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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-3946

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** February 24, 1994

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-3946. Public record. Not legal advice.