WASHINGTON - The National Association of Bond Lawyers is urging the Internal Revenue Service to focus most of its attention over the next 12 months on drafting rules for the American Recovery and Reinvestment Act's two-year bond provisions.
In a letter sent to the IRS late last week, NABL suggested eight items be included on the service's 2009-2010 guidance priority list, five of which were tied to the stimulus package enacted into law rover three months ago. The IRS last month invited recommendations from the public on what projects should be included on the list.
The group did not prioritize its recommendations, nor did it tell the IRS it should remove already existing items from the 2008-2009 list. Perry Israel, who has his own law firm in Sacramento and was part of the task force that drafted the letter, said Friday that the stimulus-related items are particularly high priorities because most of the bond provisions in the law sunset at the end of 2010.
NABL asked for guidance on stripping tax credits from tax-credit bonds. Since last June when the farm bill was enacted, issuers of and investors in tax-credit bonds, which give investors a tax credit instead of tax-free interest, have been able to remove the tax credit from the debt and sell it separately. But they are waiting for Treasury guidance.
Federal officials hope stripping will expand the market for tax-credit bonds, billions of dollars of which were authorized by the stimulus law. Treasury officials have said guidance outlining how stripping should be done is a high priority but that the topic is complex and, as a result, guidelines probably will not be released until this fall.
NABL also asked for guidance on the $10 billion of recovery zone economic development bonds and $15 billion of recovery zone exempt facility bonds. The RZEDBs are bonds that give the issuer a federal subsidy equal to 45% of the interest costs, and the RZEFBs are private-activity bonds. The bonds are to be allocated to states based on increases in their unemployment from 2008 to 2009. The states will then make allocations to counties and large cities. Treasury officials had said they planned to issue the guidance by the end of May.
NABL is seeking guidance on how 501(c)(3) organizations are treated under another stimulus provision that encourages banks to buy tax-exempt bonds. The provision lets banks deduct 80% of the cost of buying and carrying the tax-exempt bonds of issuers who sell less than $30 million of bonds a year over the next two years, an increase from the previous $10 million annual issuance limit. In addition to increasing the limit, the provision applies at the borrower level, rather than the issuer level, meaning more borrowers would qualify as "small issuers."
The stimulus law also contains a provision that exempts all muni bonds issued in 2009 and 2010 from both the corporate and individual alternative minimum tax. Refunding bonds issued in those years to refund debt issued from 2004 to 2008 also would be exempt from the AMT under the law. NABL has asked the IRS to confirm that bonds issued in 2008 and 2009 to refund bonds issued between 2004 and 2008 that in turn were used to refund pre-2004 debt also would be AMT-free.
In addition, NABL wants the IRS to look into how opinions offered by bond counsel on Build America Bonds should be handled when it comes to the "direct pay" option. The groundbreaking financial tool allows muni issuers to sell taxable debt and either get a direct cash payment from the federal government or have the government give investors a tax credit.
However, the service's Circular 230, which governs the practice of tax lawyers that come before the IRS, only contains requirements for state and local tax-exempt bond opinions. The bond lawyers are asking for an update of the rules clarifying that they also apply to direct-pay Build America Bonds.
NABL's nonstimulus requests for guidance include final public approval regulations for private activity bond-financed projects. The Treasury released proposed rules in September that would ease and modernize the requirements for municipal issuers holding public hearings for private-activity bond-financed projects required under the Tax Equity and Fiscal Responsibility Act of 1982.
The group also urged that the IRS issue new proposed regulations on solid waste disposal facilities over the next 12 months, as well as final rules on allocation and accounting.
Frederic Ballard Jr., a partner in Ballard Spahr Andrews & Ingersoll LLP, and Scott Lilienthal, a partner in Hogan & Hartson LLP, joined Israel on the task force that drafted the letter.
