Federal Tax

Tax-Advantaged Bonds (Portfolio 183)

  • This Tax Management 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.


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


  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

  1. Bonds Issued for Property
  2. Issue Price for Arbitrage Purposes Under Prior Law
  3. Hybrid Combination Measure Derived From the Above
  4. 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

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

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

  1. Research Arrangements
  2. Regulatory Treatment of Research Agreements
  3. 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

  1. Other Types of Private Business Use
  2. Naming Rights
  3. Licensing Agreements Related to Research/IP Developed in Bond-Financed Property
  4. Other Special Legal Entitlements
  5. Exceptions to Private Business Use
  6. 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

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

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

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

(2) Allocation of Payments to Equity

  1. Application of Private Business Tests to Multi-Purpose Issues
  2. Application of Private Business Tests and Private Loan Financing Test to Refunding Bonds
  3. Allocation of Proceeds of a Refunding Issue
  4. Determining Private Business Use of a Refunding Issue
  5. 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

  1. Remedial Actions Under Rev. Proc. 2018-26
  2. Concept of Non-Qualified Use
  3. When Non-Qualified Use Occurs
  4. Qualified Use
  5. Modified Alternative Use of Disposition Proceeds for Eligible Leases
  6. Reduction of Direct Pay Subsidy Remedial Action
  7. 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

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

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

  1. Inadvertent Insubstantial Error
  2. Rebate
  3. General Rebate Rules
  4. Computation Date
  5. Rebate Due Dates
  6. Future Value Method
  7. Cumulative Rebate Amount
  8. Payment Amount
  9. Late Payment
  10. Recovery of Overpayment
  11. Rebate Exceptions
  12. 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

  1. Working Capital
  2. Proceeds Spent Last
  3. Available Amounts
  4. Voluntary Restrictions Not Respected
  5. Reasonable Working Capital Reserve
  6. Qualified Endowment Funds
  7. 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

  1. Out-of-Jurisdiction Housing as Investment Property
  2. Yield Computations
  3. Discount Rate
  4. Matching a Target
  5. Present Value
  6. Day Count
  7. Compounding Period
  8. 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

  1. Universal Cap and Single-Issue Rule
  2. Qualified Guarantees
  3. 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

  1. Allocation of Proceeds to Expenditures
  2. Direct Tracing Default
  3. Timing of Allocation
  4. Conduit Borrower Treatment
  5. Capital Project Expenditures
  6. Working Capital Expenditures Excepted From Special Rules
  7. 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

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

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

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

(2) Application When Bonds Defeased

  1. 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

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

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