The ruling reverses a longstanding Technical Advice Memorandum the IRS issued in 2000.

The U.S. Tax Court recently held that a developer properly included in its “eligible basis,” for purposes of computing the low-income housing tax credit, its financing costs incurred in the construction of its LIHTC site. The financing costs included bond fees regardless of whether or not the bondholders are exempt from federal income tax on the bond interest under Section 103 of the Internal Revenue Code.

A private letter ruling (PLR) is a written response the IRS issues to an owner or taxpayer when the owner asks a question about the tax effects of its acts or transactions. For example, you may not know whether the IRS can give the owner more time to elect the site’s minimum set-aside, or whether the IRS will still consider your site residential if you offer certain nursing or medical services to residents. If you don’t do the right thing, your state housing agency may cite you for noncompliance, putting the owner’s tax credits at risk.

Regardless of how well you run your tax credit site, your state housing agency may cite you for noncompliance with the tax credit law. If that happens, your state housing agency must notify your site’s owner of the violation and report it to the IRS using IRS Form 8823 (Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition).