Housing issuer receives 60 days to make a late mortgage-credit election

Plain-English summary

A state-authorized housing issuer wanted to convert unused private-activity bond volume cap into authority for a mortgage credit certificate program. It had timely carried forward the volume cap for qualified mortgage bonds and formally authorized the later election not to issue part of those bonds, but pandemic-related remote operations caused it to miss the election deadline. After discovering the failure, the issuer promptly requested relief before the IRS found the problem. It represented that it was not using hindsight and that neither it nor affected homebuyers would receive a lower tax liability than if the election had been timely. The IRS found reasonable conduct, good faith, and no prejudice to the government. It granted 60 days to file the Section 25(c)(2)(A)(ii) election.

Ruling snapshot

• Question: Could the issuer late-file its election to use carried-forward bond volume cap for mortgage credit certificates instead of qualified mortgage bonds?
• Outcome: Approved, the election is timely if filed within 60 days
• Key authorities: IRC §§ 25(c)(2)(A)(ii), 143, and 146; Temp. Treas. Reg. § 1.25-4T(c)(2); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202140013                                              Third Party Communication: None
Release Date: 10/8/2021                                        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-112375-21
-------------------------                                      Date:
                                                               July 12, 2021




LEGEND:

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

State             =        ------

Year 1            =        ------

Year 2            =        -------

Year 3            =        ------

Year 4            =        -------

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

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

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

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

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


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 an election made under
§ 25(c)(2)(A)(ii) of the Internal Revenue Code (the Code).
PLR-112375-21                                2

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 will
expire at the end of Year 4 or earlier exhaustion of mortgage credit certificate issuance
capacity (the “Year 2 MCC Program”).

In Year 1, State approved an allocation to Issuer of volume cap under § 146 for Issuer’s
qualified mortgage bond programs. Issuer decided to carry forward $a of its Year 1
allocation for qualified mortgage bonds and timely filed Form 8328 Carryforward
Election of Unused Private Activity Bond Volume Cap with the Internal Revenue Service
(the Service) to effect a carryforward election under § 146(f) with respect to Year 1
volume cap, of which $b remained unused at the end of Year 3.

In contemplation of the expiration of the Year 2 MCC Program, Issuer on Date 1,
resolved to establish its Year 3 mortgage credit certificate program (the “Year 3 MCC
Program”). Issuer wishes to convert the unused $b of Year 1 qualified mortgage bond
volume cap to mortgage credit certificate issuance authority by filing a late election
pursuant to §25(c)(2)(A)(ii) not to issue $b of qualified mortgage bonds (the “MCC
Election”). In furtherance of this objective, the Date 1 resolution establishing the Year 3
MCC Program also authorized the MCC Election in connection with the Year 3 MCC
Program.

The MCC Election should have been filed with the Service prior to the end of Year 3,
but the disruption caused by the Coronavirus Disease 2019 pandemic (the “Pandemic”)
resulted in Issuer missing this deadline. Changes to Issuer’s operating practices in
response to the Pandemic precipitated unprecedented changes to Issuer’s daily
operations. For example, although Issuer continues to operate its programs, with
limited exceptions, Issuer’s staff has been working remotely since Date 2. This and
other changes to Issuer’s operating practices in response to the Pandemic have had
some adverse impacts, including Issuer’s inadvertent failure to timely file with the
Service the MCC Election. Issuer will file a late election pursuant to § 25(c)(2)(A)(ii) of
the Code not to issue $b of qualified mortgage bonds under the carryforward of Year 1
volume cap allocation with respect to the Year 2 MCC Program with the Service within
60 days of the date of issuance of a favorable ruling.

After discovering the failure to file the MCC Election, Issuer promptly, on Date 3,
submitted a ruling request for an extension of time to file the MCC Election. As of Date
3, the Service had not discovered the failure to timely file the MCC Election. Issuer is
not using hindsight in requesting relief, and no specific facts have changed since the
due date for the MCC Election that make the MCC Election advantageous; rather,
Issuer is seeking to make and file an election which Issuer intended to make. No
taxpayers affected by the MCC Election will have a lower tax liability than if the MCC
Election had been filed timely. As of Date 3, the IRS had not discovered the failure to
timely file the MCC Election.
PLR-112375-21                                  3


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
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).
PLR-112375-21                                  4

After discovering the inadvertent failure to file the MCC Election, Issuer promptly, on
Date 3, submitted a ruling request for an extension of time to file the MCC Election. As
of Date 3, the Service had not discovered the failure to timely file the MCC Election. At
no point, did Issuer decide to not file the MCC Election. Nor did Issuer use hindsight in
requesting an extension to file the 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, a filing of the MCC Election with the Service by Issuer within 60
days after the date of issuance of this ruling is deemed 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)


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




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