WASHINGTON — Bond attorneys are studying a recent Internal Revenue Service ruling that allowed Dallas-Fort Worth International Airport to issue $1 million of bonds that were not subject to the alternative minimum tax.

The ruling focused on whether an airport train and bus system benefited private enterprises or the public, a factor that determines whether the bonds are private-activity bonds and subject to the AMT.

Lawyers said the favorable ruling was helpful in giving guidance to the market on a tricky tax issue and some said it could be used as a precedent for other private-letter rulings dealing with airports.

“People movers with varying designs and configurations are a very common fixture at airports and the principles at work in the ruling may be relevant in other airport contexts as well,” said Milton Wakschlag, partner at Katten Muchin Rosenman LLP.

The IRS issued the PLR in December but it wasn’t publicly released until the end of March. The ruling did not identify any of the parties or the bonds, but Charles Almond and Ben Brooks 3d with Bracewell & Giuliani, which served as co-bond counsel, confirmed the ruling was for DFW.

Following the ruling, DFW issued the triple-A rated debt to finance capital expenditures for the airport’s Skylink train system and the Terminal Link bus system. The Skylink is an automated high-speed train inside a secure section of the airport that connects all five terminals. The Terminal Link is a van service that picks up and drops off passengers in areas located outside of the baggage claim areas of each terminal.

The IRS analyzed two issues in determining that the bonds did not need qualify as PABs.

First, the agency reviewed whether or not the Skylink train system was similar to the Terminal link bus system, or if it should be categorized as hallways and elevators as examples of common areas of the airport.

Second, the IRS looked at whether people in secure areas of a terminal — anything past a security checkpoint — are members of the general public.

In its ruling, the IRS said the train connector “is equally available to all users of the terminals on the same basis,” is not a common area of the terminal, and may be treated as a separate facility for which there is no private business.

The IRS determined the Skylink was similar to the bus system because it was defined as a vehicular transportation system that primarily serves employees and customers rather than airlines and concessions.

“It was designed as a free-standing structure and, except for the boarding areas, is located outside of the terminals. It is more similar to a public transit system serving a central business district than to a hallway or elevator,” the IRS said in the PLR.

“Anyone within the secure area of the terminals is eligible to ride the train connector ... and passengers are members of the general public,” the IRS said. “Therefore, we conclude that the portion of the proceeds of the bonds to be used for expenses related to the train connector will not be used for private business use.”

The IRS ruled that the bonds do not qualify as PABs because more than 10% of the proceeds of the issue would not be used by private entities. Under the tax law, bonds are PABs if more than 10% of the proceeds are used by private parties and more than 10% of the debt service payments are made or secured by private entities.

“We were very appreciative for the thought and care to this letter,” Almond said. He added that there are considerable cost savings for the airport associated with issuing governmental bonds as opposed to PABs. He said the ruling is significant because it makes clear that the general public on the secure side of DFW is still considered to be the general public.

Tom Vander Molen, a partner in Dorsey & Whitney’s tax and public finance group, said that he was not surprised by the ruling, and was comforted that “the IRS took a reasonable position on the common area versus the discrete facility question.”

He said the ruling is consistent with regulations relating to the general public use of an airport parking garage, where passengers who use the facilities are members of the general public.

However, Vander Molen said it was tricky because the train-connector boarding areas are located in the terminals and may only be accessed through them. That raised the question as to whether the boarding areas should be considered common areas of the terminal.

Normally, common areas are allocated to commercial airlines that have gates and other businesses located in the terminal for purposes of deciding whether there is private business use of such common areas, Vander Molen said.

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