Tax Exempt Bond Provisions After the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “2010 Tax Relief Act”) was enacted. The 2010 Tax Relief Act extended certain provisions relating to tax exempt bonds, but did not address many others. The following are the provisions that affect most of our clients and friends:

Provisions Extended Through December 31, 2012

  1. School Construction Bonds Exemption From Rebate – School Districts will continue to be 1. permitted to issue up to $15 million of tax exempt bonds in a calendar year and be exempt from rebate. The $15 million limit applies so long as any excess over $5 million (the regular small issuer exemption) is for construction expenditures. This provision expires after 2012.

Provisions Expiring on December 31, 2010

  1. Build America Bonds – the issuer subsidy will expire. Issuers will still be able to issue the tax credit bonds but will no longer receive 35% of the interest expense for bonds issued after December 31, 2010. Several proposals have been made to extend the issuer subsidy in one form or another.
  2. Recovery Zone Economic Development Bonds and Recovery Zone Facilities Bonds – issuers will be unable to issue either category of bonds after December 31, 2010.
  3. Bank Qualification – The $30 million bank qualified limit will revert back to a $10 million limitation on January 1, 2011. An issuer can only issue up to $10 million of tax exempt debt in calendar year 2011 for that debt to be bank qualified. If the issuer expects to issue more than $10 million of tax exempt debt in 2011 then none of the debt can be bank qualified. Only the issuer may designate Bank Qualification; 501(c)(3) entities are no longer permitted to designate Bank Qualification. Also the de minimis rule of 265(b)(7) expires.
  4. Exempt facility bonds issued after December 31, 2010 except for 501(c)(3) and Housing bonds are subject to the Alternative Minimum Tax (“AMT”). In addition, tax exempt interest on bonds issued after December 31, 2010 is subject to the “adjusted current earnings” inclusion for purposes of AMT on entities taxed as corporations for Federal income tax purposes.
  5. Section 144 Small Issue Manufacturing Bonds – Ancillary and subordinate facilities are no longer deemed core manufacturing for bonds issued after December 31, 2010 and thus will be subject to the limitation that no more than 25% of the proceeds of the bonds can be used for such facilities.

It is unlikely that the current Congress will act on any of the expiring provisions. We will keep a watchful eye on the next Congress as many of our clients took advantage of these expiring provisions.

For More Information

For further information or assistance with upcoming projects or compliance programs, please contact Ramiro M. Carbonell at 610.478.2275, Peter T. Edelman at 610.478.2168 or Brian P. Koscelansky at 570.969.5364.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.