IRS Grants Issuer Extension to File Carryforward Paperwork

The Internal Revenue Service granted a student-loan bond issuer a 45-day extension to file the necessary paperwork to carry forward unused private-activity bond volume under its volume cap because it acted "reasonably and in good faith," the IRS said in a private-letter ruling released late Friday.

According to the PLR, which was dated June 1, the issuer - identified only as an authority and nonprofit corporation authorized to issue student loan bonds - forgot to file a required document on time and when it discovered its error, turned to the IRS for an extension.

The authority neglected to file Form 8323 requesting the carryforward on time because its bond counsel did not remind it of the deadline. When counsel realized the form was not filed on time, it notified the authority, which then informed the IRS.

Since the authority appeared to be acting in good faith and the delay would not "prejudice the interests of the government," the IRS granted it a second chance to submit the paperwork.

The IRS also noted in the ruling that at the time the authority came forward with its paperwork error, the IRS was not yet aware of the mistake.

According to regulations, the IRS has the discretion to grant reasonable extensions in cases where the taxpayer acted reasonably and in good faith and doing so would not jeopardize the government's interests.

Furthermore, the regulations state that a taxpayer is generally deemed to have acted reasonably and in good faith if it requests an extension to address an error before that error is discovered by the IRS - which was the case here.

Private-letter rulings are supposed to be applicable only to the issuers who request them and their particular facts and circumstances.

The IRS explicitly states that they cannot be cited or used as precedent in other tax matters. Nevertheless, they are believed to provide insights into the agency's thinking, particularly on tax matters where little guidance exists or market participants have questions.

Bond lawyers said yesterday that this type of ruling is relatively routine, since issuers often need to pursue a ruling with the IRS if an error is made or an extension of a deadline is needed.

"These are rather standard rulings - the IRS probably gives at least a couple of them each year when someone drops the ball," one bond attorney said.

The ruling did not disclose the identity of the authority, the state it is located, the amount of carryforward requested, nor the year in which it was requested.

Private-activity bond issuers typically can carry forward unused capacity for three years before it must be abandoned. The extra $11 billion in housing PAB capacity granted to states as part of last summer's housing legislation can only be carried forward for two years.

States carried forward a total of $24.3 billion of private-activity bond capacity in 2008, a 47% increase from 2007, when just $16.5 billion was carried forward, according to an annual survey done by the Council of Development Finance Agencies.

Also in 2008, 25 states had to abandon $3.6 billion of volume capacity in 2008, a 262% increase from 2007, when 15 states abandoned a total of $1 billion of capacity.

The market turmoil and credit crisis that emerged in 2008 made it difficult for PAB issuers to get deals done, resulting in far more capacity being carried forward or abandoned than in previous years.

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