The Fraud Examiner

Spotlight on Fraud and the Low-Income Housing Tax Credit
 

Jennifer Liebman                       
Research Editor, Association of Certified Fraud Examiners                                 



In 2017, PBS’s long-running documentary series Frontline examined the Low-Income Housing Tax Credit (LIHTC) program to determine whether it was living up to its goal of creating affordable housing for low-income Americans ( “Poverty, Politics, and Profit,” PBS ). However, in analyzing program data from 1997 to 2014, Frontline found that the tax-incentive program was falling short. The documentary discovered that the annual number of housing units dropped by 16%, while the cost of the program to taxpayers had increased by 66%. Frontline contended that the major reason for the discrepancy between the decrease in housing units and rising costs was fraud. The documentary focused on two high-profile frauds in Florida involving low-income housing tax credits and inflated construction costs.

Now, a year later, two developments bolster the documentary’s claim that the LIHTC is susceptible to fraud. The Government Accountability Office (GAO) released a report in September showing that the program lacks proper oversight and standards for collecting data, making it a high risk for fraud. And in August, the U.S. Department of Justice (DOJ) confirmed that it is now investigating how banks, such as Wells Fargo and PNC, have negotiated and purchased low-income housing tax credits. The banks might have conspired with developers on bids for the tax credits and, thus, unfairly benefited from their tax-credit purchases.

Background on the LIHTC

Before the U.S. Congress created the LIHTC program as part of the Tax Reform Act of 1986, the federal government itself was in charge of developing public housing. However, beginning in the 1970s, the government discontinued its building projects, and subsequently turned to the private sector for help. The LIHTC was enacted to entice developers with tax credits to build affordable housing. Each year, the IRS administers the program and distributes money to the states based on population, then state agencies distribute that money as tax credits to housing developers. Developers may sell those credits to banks and investors for cash and use their profits to build apartments. As NPR explained in a 2017 report, since the tax payers are footing the bill, rents can be much lower than other apartments, and developers get to earn millions of dollars. The tax-incentive program is the largest source of affordable housing in the U.S.


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