don’t waste time with too much small talk or get into conversations that would extend the unit inspection; I just treat both the unit and the tenant with respect.  I say hello, thank them for letting me into their home, and make a few positive comments while conducting my inspection.  If the unit is filthy, then I comment on the weather.  If the weather is awful then I comment on a photo or the styling of the apartment.  I also assure the tenant that I don’t intend to take up too much of their time.  One woman was so bothered by the fact that we were in her house, I took a second to let her know that I understood her time was just as important as mine and that I didn’t intend to take too much of it.  I followed that with a simple compliment on a beautiful painting she had on the wall.  By the time I walked out of her unit 3 minutes later, she was thanking me and wishing me a good afternoon.

That said, some tenants will be difficult for the sake of being difficult and no amount of smiles, flattery or good manners are going to change that.  Remember that some tenants may suffer from some sort of mental illness and this may come off as them being difficult.  For those units, just do your inspection and move on.

This isn’t about trickery or false compliments or even trying to “charm” people.  It’s about treating tenants like people and giving them the respect they deserve.  Yes, one of the down sides of living in affordable housing is the amount of inspections the tenants have to endure every year.  Not every inspection has to be painful though, a little respect goes a long way. So remember, just as you like to be treated with respect and as much as you expect people to respect your home, it’s important that we show our tax credit tenants and their units that same respect.  Because it is true, there’s no place like home.

A Substantial Increase in Income at the First Annual Certification

Thursday, December 8th, 2011

Written by Wil Whalen, Spectrum Enterprises

The process of verifying income for a household at the first annual certification actually begins at move-in. When verifying income at the initial occupancy it’s important that you document all anticipated changes in a tenant’s income. Explore all possibilities by asking questions and making sure all third party verifications are complete. Do more research and follow up if needed. This way, if a tenant goes over the income limit at first move-in, you can show you performed your due diligence.

The most common reason for a tenant to go over the income limit at the first annual certification is because of a change in circumstances at their place of employment. Changes such as an increase in hours or pay, a raise, a bonus, a commission or tips, etc. This is why it’s important to perform your due diligence when verifying employment income at move in. When you receive the employment verification from the employer, review it carefully. Make sure the verification is complete. Also make sure that all the questions are answered and detailed enough to give you not only a picture of the tenant’s current income, but a picture of what their income will be for the next 12 months. If you have any questions at all regarding the information provided by the employer give them a call. Document this conversation and put it in the file. Feel free to request paystubs from the tenant if you are dealing with an uncooperative or unavailable employer. Make sure the pay stubs and the employment verification paint the same picture of the tenant’s income.

Often the employer leaves blanks or writes down vague information on the verification. This is where a telephone conversation comes in handy. Discussing the questions on the verification with the employer often leads to more detailed and direct information. The employer may write “N/A” on the verification in the space where it asks them to list any anticipated change in the employee’s rate of pay within the next 12 months. “N/A” doesn’t answer the question. Call the employer. The employer may tell you that the tenant is not going to receive a raise because at the time of your conversation with them it does not seem likely. However, a few months later, circumstances may change and the company may give the employee a raise. You performed your due diligence and can show that this was not anticipated at move in. Remember, this applies to every field on the employment verification, not just the anticipated raise. Year to date, tips, etc., can all result in an increase in an employee’s income. Also, pay attention to the hire date on the employment verification. If the tenant starts working one month after move in, but the hire date is just a few days after move in, chances are the tenant was aware of the job and did not report it.

When filling out the interview checklist with the tenant, stress to them that by signing it they are making the statement that everything they reported to you is true and that any misinformation or withheld information can result in tenant fraud which is punishable by law.

Remember, due diligence doesn’t end at move-in.


Thursday, August 25th, 2011

Written by Wil Whalen, Spectrum Enterprises


At some point in your Tax Credit career, you may take Steve Rosenblatt’s C3P Tax Credit Certification Seminar. Many people approach this class with a sense of fear because they’ve heard about the dreaded C3P Certification Exam. The C3P Certification Exam has become the stuff of Tax Credit Urban Legends. No one passes it on their first try and people get fired for not passing the exam. Just to put those urban legends to rest, know that many people pass this exam on their first try. Also, here at Spectrum we have never heard of someone being fired for failing this exam. Now that we’ve cleared that up, let’s talk about how to overcome basic exam anxiety.

First and foremost, put the exam out of your mind. If you spend the day and a half in class dreading the exam, you will most likely fail to absorb and retain the information being given to you. Exam anxiety can be distracting if nothing else.

Second: Listen. Steve will tell you everything you need to know to pass this exam. He will tell you what to highlight in your C3P Manual, what notes to take and he will answer your questions. The most knowledgeable person in the room is Steve. If you have a question, ask Steve. If you are confused, tell Steve. If you have a concern, address it with Steve. Chances are the person next to you is as confused as you, if not more. Also, side conversations during the class are distracting to others and any time you take your attention away from Steve, you may be missing vital information.

Third: Don’t leave the “class” in the room. Think about what you’ve learned on your breaks. Keep it in the back of your mind at lunch. Take 15 minutes or so before you go to sleep to think about and review what you’ve learned that day. Get a good night’s sleep between day one and two. Your chances of doing well on the exam will increase greatly if you are well rested.

The C3P Tax Credit Certification Seminar isn’t designed to just give you the information to pass the exam. The class is designed to teach you everything you will need to maneuver in the Tax Credit world, whether you are a housing officer, a property manager or even an investor in a Tax Credit property.


The first thing to know about this exam is that there is no reward for finishing first and no shame in finishing last. Your best bet is to block out the other people in the room. Don’t pay attention to how others are reacting to the exam and the questions. Don’t allow someone else’s stress level to affect yours.

Relax and go at your own pace. Read each question carefully. Read each answer option carefully. Do not try to “read into” anything. The questions and answers mean exactly what they say. There are no trick questions or hidden meanings.

Go with your gut. Chances are your first instinct is the correct one. The more you second guess yourself with any question, the more you will confuse yourself. The more you confuse yourself, the higher your anxiety level. If the anxiety still persists, know that it’s natural to have some anxiety. Just use it as a reminder to do your best and let it motivate you.

When you’re finished, do not go back and read each question and check your answers. This will only lead to a lot of second guessing and changed answers typically end up being the wrong answers. However, do scan through the exam to ensure that you’ve answered every question and the answer bubbles are completely filled in. Also, make sure your contact information is correct.

Once you’ve finished the exam, put it out of your mind. Don’t stress thinking about how you did. Once your exam results arrive, you’ll know exactly how you scored in the various areas. You can use this as a guide so you’ll know what to study should you choose to retake the exam online.

Last, remember once again that the C3P Tax Credit Certification Seminar isn’t there just to teach you how to pass the exam. It’s there to equip you with the knowledge you will need to be an effective member of your Tax Credit team.

Spectrum is Coming! Spectrum is Coming!

Thursday, February 24th, 2011

One of the most common questions I’m asked as a Spectrum Compliance Monitor is, “What can I do to properly prepare for a Spectrum audit/inspection?” 

If you adhere to Internal Revenue Code § 42 (i) (3) (B) (ii), you would be ready for a Spectrum review 365 days a year.  Your files would be perfect, your property would be in tip top shape, every emergency light would work, every smoke detector would be attached and every unit would be free of UPCS violations.  If this were the case than you would not be nervous before one of our inspections.  However, we all know that maintaining a tax credit property, the files, the tenants and the units is a lot of work and the reality is preparation is often needed for any inspection or audit.

First and foremost, read the confirmation letter we send.  This has a list of the documents we will need to see, along with a few brief instructions as to what we will be looking for.  Please note that we are prohibited by IRS regulations from giving you prior knowledge of which units we will be examining.

Review of files:

If you practice your due diligence when completing an initial occupancy certification, as well as when recertifying your tenants, then your files will be ready for our audit.  A good practice is to make sure a few sets of eyes review every single file.  Spectrum will review 20% of your tax credit households.  Typically, we will ask for your most recent move-ins since our last inspection. 

It is recommended that a person familiar with the files be present to assist our monitor on issues that might be quickly rectified. This person may even want to sit with our monitor to facilitate the process.  They may also want to take notes so that they can get a jump-start on addressing any identified shortcomings in the files.  There are some types of non-compliance that may be correctable during our audit.  Should time allow, our will go over the results of our review. 

An Owner’s Report letter will be sent to the owner within 60 days identifying all outstanding potential issues of non-compliance.  It is imperative that any issues be addressed as soon as possible.  Please contact Spectrum should you have any questions regarding our findings or how you should address them. Failure to do so may result in the issuance of an 8823.

Physical inspection:

Inform your tenants we’re coming.  The lease typically stipulates a minimum amount of lead-time that is required (typically 24 hours).  In your letter you can tell them as much or as little about what we will be looking for when we inspect their units. 

It’s good to have more than one maintenance staff member available for the inspection.  Often, properties have one maintenance staff member follow behind the inspectors with extra batteries, smoke & CO detectors.  This way, certain findings can be fixed on the spot.  It’s also a good idea that someone on staff writes down each of the Spectrum findings.  As with the issues identified in the file review, this will give management a chance to address the issues as soon as possible.  Please note that the IRS Audit Guide requires that ALL identified violations of UPCS or local code be reported on an 8823, whether they are corrected or not.  This means that technically every missing sink stopper will require an 8823.

We will test every emergency light, exit sign, GFCI outlet, smoke detector and CO detector.  Many properties go through and test them the day before our arrival.  It can help to prevent unwanted surprises.  It’s a good idea that maintenance staff knows how to turn off the common area power so that the emergency systems can be tested, as this method may be required by Spectrum.

If there are any violations of Health and Safety we will issue a 24-hour notice.  It is critical that the identified infraction be repaired within the allotted time and a signed copy of the notice is faxed to our office.

We will check every common area including community rooms, offices, janitor closets, maintenance rooms, electrical rooms, trash rooms, boiler rooms, workshops, basements, storage areas.  Last month we conducted a series of inspections immediately following one of many treacherous snow storms in the Boston area. We found that many properties were storing flammable liquids improperly; to include gasoline being stored in a laundry bottle.   Regardless of what room or closet you keep them in; flammable liquids must be stored in a fire proof storage cabinet.  And please, do not store gasoline in anything but a gasoline container.  We will also check every hallway and stairwell.  We will check every entrance and exit to the building.

We will not enter any unit without a representative from management accompanying us.  It is generally our requirement that all closed doors be opened by a member of the management team.  Once inside the unit we practice the “one wall” method during an inspection.  The inspector will walk in and follow one wall throughout the unit to ensure everything is checked.  Among other things, we check to see if every gas burner lights and we check the GFCI outlets in the kitchen and the bathroom.

The absolute best way to prepare for a Spectrum Audit/Inspection?  Practice your due diligence in both the maintaining of the files and the maintenance of the property year round.

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