IRS guidance provides current refunding clarity

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The Internal Revenue Service has issued first-time guidance for the current refunding of tax credit bonds, disaster recovery bonds and other targeted bonds, a move that bond lawyers said provides some needed clarity about when that debt can be refunded.

The new guidance issued Wednesday under Notice 2019-39 also covers Tribal Economic Development Bonds and direct-pay Build America Bonds.

“There was not necessarily any clear authority to refund those bonds even for a plain vanilla refunding,” Richard Moore, president-elect of the National Association of Bond Lawyers and a tax partner at Orrick Herrington & Sutcliffe in San Francisco, said in an interview.

The bonds covered by the new guidance include what’s sometimes referred to by bond attorneys as “cats and dogs bonds” because they were authorized by Congress on an ad hoc basis outside the core tax provisions of Sections 141 through 150 covering the issuance of tax exempt bonds.

The IRS said examples of targeted bond programs include tax-exempt bonds known as GO Zone Bonds issued in the Gulf Opportunity Zone which was part of the Hurricane Katrina disaster area, tax-exempt bonds issued under the Heartland Disaster Tax Relief Act of 2008, Midwestern and Hurricane Ike Disaster Areas, and tax-exempt exempt facility bonds known as “Recovery Zone Facility Bonds.”

“This clarifies it can be done subject to certain restrictions,” Moore said. “It’s not going to affect a huge number of bonds but if as you are an issuer or an attorney and they are your client’s bonds, they can now be current refunded. This is a good thing.”

The key limitation original money bonds that were authorized under a volume cap cannot be current refunded for more than the original amount.

That means the cost of issuance cannot be incorporated into the current refunding if it is larger than the original issuance.

Moore said the IRS typically issues guidance in the tax exempt bond area only a couple of times a year.

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Tax-exempt bonds Tax-exempt bonds Tax credit bonds Build America Bonds Natural disasters IRS Washington DC