PLR 1026011: IRS granted more time to elect multiple-building low-income housing project treatment

Plain-English summary

The IRS granted a low-income housing project owner 90 days to make a late election treating all buildings in a project as one multiple-building project under section 42(g)(3)(D). The owner had selected “no” on Form 8609 after relying on incomplete advice and later learned that the election affected whether income recertifications were required for households that moved between buildings. The IRS found that the requirements for an extension of time were met and allowed amended Forms 8609 to be filed with the intended election. The ruling did not determine whether the buildings otherwise qualified for low-income housing tax credits.

Ruling snapshot

• Question: Could a low-income housing project owner receive an extension of time to elect multiple-building project treatment under IRC § 42(g)(3)(D)?
• Outcome: approved
• Key authorities: IRC §§ 42, 42(g)(1), 42(g)(3)(D), 42(l)(1), and 6110(k)(3); Treas. Reg. §§ 1.42-1(h), 301.9100-1 through 301.9100-3, and 301.9100-7T

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201026011 [Third Party Communication:
Release Date: 7/2/2010 Date of Communication: Month DD, YYYY]
Person To Contact:
Index Number: 42.00-00, 9100.01-00 -------------------------------, ID No. ------------
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Telephone Number:
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----------------------------------------- Refer Reply To:
--------------------------------------------------------------- CC:PSI:B05
-------------------------- PLR-137219-09
----------------------------------------------- Date:
------------------------------------- December 10, 2009

LEGEND

Taxpayer = --------------------------------------------------------------
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Project = ----------------------------------------
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City = -----------------------------------------

Agency = ------------------------------------------------

Counsel = -------------------------------------

a= ---

b= --

c= ----------------------

d= ---------------------

e= -----------------------

f= ----
PLR-137219-09 2

g= ----------------------

Dear ---------------

This letter responds to your authorized representative’s letter dated August 5, 2009
requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to elect to identify Project buildings as part of a multiple-
building project under § 42(g)(3)(D) of the Internal Revenue Code (“Code”) on your
federal income tax return for the taxable year ended December 31, 2007.

Facts:

Taxpayer makes the following representations:

Project consists of a dwelling units in b buildings located in City. The street address of
each of the b buildings is provided in Attachment A, and is incorporated by reference
into this ruling. All the units in Project are rented to households whose income satisfies
the applicable restrictions under § 42. Taxpayer first claimed low-income housing
credits with respect to Project for its 2007 taxable year.

Taxpayer acquired Project, which was an existing apartment rental project, in c. In
connection with the acquisition, Taxpayer completed income verifications and
certifications with respect to Project households that planned to continue to reside in
Project following rehabilitation. Following the acquisition, Taxpayer completed a
rehabilitation of Project, electing to place the rehabilitation expenditures in service as of
d. To facilitate the rehabilitation, Project households moved from the unit in which the
households resided when the initial income verifications and certifications were
completed. Following the rehabilitation, in some instances, a household returned to the
household’s original unit or to a unit in the same building as the household’s original
unit. In other instances, a household permanently moved to a unit that was not located
in the building in which the household lived when the initial income verifications and
certifications were completed. Taxpayer did not reverify and recertify the income of a
household if the household moved permanently to a different building.

Following placement in service of the rehabilitation expenditures, Taxpayer prepared an
application and submitted it to the Agency to request the Agency’s issuance of IRS
Forms 8609 “Low-Income Housing Credit Allocation and Certification,” for Project
buildings. On e, the Agency issued to Taxpayer f Forms 8609 with respect to Project
buildings, one for the acquisition expenditures and one for the rehabilitation
expenditures for each building.

In connection with Taxpayer’s preparation in 2008 of its federal income tax return for the
2007 taxable year, Taxpayer consulted with Counsel regarding the completion of Part II
PLR-137219-09 3

of the Form 8609, including whether to treat Project buildings as part of a multiple-
building project pursuant to line 8b and the instructions thereto. Counsel advised
Taxpayer that, because only income qualified households will occupy units, Taxpayer
did not need to elect to treat Project buildings as part of a multiple-building project.
Based on Counsel’s advice, Taxpayer marked “no” for line 8b on the Forms 8609 and
did not complete the additional information statement that the instructions to line 8b
require. Taxpayer submitted the completed Forms 8609 to the Service.

Taxpayer discovered in g that because it selected “no” for line 8b on the Forms 8609 for
Project buildings, it may have been required to perform recertifications and
reverifications on those households that permanently moved to a unit that was located
in a different building from the initial building in which the household’s income had been
certified and verified. Counsel did not advise Taxpayer of the potential need to perform
income recertifications and reverifications if a household permanently moved to a
different building from the building in which the household’s initial income certification
and verification were completed. Counsel also did not advise Taxpayer on whether the
unit in which the household permanently resided would qualify as a low-income unit
under § 42. Thus, Taxpayer relied on the incomplete information that Counsel provided
regarding the multiple-building project election in selecting “no” to complete line 8b on
the Forms 8609. If Counsel had advised Taxpayer to select “yes” on line 8b, Taxpayer
would have prepared and included with the Forms 8609 the required statement that
would have identified Project buildings as part of a multiple-building project.

Ruling Request

Taxpayer requests that the Service grant an extension of time to make the election
under § 42(g)(3)(D) to treat all Project buildings as part of a multiple building project by
filing within 90 days from the date of the Service’s issuance of the requested ruling
amended Forms 8609 that include this intended election.

Law and Analysis

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 § 42(g)(1)(A) or
(B), whichever is elected by the taxpayer. The project meets the requirements of
§ 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 § 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 42(g)(3)(D) provides that a project will consist of only one building unless, prior
to the end of the first calendar year in the project period, a taxpayer identifies each
PLR-137219-09 4

building that will comprise the project in the form and the manner that the Secretary
provides.

Section 42(l)(1) sets forth the certifications with respect to the first year of the credit
period regarding any qualified low-income building that a taxpayer must certify to the
Secretary (at such time and in such manner as the Secretary prescribes). Section 1.42-
1(h) of the Income Tax Regulations requires that a taxpayer must file a completed IRS
Form 8609 with the Service in accordance with the form’s instructions. The election
under § 42(g)(3)(D) with respect to a building is made on Part II of Form 8609 for the
building and requires the inclusion of an accompanying informational statement.

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
§ 42(g)(1) must be made for the taxable year in which the project is placed in service
and shall be made in the certification required to be filed pursuant to § 42(l)(1). Section
301.9100-7T(a)(4)(i) provides that the election under § 42(g)(1) is irrevocable.

Section 42(l)(1) provides, in part, 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) the election made under § 42(g) with respect to the qualified low-income
housing project of which such building is a part, and such other information as the
Secretary may require. In the case of a failure to make the certification required by
§ 42(l)(1) on the due date prescribed therefore, 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 § 42(a) with respect to such building for any taxable year ending before such
certification is made.

Section 1.42-1(h) provides, in part, that unless otherwise provided in forms or
instructions, a completed Form 8609 (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 § 301.9100-1(c), the Commissioner has discretion to grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
PLR-137219-09 5

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 E, G, H, and I.

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 § 301.9100-2.

Requests for relief under § 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 Taxpayer’s facts submitted and its representations
made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been
met. Accordingly, Taxpayer is granted an extension of time to make the election under
§ 42(g)(3)(D) to treat all Project buildings as part of a multiple building project by filing
within 90 days from the date of this letter amended Forms 8609 that includes this
intended election. The amended Forms 8609 (along with a copy of this letter) are to be
filed with the Philadelphia Service Center at the address provided for the Service Center
in that form. 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 Project
buildings otherwise qualify for low-income housing tax credits under § 42.

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,

                                   Curt G. Wilson

                                   Curt G. Wilson
                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)

cc: