Uncorrected noncompliance makes the project fail as of the date of issue and later compliance does not restore the bonds

bond.monitoring_review.post_issuance_noncompliance_is_retroactive · v1.0.0

Unless corrected within a reasonable period, noncompliance with the residential rental project requirements causes the project to be treated as other than a qualified project AS OF THE DATE OF ISSUE. Once an issue ceases to qualify, subsequent conformity with the requirements will not alter the taxable status of that issue. A reasonable period for correction is at least 60 days after the error is first discovered or would have been discovered by the exercise of reasonable diligence. The Form 8703 instructions state the consequence in operating terms: the exempt facility bonds cease to be qualified bonds under section 141, the interest paid or to be paid becomes taxable, and issuers or brokers must report that taxable interest to bondholders under section 6049. The victim is the bondholder, not the partnership, and the relief the section 42 world relies on - an agency finding, a correction period set by the monitoring agency, a Form 8823 that is later closed out - has no counterpart here.

Confidence

high

Effective from

1986-10-22

Last reviewed

2026-08-30