Late mortgage-credit-certificate election was deemed timely

Plain-English summary

A state-authorized issuer created a new mortgage credit certificate program and elected to forgo qualified mortgage bonds so it could allocate volume cap to the program. Bond counsel prepared the required section 25(c)(2)(A)(ii) election but inadvertently failed to file it by the deadline. The issuer discovered the mistake about five months later, filed the election approximately two months late, and promptly requested relief before the IRS found the failure. The IRS concluded that the issuer acted reasonably and in good faith and that relief would not reduce any taxpayer's liability. It therefore extended the deadline to the actual filing date and treated the election as timely.

Ruling snapshot

• Question: Could the issuer obtain relief for its late mortgage-credit-certificate election?
• Outcome: approved, with the late election deemed timely filed
• Key authorities: IRC §§ 25, 143, 146; Treas. Reg. §§ 1.25-4T, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201931001                                              Third Party Communication: None
Release Date: 8/2/2019                                         Date of Communication: Not Applicable
Index Number: 25.00-00, 9100.00-00
                                                               Person To Contact:
------------------------------------------                     -----------------, ID No. --------------
------------------------------------------                     Telephone Number:
----------------------------                                   ----------------------
------------------------                                       Refer Reply To:
----------------------------------                             CC:FIP:B05
                                                               PLR-105688-19
                                                               Date:
                                                               May 07, 2019




LEGEND:

Issuer            =         ------------------------------------------
----------------------------------------------------

State             =        -------

Year 1            =        -------

Year 2            =        -------

Year 3            =        -------

Year 4            =        -------

a                 =        ------------------

b                 =        ----------------------

Month 1           =        -----------------------

Month 2           =        ---------------------

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

Date 2            =        ----------------------

Dear -------------------:
PLR-105688-19                                 2

This is in response to your request for an extension of time under § 301.9100-1 of the
Procedure and Administration Regulations to file an election made under
§ 25(c)(2)(A)(ii) of the Internal Revenue Code (the Code).

Facts and Representations

Issuer is authorized by State to issue qualified mortgage bonds under § 143 and
mortgage credit certificates under § 25 to facilitate the development, rehabilitation, and
financing of low- to moderate-income housing. Issuer has issued mortgage credit
certificates under a succession of programs, the most recent being the program that
expired at the end of Year 3 (the “Year 2 MCC Program”).

In contemplation of the expiration of the Year 2 MCC Program, in Month 1, Issuer
adopted a resolution establishing Issuer’s Year 4 mortgage credit certificate program
(the “Year 4 MCC Program”) and foregoing the issuance of $a of qualified mortgage
bonds in order to allocate $a of volume cap to the Year 4 MCC Program. Issuer wanted
to make certain that it maintained the ability to offer mortgage credit certificates
continuously as the Year 2 MCC Program expired and the Year 4 MCC Program
started. Issuer provided timely public notice of the Year 4 MCC Program in Month 1
and the following month.

Also in Month 1, prior to the adoption of the resolution, Issuer’s bond counsel drafted a
mortgage credit certificate election pursuant to § 25(c)(2)(A)(ii) for the Year 4 MCC
Program (the “Year 4 MCC Election”). In Month 2, approximately five months after
Month 1, while reviewing its volume cap utilization, Issuer discovered that the Year 4
MCC Election had not been filed with the Internal Revenue Service (IRS). Issuer’s bond
counsel had inadvertently failed to timely file the Year 4 MCC Election on Issuer’s
behalf.

After discovering the failure to file the Year 4 MCC Election, Issuer (1) filed a late Year 4
MCC Election with the IRS on Date 1, and (2) soon thereafter, on Date 2, submitted a
ruling request for an extension of time to file the Year 4 MCC Election. The Year 4
MCC Election was filed approximately two months after the filing deadline for the
election. The Year 4 MCC Election is an election not to issue $b of qualified mortgage
bonds under the carryforward of prior year (Year 1) volume cap with respect to the Year
4 MCC Program. No taxpayer will have a lower tax liability than if the Year 4 MCC
election had been filed timely. As of Date 2, the IRS had not discovered the failure to
timely file the Year 4 MCC Election.

Law and Analysis

Section 25 allows a state or political subdivision to establish a program for a particular
calendar year to issue mortgage credit certificates in lieu of qualified mortgage bonds
under § 143 that it is authorized to issue. Mortgage credit certificates issued under § 25
PLR-105688-19                                  3

provide borrowers Federal tax credits with respect to interest paid or accrued on eligible
home mortgage loans.

Under § 25(c)(2)(A)(ii), one requirement of a qualified mortgage credit certificate
program is that the issuing authority elects, in the form and manner prescribed by the
Secretary, not to issue an amount of private activity bonds that it may otherwise issue
during such calendar year under § 146. Pursuant to § 1.25-4T(c)(2) of the Income Tax
Regulations, the issuer must file the election with the IRS on or before the earlier of the
date of distribution of the mortgage credit certificates or the end of the calendar year for
which the issuer has authority to issue qualified mortgage bonds.

Section 301.9100-1(c) of the Procedure and Administration Regulations provides that
the Commissioner in exercising the Commissioner’s discretion may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 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 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
must be made under the rules of § 301.9100-3. Pursuant to § 301.9100-3(a), 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.

Section 301.9100-3(b)(1) provides, in part, that, except as provided in § 301.9100-
3(b)(3)(i) through (iii), a taxpayer is deemed to have acted reasonably and in good faith
if the taxpayer requested relief under § 301.9100-3 before the failure to make the
regulatory election is discovered by the IRS. Section 301.9100-3(b)(3)(ii) and (iii)
provide, however, that the taxpayer has not acted in good faith if it was informed in all
material respects of the required election and related tax consequences, but chose not
to file the election; or used hindsight in requesting relief.

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).

After discovering the inadvertent failure to file the Year 4 MCC Election, Issuer filed the
late Year 4 MCC Election on Date 1, and soon thereafter, on Date 2, submitted a ruling
request for an extension of time to file the Year 4 MCC Election. As of Date 2, the IRS
had not discovered the failure to timely file the Year 4 MCC Election. At no point, did
PLR-105688-19                                  4

Issuer decide to not file the Year 4 MCC Election. Nor did Issuer use hindsight in
requesting an extension to file the Year 4 MCC Election. If the requested relief is
granted, neither Issuer nor any of the borrowers receiving mortgage credit certificates
will have a lower tax liability than if the election had been timely made.

Based on all of the facts and representations submitted, we conclude Issuer acted
reasonably and in good faith upon discovery of the mistake. We also conclude that the
interests of the government will not be prejudiced if we grant the relief requested by
Issuer.

Conclusion

Under § 301.9100-3, Issuer is granted an extension of time to Date 1, to file the Year 4
MCC Election. Therefore, the Year 4 MCC Election is deemed to have been filed
timely.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences 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) provides
that it may not be used or cited as precedent.

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

The ruling contained in this letter is based upon information and representations
submitted by Issuer and accompanied by penalty of perjury statements executed by the
appropriate parties. While this office has not verified any of the materials submitted in
support of the request for a ruling, it is subject to verification upon examination.

                                           Sincerely,

                                           Associate Chief Counsel
                                           (Financial Institutions and Products)


                                                         /S/

                                           By:_______________________
                                              Johanna Som de Cerff
                                              Senior Technician Reviewer, Branch 5



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