Regulatory priorities for the Internal Revenue Service and Treasury Department this year and next include proposing guidance on the definition of a political subdivision for tax-exempt, tax-credit and direct-pay bonds, according to plans they recently released.
"On the definition of political subdivision, I'm hopeful that inclusion on the guidance list indicates a willingness to reconsider the analysis that is in the technical advice memorandum," said Scott Lilienthal, a partner at Hogan Lovells LLP and president of the National Association of Bond Lawyers.
He said he hopes they will be able to address this issue relatively quickly because this item needs guidance in the near term.
Including the definition of political subdivision on the priority list for the first time was not surprising to Lilienthal and other bond lawyers.
"I think practitioners expressed concerns that there seemed to be new requirements imposed on new entities," said Linda Schakel, partner with Ballard Spahr LLP. "In the context of a [technical advice memorandum], as a practitioner I would not know how far to take those and apply them to other districts."
In May, the IRS determined that the Village Center Community Development District in central Florida is not a political subdivision that can issue tax-exempt bonds. The adverse determination was published in a TAM in which the IRS found the developer had exclusive control of the Village Center board, which was not accountable to a general electorate and therefore did not meet the definition of a political subdivision.
IRS reached the conclusion after a five-and-a-half-year examination. The CDD wants appeal the TAM to the IRS' Office of Appeals.
The guidance on the definition of a political subdivision is part of the IRS and Treasury 2013 - 2014 priority guidance plan which was released Aug. 9 and includes 324 total projects, nine specifically for tax-exempt bonds.
"The plan represents projects we intend to work on actively during the plan year and does not place any deadline on completion of projects," Mark Mazur, assistant secretary of tax policy at the Treasury Department, Daniel Werfel, acting IRS commissioner and William Wilkins, IRS chief counsel, said when it was issued.
Some projects they said, that were on the 2012 - 2013 priority guidance plan were not included on the 2013- 2014 plan because they are no longer considered priorities for purposes of allocating resources, the agencies said.
Under the plan, the Treasury and IRS also would provide guidance on reallocations of new clean renewable energy bonds under Section 54C. New CREBs are taxable bonds that can be used either as direct-pay or traditional tax-credit bonds. In March the agencies announced they would issue guidance for a new process of allocating unused volume cap authority for new CREBs.
The IRS and Treasury listed guidance under Section 142 to provide temporary relief after a declared disaster as another top priority.
Regulations on arbitrage investment restrictions and rebate overpayment under Section 148 which includes issue price as well as bond reissuance under Section 150 were also on the priority list. They appeared on the 2012-2013 list as well.
The agencies also plan to issue final regulations 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. This item also appeared on last year's priority list. The Treasury last updated proposed regulations for TEFRA on Sept. 8, 2008.
The agencies also released a fourth quarter update to the 2012 - 2013 priority guidance plan, adding 12 new projects. The updated priority guidance plan, also released on Aug. 9, included two new tax-exempt bond projects already completed — notices providing relief for residential rental projects to provide emergency relief because of Hurricane Sandy and severe storms in Oklahoma. The original plan was released Nov. 19, 2012 and included 317 projects.
The agencies also said that three projects were closed without publication.