November 05, 2017
Public Finance Alert
Public Finance Alert
The House of Representatives recently released its tax reform proposal, which could make sweeping changes to many areas of the tax law, including significant limitations on issuers of tax-exempt bonds. This alert discusses what state and local governments and other entities need to know about the rules and changes.
On November 2, 2017, the House Ways & Means Committee released its tax reform proposal, H.R. 1, the “Tax Cuts and Jobs Act.” If enacted, the bill would make sweeping changes to many areas of the tax law, including dramatically reducing the ability of state and local governments to issue tax-exempt bonds by eliminating advance refundings and all private activity bonds. The changes would apply to all bonds issued after December 31, 2017, with one notable exception for stadium financings that would be effective immediately. The bill contains no transition rules allowing for refundings of bonds issued prior to the effective dates of the rules contained in the bill.
The bill retains the ability to issue “governmental” bonds on a tax-exempt basis, but eliminates all private activity bonds that can currently be issued on a tax-exempt basis. More specifically, the following categories of bonds would be repealed:
While the bill retains the ability to issue governmental bonds, it makes some significant changes that impact how those bonds are issued:
The bill eliminates direct-pay tax credit bonds for any category of bonds that can still be issued (e.g., new clean renewable energy bonds for which the IRS is currently taking applications from public power providers under Notice 2017-66). Issuers would continue to receive payments for tax credit bonds already issued, but no new bonds could be issued after December 31, 2017.
Notably, the bill does not contain any transitional relief that would allow for advance refundings of governmental bonds issued prior to January 1, 2018; refundings of private activity bonds or tax credit bonds issued before January 1, 2018; financing after 2017 of private activity bond projects that are under construction or otherwise in progress; or refundings of stadium bonds issued before November 3, 2017.
The Ways & Means Committee is expected to debate the bill starting Monday, November 6, and then vote to report the bill to the full House. The Senate Finance Committee is considering its own tax reform legislation that is expected to be released in mid-November.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.