PLR 200013023: Housing credit allocation may reflect redesigned buildings

Plain-English summary

A low-income housing project was redesigned with a different number of buildings before its state credit agency issued a carryover allocation. The agency approved the redesign, but its allocation document still listed the old buildings and identification numbers. The IRS found a correctable administrative error because the document did not reflect the agency's and partnership's intent. It allowed the agency to amend the allocation and distribute the same total credit among the actual buildings, then file an amended Form 8610. The IRS did not rule on whether the project otherwise qualified for the credit.

Ruling snapshot

• Question: May the state agency correct building counts and credit amounts on the project's carryover allocation?
• Outcome: Approved: the agency may amend the allocation and report the correction under section 1.42-13(b).
• Key authorities: IRC § 42(n)(4); Treas. Reg. § 1.42-13(b).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 42.14-01 P.O. Box 7604 Ben Franklin Station
Number: 200013023 Washington, DC 20044
Release Date: 3/31/2000
Contact Person:

Telephone Number:

Refer Reply To:
CC:DOM:P&SI: 5 – PLR-116769-99
Date: 01/03/2000
Legend:

Partnership =

GP1
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GP2
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LP
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Agency
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Project =

State
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City
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County
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b
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c
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d
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e
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f
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g
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h
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k
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m
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n
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p
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r
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s
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Dear

This letter responds to your letter dated October 1, 1999, submitted on behalf of Agency and Partnership, requesting a letter ruling under § 42(n)(4) of the Internal Revenue Code and § 1.42-13(b) of the Income Tax Regulations to correct an administrative error in an allocation of the low-income housing credit dollar amounts.

Agency and Partnership represent that the facts are as follows:

FACTS:

Partnership is a State limited partnership that was formed on b for the purpose of developing land and constructing, owning, and operating a c unit residential rental project in County (the Project). Partnership’s principal place of business is City. Partnerships’s general partners are GP1 and GP2, and its limited partner is LP. Partnership expects that all of the units in the Project will qualify for low-income housing credits pursuant to § 42.

On b, Partnership submitted an application to Agency for a reservation of d low- income housing credits in the amount of $e. The application reflected a site plan calling for c units in f buildings. On g, the Project received a reservation letter from Agency tentatively reserving low-income housing credits in the amount of $e for f buildings in the Project.

The original Project design consisted of f single story buildings containing single or duplex units. However, the initial design of the Project architect called for construction costs that greatly exceeded the Project construction budget. In a collaboration among Partnership, the General Partners, the architect, and the contractor, the Project was redesigned to consist of h buildings containing k m-plexes and k n-plexes. By letter dated p, Partnership requested Agency’s approval to reconfigure the buildings to h buildings from f buildings. Following this request (prior to

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the carryover allocation), Agency approved Partnership’s request to reconfigure the Project.

On r, Partnership’s accountants submitted a Taxpayer Carryover Certification in order to receive a carryover allocation for the Project. In the Taxpayer Carryover Certification, the accountants requested that the carryover allocation reflect the newly assigned BINs. However, the carryover allocation, which was issued on s, reflected the original f buildings rather than the h buildings that the Agency Board of Commissioners had approved. As a result of this mistake, the number of buildings that will be issued certificates of occupancy will not match the number assigned by Agency for purposes of providing a carryover allocation. Therefore, the Forms 8609, Low-Income Housing Credit Allocation Certification, will not reflect the correct number of buildings.

At the time of the carryover allocation, Agency and Partnership intended for t units to be constructed in the Project. The existing building-by-building allocation pursuant to the carryover allocation does not allow Partnership to maximize the credits allocated to the Project and seriously affects the Project’s financial feasibility. Thus, the carryover allocation inaccurately reflects the intent of Agency and Partnership at the time the carryover allocation document was prepared.

The mistake concerning the number of qualified low-income buildings was discovered after the carryover allocation was made by Agency. Upon discovering the problem, GP1 contacted Agency to request a ruling to correct this administrative error or omission.

At the time of the carryover allocation, it was the intent of Agency and Partnership to maximize the credits allocated to the Project. The correction of the administrative error or omission will have no affect on the low-income housing credits allocated to the entire Project. The correction, however, will affect the credits allocated to each building. Furthermore, the correction of the administrative error or omission will have no effect on the housing credit ceiling under § 42(h)(3)(C) or on Agency’s unused housing credit carryover that is assigned to the Secretary under § 42(h)(3)(D).

In connection with the above statement of facts, Agency represents that: (1) it intended to make a project-based allocation to the Project pursuant to § 42(h)(1)(F); (2) the number of buildings in the Project was not material to the carryover allocation for the Project; and (3) the fact that the Project had h residential buildings rather than f would not have affected (a) the amount of low-income housing tax credit allocated to the Project, (b) the ranking of the Project in Agency’s d allocation round, or (c) any other aspect of the carryover allocation for the Project.

Agency and Partnership request the Internal Revenue Service to rule that Agency can amend the d carryover allocation to allocate the appropriate amount of low- income housing credit to each of the h buildings in the Project, not exceeding $e for the entire Project.

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As required under § 1.42-13(b)(3)(v), Agency and Partnership agree to such conditions as the Secretary considers appropriate if the above ruling request is granted.

LAW AND ANALYSIS:

Under § 42(n)(4), state and local housing credit agencies may correct administrative errors and omissions concerning allocations and recordkeeping within a reasonable period of time after their discovery. Section 1.42-13(b)(2) defines an administrative error or omission as a mistake that results in a document that inaccurately reflects the intent of the agency at the time the document is originally completed or, if the mistake affects a taxpayer, a document that inaccurately reflects the intent of the agency and the affected taxpayer at the time the document is originally completed. Section 1.42-13(b)(1), however, provides that an administrative error or omission does not include a misinterpretation of the applicable rules and regulations under § 42.

In the present case, an administrative error was committed when the d carryover allocation referenced f buildings when the actual number of residential buildings was h. This error was not a misinterpretation of the applicable rules and regulations under §

42. However, this error did result in a document (i.e., d carryover allocation) that did not
    accurately reflect the intent of Agency and Partnership at the time the document was executed. The intent of Agency was to allocate the same amount of credit to the Project, notwithstanding the number of the buildings in the Project. Further, the change does not affect the amount of housing credit dollar amount allocated to the Project, the ranking of the Project in Agency’s d allocation round, or any other aspect of the carryover allocation for the Project. Thus, a correctable administrative error occurred in this situation.

    Under the represented facts, the d carryover allocation is the credit allocating
    document. Under § 1.42-13(b)(3)(iii)(A), the Secretary must pre-approve a correction of an administrative error or omission if the correction is not made before the close of the calendar year of the error or omission and the correction requires a numerical change to the credit amount allocated for the building or project. In the present case, the correction would involve a numerical change to the credit amount allocated to the h buildings that properly received BINs.

    Based solely on the representations and the relevant law and regulations set
    forth above, we conclude as follows:

          1.     An administrative error was committed when the d carryover
                 allocation failed to correctly identify the actual number of residential
                 buildings in the Project;
    

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2. Because of that administrative error, the d carryover allocation inaccurately reflects the intent of Agency and Partnership when the d carryover allocation was executed;

3. Agency and Partnership requested to correct the administrative error within a reasonable period of time after Agency became aware of the administrative error;

4. Agency will remove the f BINs that were assigned in error to accurately reflect that there are h residential buildings in the Project; and

5. Agency will allocate low-income housing tax credit to each of the h residential buildings in the Project, not exceeding $e for the entire Project.

To correct this administrative error, Agency must do the following:

1. Amend the d carryover allocation to remove the f BINs erroneously assigned to the Project and to allocate the appropriate amount of low-income housing tax credit to each of the h residential buildings in the Project, not exceeding $e for the entire Project. On the amended d carryover allocation, Agency should indicate that it is making the correction under § 1.42-13(b); and

2. Attach a copy of the amended d carryover allocation to an amended Form 8610, Annual Low-Income Housing Credit Agencies Report, for d, and file the amended Form 8610 with the Service. When completing the amended Form 8610, Agency should follow the specific instructions on the Form 8610 under the heading “Amended Reports.”

No opinion is expressed or implied regarding the application of any other provisions of the Code or regulations. Specifically, we express no opinion on whether the Project qualifies for the low-income housing tax credit under § 42 or the validity of the Project’s costs included in eligible basis.

In accordance with the power of attorney filed with this request, we are sending a copy of this letter ruling to Partnership, Agency, and Agency’s authorized representative.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely yours,

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Harold E. Burghart
Assistant to the Branch Chief, Branch 5
Office of Assistant Chief Counsel
(Passthroughs and Special Industries)