WASHINGTON — A tax-exempt bond team that advises the Internal Revenue Service will present it with a report next month on the treatment of management contracts.
Meanwhile, the IRS announced that Floyd Newton, a partner at King & Spalding in Atlanta, will be joining the three-member team to replace Sue Painter, system director and chief investment officer/treasurer of Providence Health & Services in Seattle.
The reports will be presented at a meeting of the Advisory Committee on Tax-Exempt and Government Entities, or ACT, on June 11 at 9:30 a.m. at IRS headquarters in Washington, D.C., the IRS announced Wednesday.
The ACT consists of external stakeholders that advise the IRS on operational policy and procedural improvements. At the meeting, the five project teams — tax-exempt bonds; employee retirement plans; exempt organizations; federal, state and local governments; and Indian tribal governments — will present reports that make recommendations about what the IRS should do in certain areas.
The tax-exempt bond team's report is called "Today's Reality: The Increased Reliance on the 'Facts and Circumstances' Test in Analyzing Management Contracts for Private Business Use."
Under federal tax law, projects financed with governmental and 501(c)(3) tax-exempt bonds generally are subject to restrictions on the amount of private-business use occurring in them.
IRS revenue procedure 97-13 provides some safe harbors for when a management contract won't create private business use. The safe harbors generally put limits on the length of a contract and the methodology used to determine compensation under the contract. However, if none of the safe harbors are met, issuers have to analyze the facts and circumstances of the financing to figure out whether there's private business use.
The issues relating to management contracts are of particular concern in the health care sector because of provisions of President Obama's health-care reform law.
The law, the Patient Protection and Affordable Care Act, established that hospitals could enter into Accountable Care Organizations. ACOs are health care organizations where doctors, hospitals and other providers can work together to coordinate care for Medicare patients. They can include both taxable and tax-exempt participants, including hospitals that are issuers or borrowers in muni financings. It is unclear whether hospitals can join together with private parties in ACOs without exceeding private business use limits.
The tax-exempt bonds team of the ACT for 2013-2014, besides Painter, included Lorraine Tyson, a partner at Pugh, Jones & Johnson in Chicago, Katherine Newell, director of risk management for the New Jersey Educational Facilities Authority.
As Painter's replacement, Newton will serve a two-year term. He told The Bond Buyer that he believes there's a need for better communication between those who are involved in tax-exempt bond transactions and the IRS. "I think I can improve that," he said.
Newton has more than 30 years of experience with munis. He's served as bond counsel, borrower's counsel, underwriter's counsel and special tax counsel, and has worked on transactions relating to financings in the health care, higher education, nonprofit, utilities and transportation areas. He also has represented issuers, conduit borrowers and underwriters before the IRS and the Securities and Exchange Commission, according to a press release from his firm.
Newton was NABL president from 1998 to 1999 and served as the group's board of directors from 1994 to 2000. He is still a member of NABL, as well as the American Bar Association's tax-exempt financing committee.
