PLR 1103038: Agency receives extra time to correct private-activity-bond volume-cap elections

Plain-English summary

A state housing-finance agency asked for more time to amend separate Form 8328 elections for regular private-activity-bond volume cap and Housing Act volume cap. State administrative staff had placed an amount reserved for housing uses into the wrong pool, causing the agency to overstate regular carryforward and understate Housing Act carryforward, although the total carryforward and its intended use were unchanged. The IRS found that the agency acted reasonably and in good faith because it discovered the error itself and requested relief before the IRS found it. The IRS granted 45 days from the ruling date to file amended forms reflecting the corrected amounts.

Ruling snapshot

• Question: Could the agency amend its Form 8328 elections after correcting an allocation error between regular and Housing Act volume cap?
• Outcome: approved
• Key authorities: IRC § 146; Treas. Reg. §§ 301.9100-1 and 301.9100-3; Notice 2008-79

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201103038 Third Party Communication: None
Release Date: 1/21/2011 Date of Communication: Not Applicable
Index Number: 146.00-00, 146.07-00,
9100.00-00 Person To Contact:
----------------, ID No. -------------
------------------------------------------------ Telephone Number:
------------------------ ---------------------
----------------------------- Refer Reply To:
------------------------------------- CC:FIP:B05
---------------------------------------------- PLR-136841-10
Date:
September 27, 2010

Legend:

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

State= --------------

$a= -----------------

$b= ---------------

$c= ---------------

$d= -----------------

$e -----------------

$f ------------------

Date 1= -------------------------

Year 1= -------

Year 2= -------

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

   This is in response to your request for an extension of time under § 301.9100-1

of the Procedure and Administration Regulations to file amended Forms 8328
PLR-136841-10 2

(Carryforward Election of Unused Private Activity Bond Volume Cap) for Agency to
make carryforward elections under § 146(f) of the Internal Revenue Code (the Code).

Facts and Representations:

    Agency is an agency of State authorized to borrow money through the issuance

of bonds to provide financing for housing. In Year 1, State received an allocation of $a
of the State’s Housing Act Volume Cap (as defined below) under §146(d)(5) of the
Code. State statutes allocated the State Housing Act Volume Cap as follows: $b to
Agency, $c to a housing pool reserved for housing uses and the balance to specified
local issuers. The State department charged with administering volume cap incorrectly
transferred the $c in State Housing Act Volume Cap originally allocated to the housing
pool to a unified pool that was available for other uses. The State Department did not
segregate the $c in State Housing Act Volume Cap in the unified pool. When the
unused amount of the State’s Housing Act Volume Cap was reallocated to Agency later
in Year 1 it was incorrectly aggregated with the regular volume cap.

   On Date 1 Agency duly and timely filed separate Forms 8328, one for the regular

volume cap and one for the Housing Act Volume Cap as required under Notice 2008-79
(described below). Subsequently, Agency filed an amended Form 8328 for the regular
volume cap, reducing the amount of the carryforward to correct a separate
miscalculation of the amount available. The amended Form 8328 for the regular
volume cap is referred in this ruling as Form 8328 and the Form 8328 for the Housing
Act Volume cap is referred to as the Housing Act Form 8328. The total amount of
volume cap carried forward was correct on Form 8328. However, as a result of the
incorrect reallocation, Agency overstated the amount of regular volume cap available for
regular carryforward on Form 8328. Agency understated, by the same amount, the
amount of Housing Act Volume Cap on its Housing Act Form 8328. Form 8328 filed by
Agency for Year 1 showed $d of regular carryforward (which amount included $c of
unused State Housing Act Volume Cap which was reallocated to the Agency). The
Housing Act Form 8328 showed $b for the State’s Housing Act Volume Cap
carryforward. The correct amount of the State’s Housing Act Volume Cap carryforward
is $e and the correct regular carryforward amount is $f.

   The error was discovered by the Agency’s Finance Counsel when counsel was

determining the amount of Agency’s available volume cap for use in Year 2. Agency
promptly notified the IRS of the error and subsequently submitted this ruling request for
an extension of time to file an amended Form 8328 to reflect the correct amount of
regular volume cap and an amended Housing Act Form 8328 to reflect the correct
amount of Housing Act Volume Cap. Prior to this submission, the Internal Revenue
Service had not discovered the Agency’s error in either of the forms. Agency
represents that it will use the State’s Housing Act Volume Cap carryforward for qualified
mortgage bonds that also qualify as “qualified housing issues” for purposes of
PLR-136841-10 3

§ 146(d)(5)(B)(ii), so amending the Form 8328 and the Housing Act Form 8328 will not
change the purposes of the carryforward.

Law and Analysis:

  Section 146 generally provides a unified annual state tax-exempt private activity

bond volume cap for most private activity bonds.

    Section 146(d)(1) provides that the State ceiling applicable to any State or any

calendar year is the greater of: (A) an amount equal to $75 multiplied by the State
population, or (B) $225,000,000. Pursuant to § 103(c)(2), the term “State” includes the
District of Columbia and any possession of the United States.

   For purposes of this ruling, the general bond volume cap or State ceiling

provided to States for private activity bonds under § 146(d)(1) is referred to as the
“regular volume cap” to distinguish it from the Housing Act Volume Cap as defined
below.

    Section 146(f)(1) provides that if an issuing authority's volume cap for any

calendar year after 1985 exceeds the aggregate amount of tax-exempt private activity
bonds issued during the calendar year (by the authority), the authority may elect to treat
all (or any portion) of the excess as a carryforward for one or more carryforward
purposes.

    The election is made by filing Form 8328, Carrforward Election of Unused Private

Activity Bond Volume Cap, with the Internal Revenue Service Center, Ogden, UT
84201. Under Notice 89-12, 1989-1 C.B 633, Form 8328 must be filed by the earlier of
(1) February 15 of the calendar year following the year in which the excess amount
arises, or (2) the date of issue of bonds issued pursuant to the carryforward election.
Although Revenue Procedure 2005-30, 2005-1 C.B. 1148, provides for an automatic
extension of six months from the due date of the carryforward election to make the
carryforward election, it does not apply in this case.

   Section 146(f)(2) provides that the election must identify the purpose for which

the carryforward is elected, and specify the amount to be carried forward for the
purpose. Under § 146(f)(4), carryforward elections (and any identifications or
specifications stated therein) are irrevocable.

   Section 3021(a)(1) of the Housing Assistance Tax Act of 2008, Division C of Pub.

L. No. 110-289 enacted on July 30, 2008 (the 2008 Housing Act) added § 146(d)(5)
which authorizes a temporary increase in the annual State private activity bond volume
cap for 2008 (the Housing Act Volume Cap) for certain “qualified housing issues” as
defined in § 146(d)(5)(B)(ii). Section 146(d)(5)(A) provides that, for calendar year 2008,
the State ceiling for each State shall be increased by an amount equal to
PLR-136841-10 4

$11,000,000,000 multiplied by a fraction: (i) the numerator of which is the State ceiling
for the State for calendar year 2008 (determined without regard to the increase in
§ 146(d)(5)(A)), and (ii) the denominator of which is the sum of the State ceilings
determined under clause (i) for all States.

   Section 146(d)(5)(B)(i) provides that the Housing Act Volume Cap may be

allocated only to finance “qualified housing issues.” Section 146(d)(5)(B)(ii) defines the
term “qualified housing issue” as: (I) an issue for qualified residential rental projects
under § 142(a)(7), or (II) a qualified mortgage issue (determined by substituting a 12-
month origination period for the 42-month origination period under § 143(a)(2)(D)(i)).

   Section 146(f)(6), added by § 3021(a)(2) of the Housing Act, provides that any

carryforwards of Housing Act Volume Cap may be used only for qualified housing
issues that are issued by the end of calendar year 2010.

   Notice 2008-79, 2008-40 I.R.B. 815, provides the allocation of the 2008 Housing

Act Volume Cap to the States, procedures for filing the carryforward elections with
respect to the volume cap as well as for reporting bonds issued pursuant to the volume
cap. Section 3.6 of Notice 2008-79 states that subject to updated IRS information
reporting forms and procedures, an issuer that has unused Housing Act Volume Cap at
the end of calendar year 2008 should elect the carryforward amount by filing a separate
IRS Form 8328. Issuers who have both unused regular volume cap and Housing Act
Volume Cap should file separate carryfoward elections for each of those carryforwards.
A carryforward election for regular volume cap should follow the instructions on Form
8328 and a carryforward election for Housing Act Volume Cap should follow the
instructions on Form 8328 with the modifications provided in section 3.6 of Notice 2008-
79.

    Section 301.9100-1 of the Procedure and Administration Regulations provides, in

part, that the Commissioner has discretion to grant a reasonable extension of time to
make a regulatory election (defined in § 301.9100-1(b) as an election whose due date is
prescribed by regulations published in the Federal Register, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue
Bulletin), or a statutory election (but no more than 6 months except in the case of a
taxpayer who is abroad), under all subtitles of the Internal Revenue Code except
subtitles E, G, H, and I.

    Section 301.9100-3(a) provides that requests for extensions of time for regulatory

elections that do not meet the requirements for automatic extensions in § 301.9100-2,
such as this request, must be made under the rules of § 301.9100-3. Requests for relief
will be granted if the taxpayer provides evidence establishing to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and that the grant
of relief will not prejudice the interests of the Government.
PLR-136841-10 5

   Section 301.9100-3(b)(1) provides, in part, that the taxpayer is generally deemed

to have acted reasonably and in good faith if the taxpayer requests relief under that
section before the failure to make the regulatory election is discovered by the IRS.

   Section 301.9100-3(c)(1)(i) provides, in part, that the interests of the Government

are prejudiced if granting relief would result in a taxpayer having a lower tax liability than
the taxpayer would have had if the election had been timely (taking into account the
time value of money).

   In this case, Agency duly and timely filed the necessary forms to carryforward its

regular volume cap and its Housing Act volume cap. In Year 2, errors were discovered
in Form 8328 and the Housing Act Form 8328 and, before the IRS discovered the
incorrect allocations, the Agency requested an extension of time to file amended forms.
The proposed amendments to the Form 8328 and the Housing Act Form 8328 will not
change the aggregate amount carried forward or change the purpose of the
carryforward.

Conclusion:

     Under the facts and circumstances of this case, we conclude that Agency acted

reasonably and in good faith, and that granting an extension of time under § 301.9100-1
to file an amended Form 8328 and an amended Housing Act Form 8328 to carryforward
$f of regular carryforward and $e of Housing Act Volume Cap and will not prejudice the
interests of the government. Therefore, Agency is granted an extension of time of 45
days from the date of this letter ruling to file an amended Form 8328 and an amended
Housing Act Form 8328. A copy of this letter should be attached to the amended Form
8328 and the amended Housing Act Form 8328. Two copies are enclosed for that
purpose.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

  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 representatives.
PLR-136841-10 6

   The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for ruling, it is subject to verification on examination.

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Financial Institutions & Products)


                                  By:
                                     Timothy L. Jones
                                     Senior Counsel
                                     Branch 5