Tax-Exempt Bond Issuer Can Amend Form 8038 After Making Clerical Error

Facts: The developer of a low-income housing tax credit site and a bond issuer had agreed that the site would meet the 40-60 test. Under the 40-60 test, the developer reserves 40 percent of its units for those earning 60 percent or less of the area median gross income. The issuer elects either the 20-50 test or the 40-60 test by checking the appropriate box on Form 8038 and filing the form with the IRS. Under Section 301.9100-7T(a)(4)(i) of the Temporary Procedure and Administration Regulations, the election is irrevocable.

In this case, when the bond issuer filed Form 8038 with the federal government, it confused one property with another and entered the unit mix for the second property into the form for the first property. The other property had agreed to meet the 20-50 test in which the developer reserves 20 percent of the units for those earning 50 percent or less of the area median gross income. The bond issuer asked the IRS to allow it to correct the unit mix for the property.

Ruling: The IRS agreed to allow the issuer to amend the form, describing the situation as a “clerical error” and gave a 45-day extension from the date of the private letter ruling to amend the form.

Reasoning: According to IRS regulations, the Commissioner has discretion to grant a reasonable extension of time to make a regulatory or statutory election [Section 301.9100-1 of the Procedure and Administration Regulations]. An extension may be granted if the taxpayer provides evidence that the taxpayer acted reasonably and in good faith, and that the grant of relief will not prejudice the interests of the government and the request is made before the failure to make the regulatory election is discovered by the IRS.

The IRS ruled that the bond issuer acted reasonably and in good faith, and that granting relief wouldn’t prejudice the interests of the government. As a result, the issuer was granted an extension of time of 45 days from the date of this private letter ruling to file an amended Form 8038 on which it elects to meet the 40-60 test.

• PLR 103592-12, No. 201232006 (8/10/12)