IRS Grants Extension to Make Minimum Set-Aside Election

Facts: An owner of a multiple building project requested an extension of time to make the minimum set-aside election under Section 42(g)(1)(B) of the Internal Revenue Code. The owner elected on Form 8609, Low-Income Housing Credit Allocation and Certification, to begin the credit period for the site buildings in Year 1. The owner inadvertently failed to make timely, correct elections for the project buildings under Section 42(g)(1).

Section 42(g)(1) defines a qualified low-income housing project as any project for residential rental property that meets the requirements of Section 42(g)(1)(A) or (B), whichever is elected by the owner. The project meets the requirements of Section 42(g)(1)(A) if 20 percent or more of the residential units are both rent-restricted and occupied by individuals whose income is 50 percent or less of the area median gross income. The project meets the requirements of Section 42(g)(1)(B) if 40 percent or more of the residential units are both rent-restricted and occupied by individuals whose income is 60 percent or less of the area median gross income.

Section 42(l)(1) states that, following the close of the first taxable year in the credit period with respect to any qualified low-income building, the owner must certify to the Secretary the election made under Section 42(g) with respect to the qualified low-income housing project of which such building is a part. In the case of a failure to make the certification required by the due date, unless it’s shown that the failure is due to reasonable cause and not to willful neglect, no tax credits are allowed for any taxable year ending before the certification is made.

Ruling: The IRS agreed to grant the owner a 120-day extension to make the elections under Section 42(g)(1)(B) for the site buildings.

Reasoning: 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.

·         PLR 103484-13, No. 201328002 (4/4/13)