[Federal Register Volume 59, Number 37 (Thursday, February 24, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3946]


[[Page Unknown]]

[Federal Register: February 24, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8521]
RIN 1545-AQ98

 

Rules To Carry Out the Purposes of Section 42 and for Correcting 
Administrative Errors and Omissions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations concerning the 
Secretary's authority to provide guidance necessary or appropriate to 
carry out the purposes of section 42, the low-income housing credit. 
This document also contains final regulations allowing State and local 
housing credit agencies to correct administrative errors and omissions 
made in connection with allocations of low-income housing credit dollar 
amounts and recordkeeping within a reasonable period after their 
discovery. The final regulations affect State and local housing credit 
agencies, owners of buildings or projects for which the low-income 
housing credit is allocated, and taxpayers claiming the low-income 
housing credit.

DATES: These final regulations are effective Febuary 24, 1994.
    For applicability of these regulations, see Sec. 1.42-13(d) of 
these regulations.

FOR FURTHER INFORMATION CONTACT: Jeffrey A. Erickson, 202-622-3040 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this final regulation 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h)) 
under control number 1545-1357. The estimated annual burden per 
respondent varies from 1 hour to 2 hours, depending on individual 
circumstances, with an estimated average of 1.5 hours.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be directed to the Internal 
Revenue Service, Attention: IRS Reports Clearance Officer, PC:FP, 
Washington, DC 20224, and to the Office of Management and Budget, 
Attention: Desk Officer for the Department of the Treasury, Office of 
Information and Regulatory Affairs, Washington, DC 20503.

Background

    On January 4, 1993, a notice of proposed rulemaking (PS-50-92) was 
published in the Federal Register (58 FR 44) proposing amendments to 
the Income Tax Regulations (26 CFR part 1) under section 42 of the 
Internal Revenue Code.
    Written comments responding to the notice were received, and a 
public hearing was held on April 5, 1993. After consideration of all 
written and oral comments regarding the proposed amendments, those 
amendments are adopted as revised by this Treasury decision.

Explanation of Provisions

Changes Made by the Final Regulations

    The proposed regulations generally describe an administrative error 
and omission and include illustrative examples. Commentators have 
requested that the final regulations include an ``accounting error'' as 
an administrative error or omission. The Service and the Treasury 
Department are concerned that the term ``accounting error'' is too 
vague. However, in order to address the commentators' concerns, the 
final regulations clarify that an administrative error or omission 
includes an error in tracking the housing credit dollar amount an 
Agency has allocated (or that remains to be allocated) in a calendar 
year. For example, assume an Agency, believing that it has $100 of 
credit remaining in its credit ceiling for the current calendar year, 
allocates $100 to a project and agrees to allocate an additional $30 
from the next calendar year's credit ceiling. Later, in the current 
calendar year, the Agency discovers that it failed to include in its 
credit ceiling for the current calendar year $50 of credits that were 
returned in the current calendar year. The error in tracking the $50 of 
credits that were returned is an administrative error or omission.
    One commentator asked for clarification of the correction procedure 
an Agency should use when correcting a document without the Secretary's 
prior approval. Under the final regulations, a document that corrects a 
document containing an error or omission that has not yet been filed 
with the Internal Revenue Service should be filed as the original. If a 
document containing an error has already been filed with the Internal 
Revenue Service, the Agency should refile a copy of the document 
containing the error that prominently and clearly notes the correction. 
The Agency should indicate at the top of the document(s) that the 
correction is being made under Sec. 1.42-13 of the Income Tax 
Regulations.
    The proposed regulations require that an Agency obtain the prior 
approval of the Secretary to correct an administrative error or 
omission if (1) the correction is not made before the close of the 
calendar year of the error or omission, and (2) the correction is a 
numerical change to the housing credit dollar amount allocated for the 
building or project. One commentator suggested that an Agency should 
have until February 28, the date by which an Agency must file its Form 
8610, to correct an administrative error or omission that changes the 
housing credit dollar amount allocated to a building or project without 
obtaining the Secretary's prior approval. Another commentator made a 
similar suggestion solely for credits returned in the same year in 
which they were allocated. These suggestions have not been adopted. 
Section 42(h)(1) requires that an allocation for a certain calendar 
year be made by the close of that calendar year. Consistent with that 
approach, these regulations do not permit an Agency to make a post-year 
allocation without the Secretary's prior approval. Of course, for a 
correction of an administrative error or omission that an Agency cannot 
correct on its own, an Agency, or the Agency and the affected taxpayer, 
may seek the Secretary's prior approval.

Special Analyses

    It has been determined that this Treasury Decision is not a 
significant regulatory action as defined in Executive Order 12866. It 
also has been determined that section 553(b) of the Administrative 
Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act 
(5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, 
a Regulatory Flexibility Analysis is not required. Pursuant to section 
7805(f) of the Internal Revenue Code, a copy of the proposed 
regulations was submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Drafting Information

    The principal author of these regulations is Jeffrey A. Erickson, 
Office of Assistant Chief Counsel (Passthroughs and Special 
Industries), Internal Revenue Service. However, other personnel from 
the IRS and Treasury Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *.

    Section 1.42-13 also issued under 26 U.S.C. 42(n); * * *.
    Par. 2. Section 1.42-13 is added to read as follows:


Sec. 1.42-13  Rules necessary and appropriate; housing credit agencies' 
correction of administrative errors and omissions.

    (a) Publication of guidance. Under section 42(n), the Secretary has 
authority to prescribe regulations as may be necessary or appropriate 
to carry out the purposes of section 42. The Secretary may also provide 
guidance through various publications in the Internal Revenue Bulletin. 
(See Sec. 601.601(d)(2)(ii)(b) of this chapter.)
    (b) Correcting administrative errors and omissions--(1) In general. 
An Agency may correct an administrative error or omission with respect 
to allocations and recordkeeping, as described in paragraph (b)(2) of 
this section, within a reasonable period after the Agency discovers the 
administrative error or omission. Whether a correction is made within a 
reasonable period depends on the facts and circumstances of each 
situation. Except as provided in paragraph (b)(3)(iii) of this section, 
an Agency need not obtain the prior approval of the Secretary to 
correct an administrative error or omission, if the correction is made 
in accordance with paragraph (b)(3)(i) of this section. The 
administrative errors and omissions to which this paragraph (b) applies 
are strictly limited to those described in paragraph (b)(2) of this 
section, and, thus, do not include, for example, any misinterpretation 
of the applicable rules and regulations under section 42. Accordingly, 
an Agency's allocation of a particular calendar year's low-income 
housing credit dollar amount made after the close of that calendar 
year, or the use of an incorrect population amount in calculating a 
State's housing credit ceiling for a calendar year are not 
administrative errors that can be corrected under this paragraph (b).
    (2) Administrative errors and omissions described. An 
administrative error or omission is a mistake that results in a 
document that inaccurately reflects the intent of the Agency at the 
time the document is originally completed or, if the mistake affects a 
taxpayer, a document that inaccurately reflects the intent of the 
Agency and the affected taxpayer at the time the document is originally 
completed. Administrative errors and omissions described in this 
paragraph (b)(2) include the following--
    (i) A mathematical error;
    (ii) An entry on a document that is inconsistent with another entry 
on the same or another document regarding the same property, or 
taxpayer;
    (iii) A failure in tracking the housing credit dollar amount an 
Agency has allocated (or that remains to be allocated) in the current 
calendar year (e.g., a failure to include in its State housing credit 
ceiling a previously allocated credit dollar amount that has been 
returned by a taxpayer);
    (iv) An omission of information that is required on a document; and
    (v) Any other type of error or omission identified by guidance 
published in the Internal Revenue Bulletin (see 
Sec. 601.601(d)(2)(ii)(b) of this chapter) as an administrative error 
or omission covered by this paragraph (b).
    (3) Procedures for correcting administrative errors or omissions--
(i) In general. An Agency's correction of an administrative error or 
omission, as described in paragraph (b)(2) of this section, must amend 
the document so that the corrected document reflects the original 
intent of the Agency, or the Agency and the affected taxpayer, and 
complies with applicable rules and regulations under section 42.
    (ii) Specific procedures. If a document corrects a document 
containing an administrative error or omission that has not yet been 
filed with the Internal Revenue Service, the Agency, or the Agency and 
the affected taxpayer, should complete and file the corrected document 
as the original. When a document containing an administrative error or 
omission has already been filed with the Service, the Agency, or the 
Agency and the affected taxpayer, should refile a copy of the document 
containing the administrative error or omission, and prominently and 
clearly note the correction thereon or on an attached new document. The 
Agency should indicate at the top of the document(s) that the 
correction is being made under Sec. 1.42-13 of the Income Tax 
Regulations.
    (iii) Secretary's prior approval required. An Agency must obtain 
the Secretary's prior approval to correct an administrative error or 
omission, as described in paragraph (b)(2) of this section, if the 
correction is not made before the close of the calendar year of the 
error or omission and the correction--
    (A) Is a numerical change to the housing credit dollar amount 
allocated for the building or project;
    (B) Affects the determination of any component of the State's 
housing credit ceiling under section 42(h)(3)(C); or
    (C) Affects the State's unused housing credit carryover that is 
assigned to the Secretary under section 42(h)(3)(D).
    (iv) Requesting the Secretary's approval. To obtain the Secretary's 
approval under paragraph (b)(3)(iii) of this section, an Agency must 
submit a request for the Secretary's approval within a reasonable 
period after discovering the administrative error or omission, and must 
agree to any conditions that may be required by the Secretary under 
paragraph (b)(3)(v) of this section. When requesting the Secretary's 
approval, the Agency, or the Agency and the affected taxpayer, must 
file an application that complies with the requirements of this 
paragraph (b)(3)(iv). For further information on the application 
procedure see Rev. Proc. 93-1, 1993-1 I.R.B. 10 (or any subsequent 
applicable revenue procedure). (See Sec. 601.601(d)(2)(ii)(b) of this 
chapter.) The application requesting the Secretary's approval must 
contain the following information--
    (A) The name, address, and identification number of each affected 
taxpayer;
    (B) The Building Identification Number (B.I.N.) and address of each 
building or project affected by the administrative error or omission;
    (C) A statement explaining the administrative error or omission and 
the intent of the Agency, or of the Agency and the affected taxpayer, 
when the document was originally completed;
    (D) Copies of any supporting documentation;
    (E) A statement explaining the effect, if any, that a correction of 
the administrative error or omission would have on the housing credit 
dollar amount allocated for any building or project; and
    (F) A statement explaining the effect, if any, that a correction of 
the administrative error or omission would have on the determination of 
the components of the State's housing credit ceiling under section 
42(h)(3)(C) or on the State's unused housing credit carryover that is 
assigned to the Secretary under section 42(h)(3)(D).
    (v) Agreement to conditions. To obtain the Secretary's approval 
under paragraph (b)(3)(iii) of this section, an Agency, or the Agency 
and the affected taxpayer, must agree to the conditions the Secretary 
considers appropriate.
    (c) Examples. The following examples illustrate the scope of this 
section:

    Example 1. Individual B applied to Agency X for a reservation of 
a low-income housing credit dollar amount for a building that is 
part of a low-income housing project. When applying for the low-
income housing credit dollar amount, B informed Agency X that B 
intended to form Partnership Y to finance the project. After 
receiving the reservation letter and prior to receiving an 
allocation, B formed Partnership Y and sold partnership interests to 
a number of limited partners. B contributed the low-income housing 
project to Partnership Y in exchange for a partnership interest. B 
and Partnership Y informed Agency X of the ownership change. When 
actually allocating the housing credit dollar amount, Agency X sent 
Partnership Y a document listing B, rather than Partnership Y, as 
the building's owner. Partnership Y promptly notified Agency X of 
the error. After reviewing related documents, Agency X determined 
that it had incorrectly listed B as the building's owner on the 
allocation document. Since the parties originally intended that 
Partnership Y would receive the allocation as the owner of the 
building, Agency X may correct the error without obtaining the 
Secretary's approval, and insert Partnership Y as the building's 
owner on the allocation document.
    Example 2. Agency Y allocated a lower low-income housing credit 
dollar amount for a low-income housing building than Agency Y 
originally intended. After the close of the calendar year of the 
allocation, B, the building's owner, discovered the error and 
promptly notified Agency Y. Agency Y reviewed relevant documents and 
agreed that an error had occurred. Agency Y and B must apply, as 
provided in paragraph (b)(3)(iv) of this section, for the 
Secretary's approval before Agency Y may correct the error.

    (d) Effective date. This section is effective February 24, 1994. 
However, an Agency may elect to apply these regulations to 
administrative errors or omissions that occurred before the publication 
of these regulations. Any reasonable method used by a State or local 
housing credit agency to correct an administrative error or omission 
prior to February 24, 1994, will be considered proper, provided that 
the method is consistent with the rules of section 42.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 3. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


Sec. 602.101  [Amended]

    Par. 4. Section 602.101(c) is amended by adding in numerical order 
the entry ``1.42-13......1545-1357'' to the table.

Margaret Milner Richardson,
Commissioner of Internal Revenue.
    Approved: January 25, 1994.
Samuel Y. Sessions,
Acting Assistant Secretary of the Treasury.
[FR Doc. 94-3946 Filed 2-23-94; 8:45 am]
BILLING CODE 4830-01-U