Federal Criminal Investigations Involving LIHTC Programs

Affordable Housing Tax Credits (AHTCs) were created to incentivize the development of housing for low-income individuals and families.

Enacted as part of the Tax Reform Act of 1986, these credits—most notably the Low-Income Housing Tax Credit (LIHTC) program—have become one of the federal government's most significant housing initiatives.

However, the size, complexity, and financial value of LIHTC allocations have also made the program a frequent target for fraud investigations.

Developers, property managers, investors, tenants, and public officials may all face scrutiny when federal authorities believe Affordable Housing Tax Credits were improperly obtained, inflated, or misused.

When alleged misuse rises to the level of intentional misrepresentation or concealment, these matters are no longer administrative issues—they become serious federal criminal cases carrying the potential for prison time, fines, restitution, and long-term professional consequences.

Your best hope of avoiding the worst outcomes is with a skilled federal criminal defense attorney at Eisner Gorin LLP. To schedule a consultation, call (818) 781-1570 or contact us here.

What Are Affordable Housing Tax Credits?

Affordable Housing Tax Credits are allocated to developers who construct or rehabilitate rental housing that meets strict affordability and tenant-income requirements.

Although the program is administered federally, credits are allocated through state housing agencies and sold to investors to raise development capital.

Because tax credits are tied directly to project costs and compliance certifications, even small inaccuracies—if intentional—can expose participants to criminal liability.

Why the LIHTC Program Is Vulnerable to Fraud

The LIHTC program presents several structural vulnerabilities:

• Large financial incentives tied to reported costs

• Discretionary allocation by state agencies

• Limited federal oversight relative to program scale

• Heavy reliance on self-reported documentation

These factors create opportunities for abuse, particularly where oversight is minimal or where multiple parties benefit financially from misrepresentation.

Common Affordable Housing Tax Credit Fraud Schemes

Misrepresentation of Construction or Rehabilitation Costs

One of the most common LIHTC fraud schemes involves inflating construction or rehabilitation costs to increase the amount of tax credits awarded.

This may include:

• Submitting falsified or inflated contractor invoices

• Using related-party contractors without disclosure

• Concealing ownership interests in service providers

• Diverting excess funds for personal use

Because tax credits are calculated directly from project costs, inflated figures can result in millions of dollars in improper credits.

False Tenant Information and Occupancy Fraud

Affordable housing projects must comply with strict tenant income, rent, and occupancy requirements. Fraud occurs when developers, owners, or property managers:

• Falsify tenant income certifications

• Fabricate tenant applications

• Certify units as occupied when vacant

• Misrepresent unit conditions or habitability

Tenants themselves may also participate by providing false income or household size information to qualify for restricted units.

Kickbacks and Bribery

Because LIHTC allocations are limited and valuable, corruption can arise during the allocation process. Kickback and bribery schemes may involve:

• Payments to officials for favorable treatment

• Improper campaign contributions tied to approvals

• Steering contracts in exchange for personal benefit

These cases frequently expand beyond tax fraud into public corruption prosecutions.

Collusion with Contractors, Investors, or Financial Institutions

Fraudulent schemes often involve coordinated activity between multiple parties, including contractors, lenders, or investors. Examples include:

• Contractors submitting knowingly inflated bids

• Investors are ignoring red flags to maximize returns

• Financial institutions facilitating questionable transactions

Collusion increases exposure and often leads to conspiracy charges.

Duplicate or Overlapping Credit Claims

Some investigations involve attempts to:

• Use the same documentation across multiple projects

• Claim credits for the same expenses more than once

• Allocate credits unlawfully to multiple investors

These schemes violate federal limits and are treated as deliberate fraud.

Federal Statutes Commonly Used in LIHTC Fraud Prosecutions

Depending on the alleged conduct, federal prosecutors may charge:

• Wire Fraud (18 U.S.C. § 1343) – Use of emails, electronic filings, or wire transfers to further a scheme

• Tax Fraud (26 U.S.C. § 7201) – Fraudulent tax credit claims or false tax filings

• Conspiracy (18 U.S.C. § 371) – Agreements to defraud the United States

• False Statements (18 U.S.C. § 1001) – Misrepresentations on applications or compliance documents

These statutes allow prosecutors to pursue severe penalties even when alleged fraud occurred over extended periods.

Potential Penalties Upon Conviction

Convictions involving Affordable Housing Tax Credit fraud may result in:

• Lengthy federal prison sentences

• Substantial fines

• Mandatory restitution

• Asset forfeiture

• Permanent exclusion from government programs

For large-scale schemes, restitution obligations alone can reach into the millions of dollars.

Why Early Legal Representation Is Critical

LIHTC fraud investigations often begin quietly, through audits or subpoenas, long before charges are filed. Early intervention by federal criminal defense counsel may:

• Prevent charges from being filed

• Limit exposure through strategic cooperation

• Challenge intent and materiality

• Reduce sentencing exposure

Once an investigation escalates, options narrow rapidly.

Speak With a Federal Criminal Defense Lawyer

If you are under investigation or facing charges related to Affordable Housing Tax Credits or the LIHTC program, immediate legal guidance is essential.

Contact Eisner Gorin LLP, a firm experienced in defending complex federal fraud cases involving tax credits, real estate development, and government programs.

Our attorneys represent clients in Los Angeles and throughout California in high-stakes federal investigations.

Related Content:

• Contracting Without a License in CA
• Intro to Low-Income Housing Tax Credits
• Corruption-Prone Low-Income Tax Credits