IRS issues rare private letter ruling on tax-exempt bonds

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A public housing authority concerned that it might have lost its eligibility to use tax-exempt private activity bonds as part of a project’s financing package has received a letter from the Internal Revenue Service allowing it to proceed.

Although the recent IRS private letter ruling only involved a minor ministerial issue about filing deadlines, it is notable because this category of IRS guidance has become increasingly rare.

IRS Commissioner Charles Rettig

The most recent IRS private letter involved a public housing agency that missed a deadline for filing an IRS Form 8328 informing the service it planned to use part of its state volume cap carryforward to issue tax-exempt PABs.

“Authority is a public housing agency authorized under State law to issue exempt facility bonds for qualified residential rental projects as defined in § 142(d),” said the PLR posted on the IRS website Feb. 21.

The National Association of Bond Lawyers drew attention to the decline in PLRs in a November letter to IRS Commissioner Charles Rettig requesting a reduction in the $30,000 fee it charges for them.

NABL said the number of PLRs shrank to only four in 2018 when the fee rose to $28,300 from 16 in 2008 when the fee was only $11,500.

That fee “makes the PLR program effectively unavailable for issuers that do not have the resources to pay the user fee,” the NABL letter said.

NABL President Richard Moore, a tax partner at the San Francisco headquarters of Orrick, said Friday that the IRS has informally responded to that letter and the two sides are in discussions about reducing the fee.

The tax-exempt PABs mentioned in the latest PLR were part of a larger financing package that included equity from tax credit investors using federal low income housing tax credit, several taxable loans and a loan from a non-profit health system.

As is the case in all PLRs, the name of the housing authority and the state where it is located were withheld.

“The bonds would be the first bonds issued by (the authority using private activity bond volume cap that required the filing of Form 8328,” the PLR said.

The housing authority filed its IRS Form 8328 10 days after it realized it had missed the filing deadline and before the IRS realized it had been missed.

The IRS noted that “the commissioner has discretion to grant a reasonable extension of time to make a regulatory election.”

“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,” the PLR said. “If specific facts have changed since the due date for making the election that make the election advantageous to a taxpayer, the IRS will not ordinarily grant relief.”

The PLR concluded that the housing authority “acted reasonably and in good faith upon discovery of the mistake. No taxpayer will have a lower tax liability than if the election had been made timely.”

PLRs are technically applicable only to the specific situations they address, but they are influential beyond that because tax lawyers often look to them for guidance on the IRS' thinking.

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