WASHINGTON — The Internal Revenue Service finalized its regulations for tax-exempt financing of solid-waste disposal facilities, adopting most of the recommendations proposed by attorneys last year, market participants said Thursday.

The regulations complete an almost 10-year process that began in 2002. The final rules, which take effect for bonds sold on or after Oct. 18, affirm the IRS’ pro-recycling stance established in 2009 and ease some restrictions for agriculture waste by-products, bond lawyers agreed.

The IRS adopted “significant comments that we had,” said Charles Henck, a partner at Ballard Spahr LLP here, who helped draft the comments on the rules that were submitted by the National Association of Bond Lawyers last year. “There were a number of areas in the proposal where, as a technical matter, the operation of the rules did not seem consistent with the drafters’ intent,” he said.

In the final rules, the IRS eliminated a controversial requirement that had limited residual waste to no more than 5% of the solid waste that could be processed at a tax-exempt bond-financed disposal facility. By eliminating the rule, tax-exempt bonds can be issued to finance facilities that process certain residual waste materials, like tree bark or almond nut shells.

The elimination of the 5% rule is “very significant and very favorable,” said Jeremy Spector, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in New York who helped draft the comments the American Bar Association’s tax-exempt financing committee submitted to the IRS on the proposed rules last year.

The IRS also clarified a requirement for “dual use” electricity-producing and recycling waste facilities. The issue comes up frequently for incinerators that burn both trash and a fuel, such as coal, for electricity. A facility that burns 65% or more of solid waste per year can be financed with tax-exempt bonds. Under the proposed rules, if the facility dropped below the 65% threshold for solid waste in any one year, it would no longer meet the test and the bonds could be deemed taxable unless redeemed.

The rule had been considered “fairly punitive,” Henck said. But the final rules give facilities a ramp-up period to be able to get to 65% threshold and facility operators have two years to correct any problem.

The IRS rule “does not solve the issue completely, but I think it is certainly a step in the right direction,” Henck said.

However, the IRS did not accept all of the lawyers’ recommendations, particularly in the area of hazardous and radioactive waste. Attorneys had hoped that hazardous and radioactive waste would be considered solid waste. The IRS disagreed, and did not permit that in the final rules.

“I continue to believe that the [IRS] reading of the legislation is incorrect,” Henck said.

In a change benefitting the agriculture sector, the IRS expanded the definition of solid waste to include animal refuse. Spector said it was previously unclear if animal waste from farming and livestock operations could be considered solid waste. The change “is an important clarification and will be of significant value to the livestock producers,” he said.

The IRS also affirmed a stance laid out in the 2009 regulations for recycling plants. The final rules continue to leave out the contentious “no-value” test, under which solid waste was considered to be property with no market value. The definition was troubling for recyclers who profited by processing solid waste that was considered by the IRS to give it value.

In the 1990s, the IRS opened several audits of recycling facility bonds and challenged their tax-exempt status through the no-value test rule. The audits brought considerable political controversy to the IRS.

“Basically, [the IRS] was taking a very anti-recycling position,” Henck said.

The IRS’ new regulations “are pro-recycling.” It is “a huge positive, and is viewed by the market as such,” he said.

Issuers may elect to apply the rules to bonds issued before Oct. 18, the IRS said. The rules do not need to apply to current refunding bonds if the weighted average maturity of the refunding bonds is not longer than the bonds’ current maturity, the agency said.

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