Tax Exempt Bond Provisions Scheduled to Expire December 31, 2010
Several provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”) and of the “Bush Tax Cuts” are set to expire on December 31, 2010, unless Congress acts to extend them. While several proposals have been made, the press suggests that some or all of the following provisions affecting tax exempt bonds will not be extended.
- 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.
- Recovery Zone Economic Development Bonds and Recovery Zone Facilities Bonds – issuers will be unable to issue either category of bonds after December 31, 2010.
- Bank Qualification – The $30 million bank qualified limit will revert back to a $10 million limitation on January 1, 2011. If that is the case, the 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. 501(c)(3) entities will no longer be permitted to designate Bank Qualification. Also the de minimis rule of 265(b)(7) expires.
- Private Activity Bonds – Private Activity 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.
- Section 144 Small Issue Manufacturing Bonds – Ancillary and subordinate facilities will no longer be 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.
- Qualified Public Educational Facilities (Section 142 (a )(13)) – Issuers will not be able to issue this category of bonds after December 31, 2010.
- School Construction Bonds Exemption From Rebate – School Districts are presently able 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. After December 31, 2010, the limitation will be reduced to $10 million from the present $15 million.
We are keeping a watchful eye on Congress as many of our clients have taken advantage of these provisions.
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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.