PLR 200807010: Housing project may correct its minimum set aside election

Plain-English summary

A low income housing project was built and rented to meet the 20/50 occupancy test, but its tax preparer marked the 40/60 test on Form 8609. After the error was discovered, the taxpayer sought more time to make the intended election. The IRS granted 60 days from the ruling date to file an amended Form 8609 electing the 20/50 test. It expressly gave no opinion on whether the project otherwise qualified for the low income housing credit.

Ruling snapshot

• Question: Could the project correct its Form 8609 election from the 40/60 test to the intended 20/50 test?
• Outcome: Extension granted for 60 days from the ruling date.
• Key authorities: IRC § 42(g)(1); Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200807010
Third Party Communication: None
Release Date: 2/15/2008
Date of Communication: Not Applicable
Index Number: 42.00-00,
9100.01-00
Person To Contact:
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Telephone Number:
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------------------------------------------------------------ Refer Reply To:
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CC:PSI:5
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Date:
November 14, 2007
In Re: ---------------------------------------------------
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LEGEND:

Taxpayer = --------------------------------------------------------------------------------
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Project = ----------------------------------------
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Director = ------------------------------------
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Agency A = ------------------------------------------------------------

y = --------------------------

z = ------------------

aa = --------
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bb = --------------------------

cc = --------

dd = -------------------

Dear --------------:

This letter responds to your authorized representative’s letter dated June 4, 2007, and subsequent correspondence submitted on behalf of the Taxpayer, requesting an extension of time to make an election under section 42(g)(1) pursuant to section 301.9100-3 of the Procedure and Administration Regulations. The Taxpayer makes the following representations.

The Project was placed-in-service on y. The Taxpayer received Forms 8609, Low-Income Housing Credit Allocation and Certification, from Agency A in z. Taxpayer intended to elect the 20/50 minimum set-aside test under section 42(g)(1)(A) of the Code on Form 8609, Low-Income Housing Credit Allocation and Certification. The Form 8609 was completed by the Taxpayer’s tax preparer in error. The Project was constructed and leased up to meet the 20/50 set-aside requirement prescribed in section 42(g)(1)(A), but through the tax preparer’s clerical error, the 40/60 set-aside requirement prescribed in section 42(g)(1)(B) was inadvertently elected on line 10c on Form 8609, as included in the Taxpayer’s aa federal income tax return. The error was discovered in bb by representatives of the general partner and the Taxpayer in preparing their cc tax return.

Section 42(g)(1) defines the term “qualified low-income housing project” as any project for residential rental property if the project meets the requirements of section 42(g)(1)(A) or (B), whichever is elected by the taxpayer. The project meets the requirements of section 42(g)(1)(A) if 20 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 50 percent or less of area median gross income. The project meets the requirements of section 42(g)(1)(B) if 40 percent or more of the residential units in such project are both rent- restricted and occupied by individuals whose income is 60 percent or less of area median gross income.

Section 301.9100-7T(b) of the temporary Procedure and Administration Regulations provides that for elections under the Tax Reform Act of 1986, the election under section 42(g)(1) must be made for the taxable year in which the project is placed
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in service and shall be made in the certification required to be filed pursuant to section 42(l)(1). Section 301.9100-7T(a)(4)(i) provides that the election under section 42(g)(1) is irrevocable.

Section 42(l)(1) provides that following the close of the first taxable year in the credit period with respect to any qualified low-income building, the taxpayer shall certify to the Secretary (at such time and in such form and in such manner as the Secretary prescribes) (D) the election made under section 42(g) with respect to the qualified low- income housing project of which such building is a part and (E) such other information as the Secretary may require. In the case of a failure to make the certification required by the preceding sentence on the due date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, no credit shall be allowable by reason of section 42(a) with respect to such building for any taxable year ending before such certification is made.

At the time Taxpayer filed its aa federal income tax return, section 1.42-1(h) of the Income Tax Regulations provided that a taxpayer must file a completed Form 8609, “Low Income Housing Credit Allocation Certification,” with its Federal income tax return for each of the 15 taxable years in the compliance period.

Effective for Forms 8609 filed on or after November 7, 2005, section 1.42-1(h) of the regulations provides that unless otherwise provided in forms or instructions, a completed Form 8609, “Low-Income Housing Credit Allocation and Certification”, (or any successor form) must be filed by the building owner with the IRS. The requirements for completing the Form 8609 are addressed in the instructions to the form.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election.

Section 301.9100-1(b) defines the term “regulatory election” as including an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Under section 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in sections 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code, except subtitles E, G, H, and I.
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Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of section 301.9100-2.

Requests for relief under section 301.9100-3(a) will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

In the instant case, based solely on the Taxpayer’s facts submitted and its representations made, we conclude that the requirements of sections 301.9100-1 and 301.9100-3 have been met. Accordingly, Taxpayer is granted an extension of time to make the 20/50 minimum set-aside election under section 42(g)(1)(A) for the Project by filing within 60 days from the date of this letter an amended Form 8609 that include the intended elections pursuant to section 1.42-1(h) of the regulations. The amended Form 8609 is to be filed with the Philadelphia Service Center pursuant to Announcement 2006-2. In addition, a copy of this letter along with copies of the amended Form 8609 should be sent to the Director. A copy of this letter is enclosed for this purpose.

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 Taxpayer’s low-income housing project otherwise qualifies for the low-income housing tax credit under section 42.

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.

In accordance with the power of attorney on file, a copy of this letter is being sent to Taxpayer’s authorized representatives.

Sincerely,

/s/
William P. O’Shea
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2):

Copy of this letter
Copy for section 6110 purposes

cc: