Overview of Final Private Activity Bond Tax Regulations

By John, Cross | Government Finance Review, August 1997 | Go to article overview

Overview of Final Private Activity Bond Tax Regulations


John, Cross, Government Finance Review


Internal Revenue Code Final Regulations, which broadly affect governmental tax-exempt bonds, focus on the level of permissible private business involvement in a bond issue.

Introduction

This article provides an overview of selected aspects of the recent final private activity bond tax regulations under Section 141 of the Internal Revenue Code (the "Final PAB Regulations").(1) These important rules broadly affect governmental tax-exempt bonds. They focus on the level of permissible private business involvement in a bond issue. Bonds are classified as private activity bonds if they meet a two-part 10 percent private business use test and private payment or security test, or a separate private loan test. Except for tax-exempt financing for certain specific private facilities (e.g., certain exempt facilities, housing mortgages, small issue manufacturing facilities, and certain 501(c)(3) nonprofit organization facilities), tax-exempt bonds generally may be issued only for governmental purposes and are taxable if the level of private business involvement causes them to be private activity bonds. Thus, the goal typically is to fail to be a private activity bond.

Effective Dates and Unfinished Parts. In general, the Final PAB Regulations apply prospectively to bonds issued on or after May 16, 1997. An issuer may elect to apply the Final PAB Regulations in whole, but generally not in part, to outstanding bonds issued earlier. An issuer also may elect to apply certain specific provisions individually to earlier outstanding bond issues, including those on permitted private management contracts, change of use remedies, and research agreements.

Certain parts of the Proposed PAB Regulations were not finalized, including those for output contracts (e.g., electric power contracts) and mixed-use facility allocations. These reserved parts are understood to be well underway.

Selected Highlights. Overall, the Final PAB Regulations adopt more workable standards than previous guidance in many areas. Selected positive highlights include

* more flexible standards for testing private business use, based on ownership, leasing, special legal entitlements to general public use property (e.g., roads), and special economic benefits from property unavailable for general public use (e.g., prisons);

* consideration of private management contracts under all the facts and circumstances, together with broad new safe harbors under Rev. Proc. 97-13 which permit qualified private management contracts for up to 15-year terms at 95 percent fixed fees or up to 10-year terms at 80 percent fixed fees (and 20-year terms in each case for public utility property);

* a broader general public use exception to private business use which focuses on intended and actual 'reasonable availability for use by "natural persons" (regulation code word for human beings);

* a more sensible measure of private business use which generally looks at average use over the entire term of the bond issue;

* more flexible treatment of facilities that can qualify for a general public use exception, including favorable examples for certain airport runways, airport parking, and isolated road facilities;

* more workable treatment of tax assessment bonds, including deletion of certain proposed rules which negatively impacted developer agreements in these financings; and

* change of use remedies which are more workable in certain respects and which permit certain eligible bonds with up to 10 [degrees]-year call provisions to be defeased without further action such as tender offers.

On the other hand, however, the Final PAB Regulations are notable for the sheer number of rules and their complexity. Selected negative highlights include

* a more restrictive private payment or security test, which broadly counts certain payments on tax-exempt bond-financed property during periods of private business use even if not made by a private business user;

* some harsh eligibility conditions on otherwise favorable special rules (e.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Overview of Final Private Activity Bond Tax Regulations
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.