Late private activity bond volume-cap carryforward election accepted

Plain-English summary

A public housing agency received a state allocation of private activity bond volume cap for tax-exempt financing of a residential rental project. Because this was its first bond issue requiring a carryforward election, it failed to timely file Form 8328. The agency filed the form one day after discovering the omission and requested relief ten days after discovery, before the IRS found the failure. The IRS concluded that the agency acted reasonably and in good faith, did not use hindsight, and would not gain a lower tax liability from the late filing. It granted an extension through the actual filing date and treated the carryforward election as timely.

Ruling snapshot

• Question: May the housing agency's late Form 8328 carryforward election for unused private activity bond volume cap be treated as timely?
• Outcome: approved
• Key authorities: IRC § 146(f); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Notice 89-12; Rev. Proc. 2005-30

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 202008005                                                 Third Party Communication: None
Release Date: 2/21/2020                                           Date of Communication: Not Applicable
Index Number: 146.00-00, 146.07-00,
              9100.00-00, 9100.03-00                              Person To Contact:
                                                                  ----------------, ID No. -------------
------------------------------------------                        Telephone Number:
------------------------------------------------------------      --------------------
-----------------------------                                     Refer Reply To:
---------------------------                                       CC:FIP:B05
-----------------------------------------                         PLR-124528-19
                                                                  Date:
                                                                  November 19, 2019




LEGEND:

Authority                  =         --------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------

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

Bonds                      =         -------------------------------------------------------------------
                                    --------------

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

Year 1                     =        --------

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

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

Date 3                     =        ---------------------------

Date 4                     =        ----------------------


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 Form 8328 (Carryforward Election of
Unused Private Activity Bond Volume Cap) to make a carryforward election under
§ 146(f) of the Internal Revenue Code (the “Code”) with respect to $a of unused private
activity bond volume cap.
PLR-124528-19                                 2

Facts and Representations

Authority is a public housing agency authorized under State law to issue exempt facility
bonds for qualified residential rental projects as defined in § 142(d). Authority planned
to finance the development of a residential rental project (the “Project”) in part by
issuing bonds intended to be tax-exempt under § 142(a)(7). In order to construct the
Project, Authority put together a financing plan which combines equity from tax credit
investors through the low income housing tax credit under § 42, several taxable loans, a
loan from a non-profit health system, and an issuance of tax-exempt bonds under
§ 142(a)(7) (the “Bonds”).

The Bonds required an allocation of the private activity bond volume cap of State in the
aggregate estimated amount of $a. On Date 1, the State authority that allocates private
activity bond volume cap among issuing authorities within State (the “Allocating
Authority”) allocated $a of its Year 1 volume cap to Authority (the “Year 1 Allocation”).
The Allocating Authority’s resolution in which it made the Year 1 Allocation to Authority,
states that if it elected to carryforward the Year 1 Allocation, Authority is responsible for
preparing Form 8328. The Bonds would be the first bonds issued by Authority using
private activity bond volume cap that required the filing of Form 8328.

Authority discovered on Date 2 as it was preparing to issue the Bonds that the Form
8328 for carryforward of the Year 1 Allocation had not been filed with the Internal
Revenue Service (the “Service”). Upon discovery that Form 8328 had not been filed
with the Service, Authority filed Form 8328 with the Service one day after discovery of
the failure to file, on Date 3. This request was submitted to the Service on Date 4, ten
days after discovery of the failure to timely file Form 8328.

Authority did not decline to timely file Form 8328 after being made aware in the
Allocating Authority’s resolution of its obligation to file Form 8328 with the Service, and
then reverse its decision after the filing due date. Authority is not filing Form 8328 to
make the carryforward election in reaction to specific facts or circumstances that
changed since the due date for filing Form 8328 so as to make the filing of the
carryforward election advantageous to Authority. As of Date 4, the Service had not
discovered Authority’s failure to timely file Form 8328.

Law and Analysis

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 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
PLR-124528-19                                  3

amount arises, or (2) the date of issue of bonds issued pursuant to the carryforward
election. While 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.

The election must identify the purpose for which the carryforward is elected, and specify
the amount to be carried forward for that purpose. Section 146(f)(2). Carryforward
elections (and any identifications or specifications stated therein) are irrevocable.
Section 146(f)(4).

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,
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.

Section 301.9100-3(b)(1) provides, in part, that, except as provided in § 301.9100-
3(b)(3)(i) through (iii), the taxpayer is deemed to have acted reasonably and in good
faith if the taxpayer requested relief under that section before the failure to make the
regulatory election is discovered by the IRS.

Section 301.9100-3(b)(3) provides, in part, that a taxpayer is deemed to have not acted
reasonably and in good faith if the taxpayer --

(ii) Was informed in all material respects of the required election and related tax
consequences, but chose not to file the election; or

(iii) Uses hindsight in requesting relief. If specific facts have changed since the due date
for making the election that make the election advantageous to a taxpayer, the IRS will
not ordinarily grant relief. In such a case, the IRS will grant relief only when the taxpayer
provides strong proof that the taxpayer's decision to seek relief did not involve hindsight.

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
PLR-124528-19                                  4

taxpayer would have had if the election had been timely (taking into account the time
value of money).

After discovering its inadvertent failure to timely file Form 8328 with the Service,
Authority promptly filed the late Form 8328 on Date 3, and soon thereafter, on Date 4,
submitted a ruling request for an extension of time to file Form 8328. As of Date 4, the
Service had not discovered Authority’s failure to timely file Form 8328. Thus, Authority
requested relief before the IRS discovered the failure to make the regulatory election.

The Bonds would represent the first time Authority has issued private activity bonds
requiring a carryforward of volume cap. The Allocating Authority’s resolution in which it
made the Year 1 Allocation to Authority did notify Authority of its obligation to prepare
Form 8328. However, Authority’s inexperience with the volume cap process led it to
believe that it had received the allocation, and its focus was on putting together a
complex, multi-party financing package to be ready to issue the Bonds. At no point did
Authority decide to not file the Form 8328 for carryforward of the Year 1 Allocation.

Nor did Authority use hindsight in requesting an extension to file the Form 8328 for
carryforward of the Year 1 Allocation. Authority is not filing Form 8328 to make the
carryforward election in reaction to specific facts or circumstances that changed since
the due date for filing Form 8328 so as to make the filing of the carryforward election
advantageous to Authority. Based on all of the facts and representations submitted, we
conclude Authority acted reasonably and in good faith upon discovery of the mistake.

No taxpayer will have a lower tax liability than if the election had been made timely. We
also conclude that the interests of the government will not be prejudiced if we grant the
relief requested by Authority.

Conclusion

Under § 301.9100-3, Authority is granted an extension of time to Date 3, to file Form
8328 for carryforward of the Year 1 Allocation. Therefore, the Form 8328 for
carryforward of the Year 1 Allocation 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 representative.

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
PLR-124528-19                                5

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,

                                          Assistant Chief Counsel
                                          (Financial Institutions and Products)


                                          By:____________/S/__________
                                             Timothy L. Jones
                                             Senior Counsel, Branch 5