An American Bar Association panel recommended the Treasury Department and the Internal Revenue Service issue guidance defining issue price and providing safe harbors for determining private use of management contracts for bond-financed facilities as part of its 2013-2014 priority list.
In a July 8 letter to Mark Mazur, assistant secretary of tax policy at the Treasury Department, and William Wilkins, the IRS' chief counsel, the ABA's tax exempt financing committee listed eight recommendations for the agencies to consider. The recommendations on the committee's list are not new and have reappeared for several consecutive years.
"We've been waiting a long time for all of these projects to move forward," said Nancy Lashnits, chair of the tax-exempt financing committee and partner with Steptoe & Johnson PLLC. "They are issues that are important to the bond community and issuers to get some clarity. Issue price, for example, there has been so much controversy and problems over that, issuers really need clarity on that."
Clarifying the definition of issue price has been a long-awaited project for muni market participants. Issue price is key to determining the bond yield for tax purposes. The determination of bond yield has a bearing on whether an issuer of tax-exempt bonds is meeting arbitrage requirements.
Members of Congress and muni market participants have urged the Treasury and IRS on numerous occasions to update 16-year-old safe harbor provisions for private use management contracts, especially now that health care bonds may conflict with health care reform.
We are always hopeful that the IRS will move but it's unclear if these items are imminent and will be finalized, Lashnits added. "Even when they put out proposed regulations they disappear into a black hole," she said.
The committee also recommended final regulations under Section 147 of the Internal Revenue Code on how issuers must provide information and hold public hearings before issuing private activity bonds under the Tax Equity and Fiscal Responsibility Act of 1982 or TEFRA. The Treasury issued updated proposed regulations for TEFRA in 2008.
The committee would like to see guidance with respect to the financing of short-term and long-term working capital deficits. They also would like to see guidance on bond-financing of grants.
The committee recommended guidance on arbitrage rules related to qualified hedge and yield reduction payments as well as record retention requirements for tax-exempt bonds and tax-credit bonds. The record retention issue would include clarity on safe harbor guidance regarding any records required to support the periodic returns that must be filed in the case of Build America Bonds and any other direct-pay tax credit bonds.
Lastly, the committee recommended final regulations on the allocation and accounting provisions of Section 141 of the code, which are for mixed-use financing facilities. The Treasury first proposed regulations in 2006.