· SECTION 42 · LIHTC AUDITS · COMPLIANCE · TAX CREDIT HOUSING
Compliance Audits That Protect the LIHTC Credits You've Earned
Low-income housing tax credit properties require annual compliance audits that go beyond standard financial statement work. Archer Lewis handles Section 42 audits for affordable housing owners who understand what's at stake during the compliance period.
Jarrard, Nowell & Russell, LLC is a separate entity from Archer Lewis, LLC. Jarrard, Nowell & Russell, LLC provide attest and assurance services. Jarrard, Nowell & Russell, LLC create independent, objective assessments to give stakeholders confidence in financial reporting. Services include non profit audits, private company audits, employee benefit plan audits, reviews, compilations, agreed upon procedures, and prepared financials. These services are performed under professional standards established by the AICPA and require a high level of independence.
Our Approach
Compliance during the 15-year period requires close, ongoing attention.
Section 42 of the Internal Revenue Code governs the Low-Income Housing Tax Credit program, and the compliance requirements that protect those credits during the 15-year compliance period are detailed and ongoing. Annual financial statement audits for LIHTC properties must address tenant income certification, set-aside requirements, and a range of program-specific compliance elements. Archer Lewis works in Section 42 regularly, which means our audit procedures are built around what actually matters for LIHTC compliance, beyond what generally accepted auditing standards alone require.
What's Included
Section 42 audit services for LIHTC properties
From annual financial statement audits to compliance monitoring and finding resolution, our team handles the complete Section 42 audit cycle.
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LIHTC Financial Statement Audit
Annual audits that address both financial statement accuracy and Section 42 compliance requirements, prepared by specialists who know the program.
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Tenant Income Certification Review
Verification that tenant income certifications meet Section 42 requirements, one of the most common sources of compliance findings.
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Set-Aside Compliance Testing
Testing of minimum set-aside requirements to confirm that the required percentage of units are occupied by qualified tenants.
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Annual Owner Certification Support
Assistance preparing the annual owner certification of compliance submitted to the state housing agency.
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Compliance Period Monitoring
Ongoing monitoring of compliance requirements throughout the 15-year period, not just at annual audit time.
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Finding Resolution
Prior compliance findings addressed and resolved: corrective action plans prepared and implemented.
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State Agency Reporting
Financial reporting prepared to meet state housing finance agency requirements alongside federal compliance.
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Extended Use Agreement Compliance
Monitoring of compliance requirements during the extended use period beyond the initial 15-year compliance period.
LIHTC recapture applies to credits already claimed, not just future credits
A compliance violation during the compliance period can trigger recapture of credits already claimed, plus interest. The audit serves as the mechanism that confirms compliance and protects those credits. Archer Lewis approaches every Section 42 audit with that in mind.
Talk to a Section 42 Specialist
Common Questions
What LIHTC property owners ask about Section 42 audits.
A standard audit focuses on whether financial statements are fairly presented. A Section 42 audit also tests compliance with the specific requirements of the LIHTC program: tenant income certification, set-aside requirements, and other program-specific elements. Standard auditors who don't work in LIHTC regularly often miss compliance issues that a specialist would catch.
The initial compliance period is 15 years. Most LIHTC properties also have an extended use period (typically an additional 15 years) during which compliance requirements continue. The audit requirements extend through both periods.
An over-income tenant doesn't automatically trigger a compliance violation, but the next available unit of comparable or smaller size in the building must be rented to a qualified tenant. Proper tracking and documentation of this next available unit rule is critical. We monitor this as part of our compliance work.
Tenant income certification errors (missing documentation, incorrect calculations, or late recertifications) are the most frequent. Set-aside requirement failures, habitability issues, and record-keeping deficiencies are also common. We design our audit procedures to catch these before they become formal findings.
Yes. Transition to a new auditor mid-compliance period is common and straightforward. We review prior audits, identify any open issues or prior findings, and pick up the annual audit cycle from wherever you are. Prior year findings are addressed as part of the transition.
