The General Accounting Office has attacked a popular four-year-old federal government rental housing program for failing to monitor whether rents on subsidized apartments are remaining affordable and whether tenants who lease the units qualify as low-income residents.

The Low-Income Housing Tax Credit offers a lucrative tax break to individual and corporate investors and is projected to raise $5.7 billion in private capital to build 125,000 low-cost apartments this year alone. But in a recent report, the GAO, the investigative arm of Congress, charged that the program has serious drawbacks.

The concerns are being raised at a time when congressional housing advocates are pushing to extend the federal tax credit, which is due to expire Dec. 31. The credits, which now represent the nation's most serious effort to encourage the production of low-cost housing, are being considered in the current federal budget process.

The program was authorized by the Tax Reform Act of 1986 to provide an incentive for investors to build or improve low-income housing. Administered by the Treasury Department and state housing agencies, the program offers a 10-year federal income tax credit to property owners and investors who put money into building or rehabilitating affordable apartments.

In most cases, a limited real estate partnership is formed with investors supplying the funds to finance the projects. A private or nonprofit developer then builds the housing and pays a fee to a syndicator for raising the funds. Investors are promised a specific rate of return based on projected rents, the future value of the project and tax considerations.

The program requires that the units remain affordable on a long-term basis. But the GAO said there is no system to monitor whether the rents remain affordable for the required 30-year period and to insure that the units are leased to low-income tenants.

"In our view, the program's existing compliance-monitoring requirements are not adequate by themselves to ensure compliance with program requirements," said the GAO report, which was sent to the Senate on Aug. 14.

Under the current rules state housing agencies are required to report such problems as rent gouging or poor maintenance of buildings to the Internal Revenue Service. But neither the IRS nor the states are required to monitor the developments on an ongoing basis, according to the GAO, and they don't have the resources to inspect any of the projects.

"The bottom line is that we don't have a band of field agents going out to look at these projects," said IRS attorney Christopher Wilson. "But under the tax law, property owners are subject to audit and they had better have written documentation backing up their claims about the project."

The GAO said "billions of dollars in federal subsidies are being dispensed almost solely on the basis of self-certification by the recipient taxpayers."

The GAO also raised questions about the commissions earned by syndicators when they raise funds from investors.

The fees range from 17 percent to 34 percent of the total amount financed, according to the GAO report, "which reduces the amount available to fund the projects."

One project in California generated syndication fees of more than $150,000 for a 49-unit development for the elderly.

Also benefiting from the program are large corporate investors such as American Express Co., J.C. Penney Co., Chevron Corp., Atlantic Richfield Co., CBS Inc. and Levi Strauss & Co. Many of these firms are earning more than 20 percent on their investments in low-income housing tax credits, the GAO said.

Representatives of nonprofit groups who raise funds from corporations argue that the hefty rates of return are necessary to attract private capital.

Moreover, "these returns are not excessive," said San Francisco tax accountant Michael Novogradac. "Sure it's a high rate of return, but it's commensurate with a high level of risk." He noted that the rates of return plummet if the projects lose their eligibility for tax credits or if they aren't managed according to the law.

"You aren't buying a Treasury bill here," Novogradac said.

Another attack on the tax credit came at a conference hosted this spring by the Federal National Mortgage Association (Fannie Mae), which ironically is one of the largest private investors in low-income housing tax credits.

In a paper submitted at the gathering, University of North Carolina professor Michael Stegman said, "Almost as soon as it was passed, the tax credit law was generally acknowledged to be seriously flawed."

Stegman argued that the tax credit is a convoluted form of creative financing and is an inefficient and expensive way to subsidize affordable housing.

"It simply doesn't make sense to have a national housing policy in which the lower the income group served, the more complicated and costly it is to arrange the financing," Stegman said.

Supporters argue that the tax credit is the only major federal housing program that is still available.

"Whatever the text books on tax theory say, we don't feel the least bit soiled by using this program for meeting a critical social problem," said Paul Grogan, president of the Local Initiatives Support Corp., a New York-based nonprofit group that uses the tax credit to raise funds for low-cost housing developments.

He argued that the tax credit is just as efficient as other housing programs that have been tried in the past. Other government programs have administrative costs that can be even higher than the fees charged in tax credit deals, Grogan said.