WASHINGTON The Treasury Department and Internal Revenue Service should include projects about accountable care organizations and similar arrangements, management contracts, issue price and other topics on their 2015-2016 priority guidance plan, said a committee of the American Bar Association’s taxation section.
The tax-exempt financing committee’s recommendations were included in a paper the ABA taxation section sent to Treasury and IRS officials earlier this week The agencies use their guidance plan to identify and prioritize tax issues that should be dealt with through guidance. The 2015-2016 guidance plan will identify projects that Treasury and the IRS intend to work on from July 1, 2015 to June 30, 2016.
The committee said it would like to see a project that provides additional guidance under section 141 of the Internal Revenue Code concerning accountable care organizations and “arrangements with similar entities and/or health insurance companies entering into ACO-type arrangements with hospitals.” Section 141 includes the tests for when bonds are private-activity bonds.
ACOs are health care organizations where doctors, hospitals and other providers join together to coordinate care. They can include both taxable and tax-exempt participants, including hospitals and other organizations that are issuers or borrowers of tax-exempt bond financings. In October of last year, the IRS issued interim guidance on when certain ACOs will not give rise to private business use that could cause bonds to be taxable PABs. The ABA committee is working on project to provide regulators with comments about ACOs.
The notice that contained interim guidance on ACOs also included a new safe harbor for when management contracts don’t give rise to private-business use, supplementing safe harbors provided under a 1997 revenue procedure.
The tax-exempt financing committee said it would like to see guidance that updates the safe harbors about when management contracts don’t result in private business use. Particularly, it wants the regulators to update the management contract rules as they concern ACOs and public-private partnerships. The committee is working on another paper that will identify for regulators modifications to tax rules that could facilitate P3s.
The committee also wants the agencies to re-propose regulations about the definition of issue price for tax-advantaged bonds. The regulators released proposed issue price rules in September 2013 that municipal bond market groups complained were unworkable. Treasury associate tax legislative counsel John Cross told the committee last month that the issue price rules will be re-proposed and that he hopes it will be soon. The issue price rules that were proposed in 2013 were included in proposed rules that addressed several arbitrage-related topics, and Treasury and the IRS also published proposed arbitrage rules in 2007. The ABA committee said it wants the agencies to finalize the non-issue price regulations on arbitrage investment restrictions.
The committee would also like the regulators to issue final regulations on two topics relating to PABs: allocation and accounting principles and public approval requirements. Allocation and accounting rules were proposed in 2006 and public approval rules were proposed in 2008.
Additionally, the committee is recommending guidance on the definition of a political subdivision for tax-exempt bond purposes. This issue has been a particular concern since the IRS issued a technical advice memorandum in May 2013 arguing that the Village Center Community Development District in Florida is not a political subdivision that can issue tax-exempt bonds because its board does not, and will not, include elected officials.
Last month, the ABA committee sent a paper to Treasury and the IRS urging the TAM to be withdrawn or modified, provide interim guidance and propose rules on the definition of a political subdivision that apply prospectively.
