Tax-Advantaged Bonds (Portfolio 183)

Description

Tax Management Portfolio, Tax Advantaged Bonds, No. 183, provides a description of the various rules applicable to tax-advantaged bonds. These rules include not only provisions found in the Code and in Treasury Regulations, but also in various other pronouncements, including ones without formal precedential value. It includes common interpretations that can assist the practitioner when the law is not complete.

It also explains common applications of the rules and common practices related to tax-advantaged bonds and provides some historical context for the various rules. Many of the current rules were originally created to address situations that no longer occur. Some practice guides are included to assist practitioners in application of these very complex rules.

The Portfolio breaks out key concepts (such as issue price, single-issue treatment, and multi-purpose rules) that have applications to many of the rules related to tax-advantaged bonds.

Because tax-exempt bonds are the only type of tax-advantaged bond that can be issued at this time, this Portfolio concentrates on tax-exempt bonds, and, more specifically tax-exempt governmental bonds and qualified §501(c)(3) bonds. It does describe the benefits of other tax-advantaged bonds, as well as the rules applicable to most of those other types. Although tax credit bonds and direct pay bonds can no longer be issued, many are still outstanding and post-issuance compliance for such bonds remains important.

For information on related Code sections, go to §103, §150, and §141 – §149.

Bloomberg Tax & Accounting subscribers can access the full Portfolio: Tax-Advantaged Bonds (Portfolio 183). If you’re not a subscriber, learn more or to see our premier tax research platform for yourself, request a demo.

Table of Contents

DETAILED ANALYSIS —

1. Introduction
2. Types of Subsidy
3. Tax-Exempt Interest
4. Direct Pay Subsidies
5. Tax Credits to Bondholders
6. Alternative Minimum Tax Treatment of Interest
7. Deductibility of Interest Allocated
8. General Framework of Applicable Rules
9. General Tax Principles Apply at Times
10. Special Tax-Exempt Bond Rules Apply at Times
11. Special Reissuance Rules and OID Rules
12. Opinion Standard
13. Basis of Tax Advantage — “State or Local Bond”
14. State or Local Bond
15. Definition of Political Subdivision & Required Powers
16. Regulatory Definition
17. Sovereign Powers

(1) Taxing Power

(2) Eminent Domain

(3) Police Power

1. Estate of Shamberg
2. Insufficient Powers
3. Technical Advice Memorandum
4. Proposed Political Subdivision Regulations
5. Executive Order; Final Report
6. PLR 201816007
7. Issuers of Tax Advantaged Bonds That Are Not States or Political Subdivisions Thereof
8. Possessions, Territories and District of Columbia
9. Indian Tribal Governments
10. Volunteer Fire Departments

(1) Qualified Volunteer Fire Department

(2) Public Approval

1. On-Behalf-Of Issuers

(1) Constituted Authority

(2) 63-20 Corporations

(3) Rev. Proc. 82-26

1. Certain Issuers of Qualified Scholarship Funding Bonds
2. Electric Cooperatives
3. Need for Valid Debt
4. Pursuant to Borrowing Power
5. Summary and Overview of Rules Specific to Tax-Advantaged Bonds
6. Tax Categories of Tax-Exempt Bonds — Overview/Summary
7. Types of Debt Structure
8. Conduit Financing
9. IRS Tax-Exempt Bonds Function and Resources Available
10. Measurement of Bonds and Issue Price
11. Principal Amount Used to Identify Bond Issues
12. Stated Redemption Price at Maturity
13. Issue Price for OID Purposes
14. Issue Price for Arbitrage Purposes
15. The General Method
16. Hold-the-Price Method
17. Offering
18. Price Hold Covenant
19. Competitive Sale Method
20. Competitive Bidding
21. Process

(1) Equal Opportunity

(2) Three Bids

4. Bonds Issued for Property
5. Issue Price for Arbitrage Purposes Under Prior Law
6. Hybrid Combination Measure Derived From the Above
7. Summary of Application of Various Measures of Bonds

III. Single, Separate and Multipurpose Issue Treatment

1. Concept and Overview
2. Rules on Combination and Separation
3. Relationship With Substantive Rules
4. Original Issue Discount
5. General Rule for Tax-Advantaged Bonds

(1) Special Rules for Drawdown Loans and Commercial Paper

(2) Special Rules for Specific Substantive Rules

1. Multipurpose Rules
2. Operating Rules
3. Other Special Rules
4. Benefits of Separate and Single-Issue Treatment
5. Historical Benefits
6. Current Major Benefits
7. Other Effects of Single-Issue or Multiple-Issue Treatment
8. General Three-Part Test
9. Sold Substantially the Same Time; Date of Sale
10. Single Plan of Financing
11. Same Source of Expected Payment
12. Special Elective Rule for General Obligation Bonds
13. Bonds of Different Issuers
14. Type of Subsidy
15. General Rule for Information Reporting
16. Special Rules for Drawdown Loans and Commercial Paper
17. General Drawdown Rules
18. Information Reporting Drawdown Rules
19. General Commercial Paper Rules
20. Information Reporting Commercial Paper Rules
21. Multipurpose Rules
22. Arbitrage Multipurpose Rule
23. Scope of the Arbitrage Multipurpose Rules

(1) Arbitrage Yield

(2) Rebate Amount

(3) Minor Portion

(4) 4R Fund (Reasonably Required Reserve or Replacement Fund) Exceptions to Yield Restriction

(5) Effective Dates

(6) Tax-Exempt Conduit Loans

1. Purposes
2. Allocations of Specific Bonds to Specific Portions

(1) Safe Harbor Allocations

(a) Pro-Rata Allocations

(b) Allocation of Bonds Corresponding to Purpose Investments

(2) Restrictions on Refunding Allocations

(a) Pro-Rata Allocations

(b) Savings Each Year

(c) Proportionate Weighted Average Maturity

(d) Other

(e) Order of Allocation

2. Private Activity Bond Multipurpose Rule
3. General Multipurpose Rule for Other Code Provisions
4. Inherent Multipurpose Rules for Rebate Spending Exceptions
5. Operating Rule
6. Composite Issue
7. Governmental Bonds
8. Distinguished From Private Activity Bonds
9. Private Loan Financing Test
10. Tax Assessment Loan Exception

(1) Mandatory Tax or Other Assessment

(2) Essential Governmental Function

(3) Equal Basis Requirement

1. Tax Increment Financings
2. Nonpurpose Investment Exception
3. Prepayments

(1) Customary Prepayment — Facts and Circumstances; Prepayments Deemed to Meet Exception

(2) Gas and Electric Prepayments

1. Hazardous Waste Remediation Bonds
2. Turnkey Contracts
3. Private Business Test
4. Unrelated or Disproportionate Private Business Use

(1) Unrelated Use

(2) Disproportionate Use

(3) Reasonable Expectations

(4) Documentation of Unrelated or Disproportionate Use

1. $15 Million Effective Private Business Use Test if Volume Cap Is Not Obtained
2. $15 Million Aggregate Private Business Use Limit for Output Facilities That Are a Single “Project”; Definition of Project
3. Private Payment or Private Security Test
4. Reasonable Expectations and Deliberate Actions
5. Reasonable Expectations
6. Deliberate Actions Post-Issuance

(1) Dispositions of Personal Property

(2) Special Rule for General Obligation Bond Programs

5. Private Activity Bond Treatment for Non-Governmental Output Property
6. Exception for Governmental Units Having a 10-Year Established Service Area
7. Exception for Property Converted to Non-Output Use
8. Exception for Electric and Gas Prepays
9. Definition and Discussion of Private Business Use
10. Special Legal Entitlements and Special Economic Benefit
11. General Public Use
12. Example of Special Economic Benefit
13. Ownership
14. Leasehold Interest
15. Management Contracts
16. Historical Safe Harbor Provisions for Management Contracts

(1) Rev. Proc. 93-19

(2) Rev. Proc. 97-13

1. Rev. Proc. 2017-13

(1) Reasonable Compensation

(2) No Net Profits Arrangements

(a) Sub-Safe Harbor — No Element of Compensation Based on Net Profits

(b) Non-Net Profits Based Incentive Compensation

(3) No Bearing of Net Losses of the Managed Property

(a) Burden of Net Losses

(b) Safe Harbor — Certain Types of Compensation Deemed Not Net Profits/Net Loss Based

(c) When Deferral of Compensation Not Treated as Net Profits Based

(4) Term of the Contract

(5) Control Over Use of the Managed Property; Sub-Safe Harbor for Control

(a) Approval of Capital Expenditures and Dispositions of Assets

(b) Rate Approval

(6) Risk of Loss

(7) No Inconsistent Tax Position

(8) No Circumstances Substantially Limiting Exercise of Rights; Safe Harbor

(9) Functionally Related and Subordinate Use

5. Research Arrangements
6. Regulatory Treatment of Research Agreements
7. Rev. Proc. 2007-47

(1) Corporate Sponsored Research Safe Harbor

(2) Industry Sponsored Research Safe Harbor

(3) Federally Sponsored Research Safe Harbor

1. Other Arrangements Similar to Research
2. Output Facilities and Output Contracts
3. Special Regulatory Rules Apply
4. Definition of an Output Facility; Available Output

(1) Generating Facilities

(2) Transmission and Other Output Facilities

(3) Special Computation for Unutilized Capacity

(4) Special Rule for Facilities with a Limited Source of Supply

1. Private Business Use of Output Facilities — Benefits and Burdens Test

(1) Take Contracts or Take or Pay Contracts

(2) Requirements Contracts

(a) Retail Requirements Contracts

(b) Additional Terms for Retail Requirements Contracts

(c) Wholesale Requirements Contracts

(3) Other Output Contracts Not Resulting in Private Use

(a) Small Purchases of Output

(b) Swapping and Pooling Arrangements

(c) Short-Term Output Contracts

(d) Conduit

(4) Operation of Transmission Facilities

(5) Transmission Facilities, Distribution Facilities and Ancillary Services

(a) Transmission Facilities

(b) Distribution Facilities

(c) Ancillary Services Exception

(6) Allocation of Output

(7) Contracts With Governmental Entities

(8) Private Business Use Limitations on Output Projects

7. Other Types of Private Business Use
8. Naming Rights
9. Licensing Agreements Related to Research/IP Developed in Bond-Financed Property
10. Other Special Legal Entitlements
11. Exceptions to Private Business Use
12. General Public Use

(1) Available on Same Basis as for Natural Persons; Priority Rights; Rates of Charge

(2) 200 Days

(a) Renewal Option

(b) Days of Use

(c) Facility Not Principally for Private User

(3) Long-Term Arrangements

1. Short-Term Arrangements

(1) 100-Day Exception

(2) 50-Day Exception

(3) Unrelated Trade or Business

1. Temporary Developer Use; Coordination With Measurement Period
2. Qualified Improvements
3. Incidental Use
4. Use as an Agent or Use Incidental to Financing Arrangement
5. Participation in an Accountable Care Organization; Safe Harbors
6. Measurement of Private Business Use
7. Measurement Period
8. Beginning and End of Measurement Period

(1) Short-Term Obligations Expected to be Redeemed With Long-Term Obligations

(2) Reasonably Expected Mandatory Redemptions

1. Commencement of Private Use
2. Average Percentage of Private Use

(1) Ownership

(2) Partnerships Treated as Aggregates

(3) Anti-Abuse Rule

(4) Computation of Private Use Percentage

2. Determination of Allocation of Private Business Use
3. Time Allocations — Use at Different Times
4. Simultaneous Use

(1) Example of Simultaneous Use

(2) Example of Simultaneous Use on the Same Basis

1. Discrete Portions
2. Fair Market Value Adjustments
3. Common Area Allocations and Valuations of Common Areas
4. Revenue Allocations/Square Footage Allocations/Other Methods
5. Output Contracts
6. Neutral Cost Allocations
7. Allocation and Accounting Rules

(1) Contrast of Final and Proposed Regulations

(2) Undivided Portion Analysis Under Final Regulations

(3) Regulatory Allocation Among Multiple Issues and Common Costs

(4) Allocation of Proceeds to Expenditures — Non-Eligible Mixed-Use Projects

(5) Allocations for Eligible Mixed-Use Projects

(a) Qualified Equity

(b) Plan of Financing

(i) Timing Limitation on Qualified Equity

(ii) Longer Reimbursement Periods

(iii) Timing of Project Scope

(iv) Multiple Bond Issues Financing a Project

(v) Plan of Financing Beyond Timing

(c) Allocation of Private Use

(d) Practical Application of the Eligible Mixed-Use Project Rules

(i) Timing of Final Declaration of the Eligible Mixed-Use Project

(ii) Assets, Facilities or Capital Projects Within the Eligible Mixed-Use Project With Different Measurement Periods

(iii) Sale of a Portion of an Eligible Mixed-Use Project

(iv) Allocation of Qualified Equity to Different Types of Private Business Use

(v) Implication of Other Tax-Exempt Bond Rules

(vi) Scope of Eligible Mixed-Use Project

(6) Allocations to Private Payments

(7) Allocations of Common Costs

(8) Allocations of Proceeds to Bonds

1. Private Payment and Security
2. Governmental Bonds With Private Use
3. Private Payment Test
4. Private Security Test
5. Aggregation of Private Payments and Security
6. Determination of Sources Securing Debt Service and Paying Debt Service on an Issue
7. Measurement of Private Payment and Security

(1) Debt Service to Compare

(2) Computation of Present Value

(3) Measurement of Value of Private Security

1. Generally Applicable Taxes Are Not Considered Private Payments or Security

(1) Distinguished From Special Charges

(2) Impermissible Agreements

2. Effect of an Impermissible Agreement
3. Structuring Considerations
4. Permissible Agreements
5. Payments In Lieu of Taxes
6. Determination of Private Payments Allocated to Debt Service
7. Payments Properly Allocated to Other Property
8. Payments Cannot Exceed Use
9. Payments for Operation and Maintenance Are Not Considered Private Payments
10. Refinanced Debt Service
11. Allocation of Private Payments to Different Sources of Funding
12. Facts and Circumstances Test
13. Discrete Facilities
14. Allocations Among Two or More Sources of Funding
15. Exceptions to the General Allocation Methods

(1) Payments Made Under Arrangement Entered Into with the Issuance of Bonds

(2) Allocation of Payments to Equity

8. Application of Private Business Tests to Multi-Purpose Issues
9. Application of Private Business Tests and Private Loan Financing Test to Refunding Bonds
10. Allocation of Proceeds of a Refunding Issue
11. Determining Private Business Use of a Refunding Issue
12. Special Measurement Period Rules for Refundings of Governmental Bonds

(1) Combined Measurement Period

(2) Special Transitional Rule for Combined Measurement Period for Pre-May 1997 Refundings

1. Special Rule for Governmental Bonds Refunding Qualified 501(c)(3) Bonds
2. Private Payment and Security Measurement Rules for Combined Measurement Periods; Exception to Combined Yield Valuation
3. Anti-Abuse Rules
4. Reallocation to Reflect Indirect Use of Proceeds
5. Treating Amounts as Proceeds That Would Otherwise Be Disregarded
6. Alternative Methodology for Measurement of Private Business Use
7. Treat as Single Issue — “Good Use” and “Bad Payment” Issue and “Bad Use” and “Good Payment” Issue
8. Reallocating Proceeds
9. Other Arrangements Transferring Tax Benefits to Nongovernmental Persons
10. Correcting Private Activity Bond Actions
11. Definition of Deliberate Action
12. Remedial Actions Under the Regulations
13. Pre-Conditions to Taking a Remedial Action
14. Date of Deliberate Action
15. Redemption or Defeasance of Nonqualified Bonds

(1) Defeasance Escrow

(2) 10 1/2-Year Call Requirement and IRS Notification

1. Computation of Nonqualified Bonds
2. Allocation of Nonqualified Bonds; Issue Price Considerations
3. Anticipatory Remedial Action
4. Alternative Use of Disposition Proceeds

(1) Computation and Allocation of Disposition Proceeds

(2) Dispositions Made Pursuant to Installment Sales

(3) Allocation of Disposition Proceeds if Remedial Action Not Taken

(4) Allocating Disposition Proceeds to Different Sources of Funding

(5) Disposition Proceeds — Valuation Related to Tax-Exempt Bond Financed Assets

(6) IRS Website Examples

(a) Example 2 — Disposition Proceeds Are Greater Than the Principal Amount of the Outstanding Bonds Allocated to the Sold Property

(b) Example 3 — Disposition Proceeds Are Greater Than the Principal Amount of the Outstanding Bonds Allocated to the Sold Property and the Conduit Borrower Finances the Project in Part with Tax-Exempt Bond Proceeds and in Part with an Equity Contribution

(7) Universal Cap Limitation to Treatment as Gross Proceeds

1. Alternative Use of Facility
2. Effect of a Remedial Action

(1) Effect on Advance Refunded Bonds

(2) Effect on Continued Compliance

(a) Example of Redemption or Defeasance of Non-Qualified Bonds

(b) Example of Alternative Use of Disposition Proceeds

3. Remedial Actions Under Rev. Proc. 2018-26
4. Concept of Non-Qualified Use
5. When Non-Qualified Use Occurs
6. Qualified Use
7. Modified Alternative Use of Disposition Proceeds for Eligible Leases
8. Reduction of Direct Pay Subsidy Remedial Action
9. Certain General Remedial Actions for Tax-Advantaged Bonds Other Than Tax-Exempt Bonds

(1) Redemption or Defeasance of Nonqualified Bonds

(2) Alternative Use of Disposition Proceeds

(3) Superseding Remedial Action Provisions

4. Rev. Proc. 93-17
5. Voluntary Closing Agreement Program (VCAP)
6. Private Activity Bond Transition Rules
7. Arbitrage and Yield Restriction Rules
8. General Description of Arbitrage Bonds
9. History and Scope of Arbitrage Provisions
10. Gross Proceeds
11. Proceeds
12. Replacement Proceeds

(1) Sufficiently Direct Nexus; Preliminary Earmarking Exception

(2) Sinking Fund

(3) Pledged Fund; Negative Pledges

(4) Other Replacement Proceeds

(a) Working Capital Safe Harbor

(b) Capital Safe Harbor; Capital Project Financing

(c) Refunding Safe Harbor

(d) Long-Term Working Capital

(i) Fiscal Year Test

(ii) Remediation Applicable to Restricted Working Capital Financings

2. Investment Property
3. Any Security Within the Meaning of §165(g)(2)(A) or §165(g)(2)(B)
4. Any Obligation
5. Any Annuity Contract
6. Any Investment Type Property

(1) Customary Prepayments

(2) Short-Term Prepayments

(3) Gas and Electric Prepayments

(4) 2018 Clarification

1. Investment
2. Substantial Beneficiary
3. Purpose and Non-Purpose Investments
4. Proceeds
5. Sale Proceeds
6. Investment Proceeds
7. Transferred Proceeds
8. Disposition Proceeds
9. Amounts Not Proceeds Subject to Arbitrage Rules
10. Yield Generally
11. Yield Restriction Limitations
12. Materially Higher
13. Exceptions to Yield Restriction
14. Temporary Periods

(1) Three-Year Temporary Period

(a) Time Test

(b) Due Diligence Test

(c) Expenditure Test

(2) Five-Year Temporary Period

(3) Temporary Period for Working Capital

(4) Temporary Period for Pooled Financings

(5) 30-Day Temporary Period for Refunding Issues if No Other Rule Applies

(6) 90-Day Temporary Period

(7) 30-Day Temporary Period for Replacement Proceeds

(8) 13-Month Temporary Period; Treatment of Excess Tax Collections as a Reserve Fund

(9) One-Year Temporary Period

(10) Default 30-Day Temporary Period

(11) Temporary Period for Transferred Proceeds

(12) Pre-2018 Temporary Period Upon Issuance of Advance Refunding Bonds

(13) Temporary Period for Proceeds of Commercial Paper Programs for Refunding

(14) Waiver of Temporary Period

1. Minor Portion
2. Reasonably Required Reserve or Replacement Fund (4R Fund)
3. Bona Fide Debt Service Fund
4. Classes of Investments
5. Not Yield Restricted Non-Purpose Investments
6. Yield Restricted Non-Purpose Investments
7. Purpose Investments

(1) Program Investments

(a) Program

(b) Qualified Borrowers

(c) Use of Loan Repayments

(d) Bond Purchase Prohibition

(e) Waiver Permitted

(2) Issuer Fee Limitations

4. Inadvertent Insubstantial Error
5. Rebate
6. General Rebate Rules
7. Computation Date
8. Rebate Due Dates
9. Future Value Method
10. Cumulative Rebate Amount
11. Payment Amount
12. Late Payment
13. Recovery of Overpayment
14. Rebate Exceptions
15. Spend-Down

(1) Six-Month Exception

(a) Excluded Gross Proceeds

(b) Additional Six Months

(c) Tax or Revenue Anticipation Notes Expenditure

(d) Application of Six-Month Rule

(2) 18-Month Exception

(a) Reasonable Retainage

(b) De Minimis Extension

(3) Two-Year Exception

(a) Construction

(b) Spending Schedule

(i) Reasonable Retainage

(ii) De Minimis Extension

(c) Elections for Two-Year Exception

(i) Penalty in Lieu of Rebate

(ii) Termination of Penalty

(iii) Bifurcation Election

(iv) Actual Facts

(v) 4R Fund Treatment

1. Small Issuer Exception

(1) $15 Million for School Construction

(2) Refunding Bond Exclusion

(3) Refunding Bond Rules

(4) Multipurpose Treatment

(5) Other Exceptions

1. Investing in Non-AMT Tax-Exempts
2. Bona Fide Debt Service Fund Exception
3. Other Arbitrage Topics
4. Reserve Fund Limitations
5. Funding Limitation
6. Limitation on Yield Restriction Exception
7. Transferred Proceeds
8. Not Applicable to Rebate Spending Exceptions
9. Scope of Application
10. Transferred Proceeds Penalty Calculations

(1) Transferred Proceeds Computational Data

(2) Transfer Factor

(3) Present Value and Two Rates

(4) Transfer Date to Closing Date

(5) Negative Arbitrage Offset

3. Working Capital
4. Proceeds Spent Last
5. Available Amounts
6. Voluntary Restrictions Not Respected
7. Reasonable Working Capital Reserve
8. Qualified Endowment Funds
9. Categories of Non-Restricted Working Capital Expenditures

(1) Costs of Issuance

(2) Qualified Administrative Costs

(3) Fees for a Qualified Guarantee

(4) Fees for a Qualified Hedge

(5) Interest

(6) Rebate

(7) Other Costs Not Exceeding 5% of the Issue

(8) Unexpected Excesses

(9) Bona Fide Debt Service Fund

(10) Extraordinary Non-Recurring Working Capital Expenses

(11) Commingled Investment Earnings

4. Out-of-Jurisdiction Housing as Investment Property
5. Yield Computations
6. Discount Rate
7. Matching a Target
8. Present Value
9. Day Count
10. Compounding Period
11. Fixed Yield Rules

(1) Issue Date

(2) Issue Price

(3) Redemption Assumptions

(a) Yield to Call Bonds

(b) Term Bonds

1. Variable Yield

(1) Computation Date Valuation

(2) Period Allocation of Qualified Guarantees

1. Investment Yield

(1) Yield Reduction Payment

(a) Yield Reduction Prohibitions

(b) Qualify for Temporary Period

(c) Variable Yield

(d) Transferred Proceeds

(e) Reserves

(f) Universal Cap

(g) Student Loans

(2) Investment Valuation

1. Individual Bond Yield and Valuation

(1) Value of a Plain Par Bond

(2) Value of Non-Plain Par Bonds

(3) Special Rule for Universal Cap

6. Universal Cap and Single-Issue Rule
7. Qualified Guarantees
8. Guarantee Requirements

(1) Interest Savings

(2) Guarantee in Substance

(3) Reasonable Fee

(4) Qualified Guarantee Fee Cannot Include Fees for Other Services

(5) Fee Not Refundable

(6) Non-Asset Bond Guarantee

(7) Guarantee of Purpose Investments

1. Allocation of Qualified Guarantee Fees
2. Guarantee Fee Adjustments to Refunding Bond Yield
3. Hedges
4. Risk
5. Significant Investment Element
6. Parties
7. Hedged Bonds
8. Interest Based
9. Notional Amount
10. No Contingent Payments
11. Integrated Synthetic Bond
12. Payments Correspond
13. Source of Funds
14. Identification
15. Form 8038
16. Provider’s Certification
17. Termination Payments
18. Hedge Modification
19. Deemed Termination
20. Refunding
21. Payment for Termination From Proceeds
22. Hedged Fixed Yield Bond Issues

(1) Anticipatory Hedges

(2) Fixed Yield Refundings

(3) Super-integrated Hedges

1. Super Integration

(1) Entire Variable Period

(2) Close Correspondence

(3) Combined Payments Fixed and Determinable

1. Changes to Interest Rate Modes/Bond Terms/Hedge Terms-Effect on Qualification
2. Fair Market Value of Investments
3. General Fair Market Value Rule
4. Obligations Not Actively Traded
5. Safe Harbors

(1) Guaranteed Investment Contract Bidding

(a) Bid Solicitation

(i) In Writing

(ii) Timely

(iii) Material Terms

(iv) No Side Agreement

(v) Courtesy Bids

(vi) Commercially Reasonable

(vii) Draw Schedule

(viii) Equal Opportunity

(ix) Reasonably Competitive Bidders

(b) Winning Bid Requirements

(2) Certificates of Deposit

(3) Escrow Investments

(a) Scope of Safe Harbor

(b) Expanded Scope

(c) Similarity to Guaranteed Investment Contract Bidding

(d) Escrow Securities Bidding Process

(i) State and Local Government Series Securities Comparison

(ii) No Draw Schedule Required

(4) State and Local Government Series Securities

10. Allocation of Proceeds to Expenditures
11. Direct Tracing Default
12. Timing of Allocation
13. Conduit Borrower Treatment
14. Capital Project Expenditures
15. Working Capital Expenditures Excepted From Special Rules
16. Restricted Working Capital Expenditures

(1) General Description of the Required Expenditure Methodology

(2) Reasonable Working Capital Reserve

(3) Available Amounts

(4) Tax or Revenue Anticipation Notes

(5) Cumulative Cash Flow Deficit

(6) Working Capital Reimbursement

1. Reimbursement

(1) Capital Cost Reimbursement

(a) Reimbursement Period

(b) Official Intent

(c) Reasonableness of Official Intent

(d) De Minimis Exception

(e) Preliminary Expenditure Exception

(f) Treatment of Expenditures Allocated to Proceeds of Earlier Obligations

(g) Reimbursement Allocations for Refunding Purposes

(h) Anti-Abuse Rule

(2) Working Capital Reimbursements

1. Grants — Characterization of the Expenditure
2. Valuation of Investments
3. Valuation Methods
4. Situations Requiring Present Value Valuation
5. Situations Requiring Fair Market Value
6. Transferred Proceeds and Universal Cap Allocations Not Required To Be Marked to Market
7. Allocations From Taxable to Tax-Exempt Bond Issues
8. Special Transferred Proceeds Rule to Prevent Yield Restriction Violations on Refunded Bonds
9. Valuation of Commingled Fund Investments
10. Administrative Costs of Investments
11. Qualified Administrative Costs on Nonpurpose Investments

(1) Special Rule for External Commingled Funds and Mutual Funds

(2) Safe Harbor for Reasonableness of Certain Broker Fees

1. Qualified Administrative Costs on Purpose Investments
2. Anti-Abuse Rules
3. Criteria for Overburdening
4. Consequences of Overburdening and Exploitation
5. Consequences of Overburdening
6. Special Anti-Abuse Rules for Advance Refundings
7. Artificial Allocations of Maturities
8. Practical Considerations
9. Investment Restrictions
10. Post-Issuance Compliance
11. Other Rules Applicable to Bonds (and Types of Bonds to Which Such Rules Apply)
12. Federal Guarantee Rules
13. Federal Guarantee Prohibited
14. Historical Origin of Investment Restrictions
15. Investment Restriction
16. Housing Bond Exception
17. Federal Home Loan Bank Guarantees
18. Special Rule for Build America Bonds
19. Federal Source of Payment
20. Advance Refunding Rules
21. 2018 End of Tax-Exempt Advance Refunding Bond Issues
22. Former Rules
23. Number of Refundings
24. First Call Date Rule
25. Advance Refunding of Private Activity Bonds
26. Early End of Temporary Period
27. Other Advance Refunding Rules
28. Taxable Advance Refundings
29. Tax-Exempt Advance Refundings of Taxable Bonds
30. Information Reporting
31. Registered Form
32. Pool Bond Rules; Section 149(f)
33. Timely Loan Origination Expectation
34. Pools for Refunding Purposes
35. Costs of Issuance Not Contingent
36. Commitment to Borrow
37. Redemption Requirement
38. Multipurpose Treatment
39. Arbitrage Rules Targeting Pool Bonds
40. Hedge Bond Rules
41. Expectations as to Rapid Expenditure
42. Guaranteed Investment Return
43. Exception for Non-AMT Tax-Exempt Investment
44. Refunding Bond Treatment
45. Refunding Without a Significant Purpose
46. Insurance Reserve Funding Bonds
47. Volume Cap
48. Bonds Subject to Unified Volume Cap
49. Governmental Bonds Subject to Unified Volume Cap
50. Volume Cap Carry Forward
51. Volume Cap on Refunding Bonds
52. Maturity Limitation Rules
53. Computation of Weighted Average Maturity
54. Useful Economic Life of Financed Facilities
55. Placed-in-Service Adjustment
56. Refunding Bond Treatment
57. Multipurpose Averaging
58. Pooled 501(c)(3) Bonds
59. Prohibited Facilities and Exceptions
60. Public Approval Requirements
61. Method and Timing of Public Notice
62. Newspaper Publication
63. Radio or Television
64. Local Law Public Notice
65. Internet
66. Information Required in Notice of Public Hearing
67. Public Hearing
68. Approval
69. Host Approval
70. Scope of Approval
71. Refunding Exception
72. Post-Issuance Approval
73. Expiration of Public Approval
74. Cost of Issuance Limitations
75. Limitation on Use of Proceeds for Land Acquisition
76. Acquisition of Existing Property and Rehabilitation
77. Imputed Proceeds
78. Tax-Exempt Refunding of Certain Targeted Bond Programs

VII. Qualified Private Activity Bonds

1. General Description of Qualified Bonds
2. Exempt Facility Bonds
3. Airports
4. Solid Waste
5. Docks and Wharves
6. Facilities for the Furnishing of Water
7. Sewer Facilities
8. Transportation
9. Multi-Family Housing
10. Local Furnishing of Electricity or Gas
11. Other Categories of Exempt Facilities
12. Single Family Housing and Mortgage Credit Certificates
13. Small Issue Manufacturing
14. Student Loan Bonds
15. Qualified Redevelopment Bonds
16. Disaster Relief Bonds and Other “Special” Bonds
17. Qualified 501(c)(3) Bonds
18. Requirements of 501(c)(3) Bonds
19. Ownership Requirement
20. Modified Private Business Test

(1) Unrelated Trade or Business Use Is Private Business Use

(2) 5% Private Business Use Limit

(3) Treatment of Costs of Issuance as Private Business Use

(4) Governmental Bond Private Activity Regulations Apply With Modification

2. Restrictions on Use of Proceeds for Acquisition of Residential Rental Property
3. Residential Rental Property for Family Units
4. Exceptions to the Restriction on the Acquisition of Residential Rental Property
5. The Donnelly Amendments
6. Practical Effects of Residential Rental Property Limitations
7. $150 Million Limitation
8. Bonds Excepted From $150 Million Limitation
9. Exception to $150 Million Limitation — Qualified Hospital Bonds

(1) Hospital Defined

(2) Not a Hospital

(3) IRS Guidance

(4) Comment on Outpatient vs. Inpatient

(5) Dividing an Issue Between Hospital and Non-Hospital Bonds

1. Exception to $150 Million Limitation — Issues for Capital Expenditures Paid or Incurred After August 5, 1997
2. Other Exceptions to the $150 Million Limitation
3. Calculation and Allocation of Bonds for Purposes of $150 Million Limitation Testing

(1) Principal User Definition

(2) Continuation of Principal User Status

(3) Related Person Aggregation

(a) Related-Party Definition

(b) Common Management or Control; Local/National Organizations

(c) Related Persons Under §144(a)

(4) Bonds Allocated to a Test Period Beneficiary

(5) Practical Effects of the $150 Million Limit

(6) Violations of the $150 Million Limitation

4. Form 990 Schedule K
5. Special Remediation Rules
6. Remediation of Ownership
7. Deemed Reissuance
8. Governmental Bonds Converted to 501(c)(3) Bonds
9. Additional Consequences of Change in Use

(1) Limitation on Application of and When Certain Remedial Actions Taken

(2) Application When Bonds Defeased

6. Multi-Purpose Issues With Governmental Financings

VIII. Tax Credit and Direct Pay Bonds

1. Build America Bonds and Recovery Zone Economic Development Bonds
2. Qualified BABs
3. Recovery Zone Economic Development Bonds
4. QZABs, QSCBs, QECBs and NCREBs
5. Rules Applicable to All QZABs, QSCBs, QECBs and NCREBs
6. 100 Percent Test
7. Special Expenditure Rules
8. Maturity Limitation
9. Conflict of Interest
10. Information Reporting
11. Wage and Labor Standards
12. Special Arbitrage Rules
13. Reimbursement
14. Volume Limitation
15. Tax Credit Bonds
16. Tax Credits
17. Stripped Credits on Tax Credit Bonds
18. Pass Through of Tax Credit Bond Credits
19. Direct Pay Bonds
20. Qualified Zone Academy Bonds
21. Qualified School Construction Bonds
22. Qualified Energy Conservation Bonds
23. Governmental Bonds Subject to Volume Limit
24. Qualified Conservation Purpose
25. Designation
26. 70% Credit
27. Private Activity Bond Limitation
28. New Clean Renewable Energy Bonds
29. Other Types of Tax Credit Bonds/Direct Pay Bonds
30. Sequestration
31. Tax-Exempt Refunding of Tax Credit Bonds and Direct Pay Bonds
32. Allocation and Accounting Rules
33. Grants; Look-Through Treatment
34. Reimbursement Rules
35. Allocation of Proceeds
36. Reissuance of Tax-Advantaged Bonds
37. Special Rules for Tax-Exempt Bonds Under Reg. §1.1001-3
38. Qualified Tender Bond Rules
39. Substitution of Obligor
40. Defeasance of Tax-Exempt Bonds
41. Treatment of Conduit Transactions
42. Recourse Nature
43. Special Rules for Tax-Exempt Qualified Tender Bonds
44. Notice 88-130
45. Tender Right, Tender Rate and Tender Bond
46. Qualified Tender Bond
47. Non-Qualified Tender Bond
48. Reissuance of a Qualified Tender Bond
49. Qualified Corrective Change

(1) Does Not Materially Alter Rights

(2) Correction to Avoid Unintended Result

(3) Unexpected Post-Issuance Events

2. Notice 2008-41
3. Proposed Regulation
4. LIBOR Replacement in a Tender Bond
5. Notice 2020-25
6. LIBOR Replacement
7. Consequences of Reissuance
8. Deemed Reissuance in Connection With Remedial Actions
9. Involvement of Issuer
10. Treatment of Interest by Bond Holders
11. Deductibility of Expenses Related to Tax-Exempt Bond Holdings
12. Bank Qualification
13. Qualified Small Issuer
14. Limit on Obligations Designated
15. Limit on Issue Size
16. Deemed Designation
17. Drawdown Loan Treatment
18. Allocation of Bond Issuance
19. On-Behalf-Of Entities
20. Subordinate Entities
21. Allocation Agreements
22. Anti-Abuse Rule
23. New Money Straddle
24. Composite Issue
25. Special Rules for 2009 and 2010
26. De Minimis Rule; Refundings
27. Alternative Minimum Tax
28. Tax Preference Item
29. Corporate Adjustment
30. Opinions and Disclosure
31. Arbitrage Treatment
32. Substantial User Requirement
33. OID Special Rules
34. Contingent Interest (Special Rules for Tax-Exempt Bonds)
35. Net Investment Income Tax

XII. Additional Miscellaneous Topics

1. Enforcement
2. Audit Process
3. Audit Initiation

(1) Common IDR Questions

(2) Arbitrage Questions

(3) Power of Attorney

1. Response and Outcome

(1) Supplemental IDRs

(2) No-Change Letter

(3) Preliminary Notice of Non-Compliance

(4) Survey

(5) Warning

(6) Closing Agreement Terms

(7) Determination of Taxability

(8) Technical Advice

2. Imposition of Penalties Including §6700
3. Voluntary Closing Agreement Program
4. Anonymous VCAP Submissions
5. Complete VCAP Submission
6. Draft Closing Agreement
7. Method of Submission
8. Initial Handling of a VCAP Submission
9. Resolution Standards
10. Missed Zero Percent Rolls
11. Issuer Ownership of Bonds
12. Fixed Settlement Amounts for Certain Violations
13. VCAP Process
14. Post-Issuance Compliance
15. Private Letter Ruling Requests
16. State Tax
17. Related Person
18. Governmental and 501(c)(3) Related Parties
19. Parties Related to Business Entities
20. Parties Related to Individuals
21. Placed in Service
22. Sale Date and Issue Date
23. Sale Date
24. Issue Date
25. Acquisition Financings
26. General Refinancing Treatment
27. Asset Transaction
28. Unrelated Parties
29. Six-Month Time Limitation
30. Applies to Non-Affiliated Persons
31. Affiliated Persons
32. Hybrid Treatment for Affiliated Person Transactions
33. Reverse Acquisitions
34. Considerations of Special Investors
35. Tax-Exempt Investment
36. Tax Credit Bonds
37. Direct Pay Bonds