On September 27, 2017, the Internal Revenue Service (“IRS”) issued proposed regulations (the “Proposed Regulations”) relating to the TEFRA public approval requirements for tax-exempt private activity bonds. The Proposed Regulations would modify and replace the existing regulations (the “Existing Regulations”) and also replace proposed regulations issued in 2008 (the “2008 Proposed Regulations”).
In connection with the issuance of tax-exempt private activity bonds, the public approval requirements of section 147(f) of the Internal Revenue Code (the “Code”) must be satisfied. Generally, both the governmental unit issuing the bonds (or on behalf of which the bonds are issued) (the “Issuer”) and a governmental unit having jurisdiction over the area in which the bond-financed facility is located (a “Host”) must approve the issuance. The Code requires that (1) an applicable elected representative of the governmental unit must approve the bonds after a public hearing for which reasonable public notice was given, or (2) the bonds may be approved by voter referendum of the governmental unit. Below is a brief summary of the Proposed Regulations.
Reasonable Public Notice and Public Hearing. The Proposed Regulations contain new methods for providing public notice. Issuers are permitted to provide public notice through newspaper publication, radio or television broadcast, postings on a governmental unit’s public website, or alternative methods permitted under a general state law. The Proposed Regulations retain the 14-day notice period presumed reasonable under the Existing Regulations rather than the seven-day notice proposed by the 2008 Proposed Regulations. If notice is posted on a website, the issuer must offer an alternative notice method for residents without access to the Internet (such as telephone recordings). With rules that are substantially identical to the Existing Regulations, public hearings must be held in a location that, based on the facts and circumstances, is convenient for residents of the approving governmental unit.
Contents of Notice and Approval. The public notice and approval must contain a description of the “project,” the maximum stated principal amount of the bonds, the name of the user of the project and the location of the project.
Special Rules for mortgage revenue bonds, qualified student loan bonds and certain qualified 501(c)(3) bonds. The Proposed Regulations provide special rules for mortgage revenue bonds, qualified student loan bonds and qualified 501(c)(3) bonds used to finance working capital expenditures. For example, under the Proposed Regulations, no Host approval is required for those financings.
Deviations from the information in the Notice and Approval. As under the Existing Regulations, “insubstantial deviations” from the descriptions of the project and the amount of bonds in the public notice and approval are permitted. In addition, the Proposed Regulations permit a supplemental public approval to cure certain substantial deviations that result from unexpected events or unforeseen changes in circumstances that occur after the issuance of the bonds.
Effective Date. The Proposed Regulations would be effective for public approvals occurring after the date that is 90 days following the publication of final regulations; however, issuers can elect to apply the Proposed Regulations now with respect to any new issuance for which public approval occurs after September 27, 2017.
Public Comments. The IRS requests comments on the Proposed Regulations and a public hearing will be scheduled if requested in writing by any person that timely submits written comments.
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