WASHINGTON — The Treasury Department and Internal Revenue Service have included two new bond-related projects on their priority guidance plan for 2015-2016.
One is to issue guidance about the remedial actions that an issuer or borrower can take to avoid tax problems when there's a change of use to a bond-financed or tax-credit project. The guidance would apply to projects with tax-exempt, tax-credit and direct-pay bonds.
The other project is to provide some guidance as to whether bonds, in certain situations, would be considered to be reissued and subject to the latest tax requirements.
These are two of seven projects on the Treasury and IRS recently released priority list for 2015-2015.
John Cross, Treasury's associate tax legislative counsel, had told members of an American Bar Association's tax-exempt financing committee meeting here in May that the remedial action project might be added to the priority list. He said Treasury officials have received a lot of comments on this topic.
Last year, the National Association of Water Companies sent Treasury a letter asking for the remedial action rules to be clarified so that state and local governments could ensure that the tax-exempt bonds they use to finance water projects will not become taxable if they enter into public-private partnerships .
The NAWC said that if a municipality issued governmental bonds to finance a water facility and then later entered into a long-term lease, concession or operating agreement with a private company, the lease or agreement could create private business use. As a result, the bonds could become taxable private-activity bonds unless the issuer took one of three permissible remedial actions -- two of which would not be practical for issuers and a third that would not clearly apply to P3s.
The reissuance guidance has been sought by the National Association of Bond Lawyers, said Matthias Edrich, a tax attorney at Kutak Rock and head of NABL's tax committee. "The bond community has been interested in guidance on reissuance for a while as it relates to bank private placements and workout situations," he said.
In private placements, lawyers want to avoid a reissuance that could stem from special provisions in documents that detail when a bondholder can do such things as tender the bonds or change the interest rates. In workouts, lawyers want to avoid a reissuance if certain actions are taken, such as the maturities of the bonds are extended, interest rates are reduced or debt service payments are foregone.
The other projects on the priority list were also on the list last year. One, added in 2013, is guidance on the definition of a political subdivision for tax-exempt, tax-credit and direct-pay bonds. This project stems from the Internal Revenue Service's long-time dispute with the Village Center Community Development District over whether it is a political subdivision that can issue tax-exempt bonds.
Another is regulations on allocation and accounting principles. Rules were proposed on Sept. 26, 2006.
The agencies also want to update Revenue Procedure 97-13, relating to conditions under which management contracts do not result in private business use. This project is focused on part in ensuring the management contract rules do not thwart the creation of Accountable Care Organizations under the Patient Protection and Affordable Care Act.
Two other projects are to finalize rules proposed many years ago. One set of rules are public approval requirements for private-activity bonds that were proposed in September 2008. The other set of rules is on arbitrage investment restrictions, which were proposed in September 2007, September 2013 and June 2015.
