IRS Grants Owner Extension to Group Buildings as Part of Single Multi-Building Project
A private letter ruling (PLR) is a written response issued by the IRS to an owner or taxpayer when the owner asks a question about the tax effects of its acts or transactions. The questions posed by site owners usually entail uncertainty about how to handle a situation and the need for guidance on how to avoid the recapture of tax credits. The IRS-issued PLR interprets and applies the law to a specific set of facts, and the owner or manager who requested the PLR can rely on the conclusions expressed in it.
In a PLR released in the last quarter of 2022, an owner requested an extension of time to amend IRS Form 8609. This form is the IRS document that credit-allocating agencies give to property owners as evidence that the owner is eligible to claim low-income housing tax credits (LIHTCs). And owners complete Part II of Form 8609 and make various choices that will affect how to maintain a site’s compliance with IRS rules.
Multiple Building Project Election
According to the PLR, the owner operates a multi-building housing project at a single address. The project consists of six buildings. In preparing Forms 8609 for Buildings 3 and 4, the owner correctly checked the multiple-building election on Line 8b. However, the owner inadvertently failed to attach the required accompanying informational statements to Forms 8609 that had been prepared for these buildings.
On IRS Form 8609, an owner can choose to group buildings within the same tax credit allocation into one project or divide buildings into separate projects.
Choosing “No” on Question 8b. Answering no to this question on Form 8609 means that even if two buildings have the same LIHTC allocation they are viewed by the IRS as being two separate projects.
Choosing “Yes” to Question 8b. Answering yes to this question on Form 8609 means that buildings in a project that are identified as a group in the statement attached to the form should be treated as one multiple-building project for the purposes of compliance.
Certain information is required to be attached to IRS Form 8609 if “Yes” is selected on Question 8b. The following information must be attached to each Form 8609 where “Yes” is selected for this question:
- The name and address of the project and each building in the project;
- The BIN of each building in the project;
- The aggregate credit dollar amount for the project; and
- The credit allocated to each building in the project.
Notwithstanding a checked “Yes” box on Line 8b, failure to attach a statement providing the above required information will result in each building being considered a separate project.
Placed-in-Service Dates, Minimum Set-Asides
For a site to qualify to claim credits, the minimum set-aside must be met. There is a deadline and if it’s not met, the site isn’t considered a low-income tax credit project and can’t qualify to claim credits. This means you must rent a certain number of units at the site to households earning no more than a certain percentage of area median gross income (AMGI).
For projects receiving credits in 1991 and later, the minimum set-aside must be met by Dec. 31 of the year the project was placed in service, if credits are to be claimed for that year. If the start of the credit period is deferred until the following year, the minimum set-aside must be met by Dec. 31 of the following year.
If the minimum set-aside isn’t met by this date, no tax credits are allowed for the project. Once the minimum set-aside is met, it must be maintained for the entire compliance period. If the minimum set-aside is violated at a future date, all low-income units are subject to recapture.
In this ruling, the owner intended, as reflected by other documents, to elect the 40-60 minimum set-aside on Forms 8609 for the buildings identified as Buildings 1 and 2. In preparing Forms 8609 for these buildings, however, the owner inadvertently failed to check the box for Line 10c to make the election for the 40-60 minimum set-aside.
Also, according to the ruling, the owner intended to begin the credit period for the buildings in the year following the year the buildings were placed in service. In preparing Forms 8609 for the buildings, however, the owner inadvertently checked Line 10a to begin the credit period for the first year the buildings were placed in service.
Since the owner originally intended to group all the buildings as one, multiple-building project, this would mean some buildings could be below the minimums set-aside as long as the entire project meets the minimum set-aside. Also, in this situation, each building would use the same placed-in-service date, the date the last building at the site is placed in service.
Under Section 301.9100-1(c), the Commissioner has the discretion to grant a reasonable extension of time under the rules set forth in Sections 301.9100-2 and 301.9100-3 to make a regulatory election or a statutory election (but no more than six months except in the case of a taxpayer who’s abroad).
Here, the IRS concluded that the owner had acted reasonably and in good faith, and that granting an extension wouldn’t prejudice the interests of the government. The owner must file an amended Form 8609 within 120 days from the date this private letter ruling was issued. The ruling notes that this ruling is directed only to the owner requesting it. Section 6110(k)(3) of the IRS Code says that this ruling may not be used or cited as precedent.
- PLR-100377-22, No. 202236002 (September 2022)