§1394 — Tax-exempt enterprise zone facility bonds
1 citing cases
Statute Text — 26 U.S.C. §1394
For purposes of part IV of subchapter B of this chapter (relating to tax exemption requirements for State and local bonds), the term “exempt facility bond” includes any bond issued as part of an issue 95 percent or more of the net proceeds (as defined in section 150(a)(3)) of which are to be used to provide any enterprise zone facility.
For purposes of this section—
The term “enterprise zone facility” means any qualified zone property the principal user of which is an enterprise zone business, and any land which is functionally related and subordinate to such property.
The term “qualified zone property” has the meaning given such term by section 1397D; except that—
the references to empowerment zones shall be treated as including references to enterprise communities, and
section 1397D(a)(2) shall be applied by substituting “an amount equal to 15 percent of the adjusted basis” for “an amount equal to the adjusted basis”.
Except as modified in this paragraph, the term “enterprise zone business” has the meaning given such term by section 1397C.
In applying section 1397C for purposes of this section—
Except as provided in subclause (II), references in section 1397C to empowerment zones shall be treated as including references to enterprise communities.
For purposes of subsections (b)(6) and (c)(5) of section 1397C, an employee shall be treated as a resident of an empowerment zone if such employee is a resident of an empowerment zone, an enterprise community, or a qualified low-income community within an applicable nominating jurisdiction.
A business shall not fail to be treated as an enterprise zone business during the startup period if—
as of the beginning of the startup period, it is reasonably expected that such business will be an enterprise zone business (as defined in section 1397C as modified by this paragraph) at the end of such period, and
such business makes bona fide efforts to be such a business.
A business shall not fail to be treated as an enterprise zone business for any taxable year beginning after the testing period by reason of failing to meet any requirement of subsection (b) or (c) of section 1397C if at least 35 percent of the employees of such business for such year are residents of an empowerment zone, an enterprise community, or a qualified low-income community within an applicable nominating jurisdiction. The preceding sentence shall not apply to any business which is not a qualified business by reason of paragraph (1), (4), or (5) of section 1397C(d).
For purposes of subparagraph (B)—
The term “qualified low-income community” means any population census tract if—
the poverty rate for such tract is at least 20 percent, or
the median family income for such tract does not exceed 80 percent of statewide median family income (or, in the case of a tract located within a metropolitan area, metropolitan area median family income if greater).
The Secretary shall prescribe regulations under which 1 or more targeted populations (within the meaning of section 103(20) of the Riegle Community Development and Regulatory Improvement Act of 1994) may be treated as qualified low-income communities.
In the case of an area which is not tracted for population census tracts, the equivalent county divisions (as defined by the Bureau of the Census for purposes of defining poverty areas) shall be used for purposes of determining poverty rates and median family income.
In the case of a population census tract located within a high migration rural county, clause (i)(II) shall be applied to areas not located within a metropolitan area by substituting “85 percent” for “80 percent”.
For purposes of this clause, the term “high migration rural county” means any county which, during the 20-year period ending with the year in which the most recent census was conducted, has a net out-migration of inhabitants from the county of at least 10 percent of the population of the county at the beginning of such period.
Subclause (II) shall be applied using possessionwide median family income in the case of census tracts located within a possession of the United States.
For purposes of subparagraph (B)—
The term “startup period” means, with respect to any property being provided for any business, the period before the first taxable year beginning more than 2 years after the later of—
the date of issuance of the issue providing such property, or
the date such property is first placed in service after such issuance (or, if earlier, the date which is 3 years after the date described in subclause (I)).
The term “testing period” means the first 3 taxable years beginning after the startup period.
The term “applicable nominating jurisdiction” means, with respect to any empowerment zone or enterprise community, any local government that nominated such community for designation under section 1391.
The term “enterprise zone business” includes any trades or businesses which would qualify as an enterprise zone business (determined after the modifications of subparagraph (B)) if such trades or businesses were separately incorporated.
Subsection (a) shall not apply to any issue if the aggregate amount of outstanding enterprise zone facility bonds allocable to any person (taking into account such issue) exceeds—
$3,000,000 with respect to any 1 empowerment zone or enterprise community, or
$20,000,000 with respect to all empowerment zones and enterprise communities.
For purposes of paragraph (1), the aggregate amount of outstanding enterprise zone facility bonds allocable to any person shall be determined under rules similar to the rules of section 144(a)(10), taking into account only bonds to which subsection (a) applies.
The requirements of sections 147(c)(1)(A) and 147(d) shall not apply to any bond described in subsection (a).
An issue which fails to meet 1 or more of the requirements of subsections (a) and (b) shall be treated as meeting such requirements if—
the issuer and any principal user in good faith attempted to meet such requirements, and
any failure to meet such requirements is corrected within a reasonable period after such failure is first discovered.
No deduction shall be allowed under this chapter for interest on any financing provided from any bond to which subsection (a) applies with respect to any facility to the extent such interest accrues during the period beginning on the first day of the calendar year which includes the date on which—
substantially all of the facility with respect to which the financing was provided ceases to be used in an empowerment zone or enterprise community, or
the principal user of such facility ceases to be an enterprise zone business (as defined in subsection (b)).
Paragraphs (1) and (2) shall not apply solely by reason of the termination or revocation of a designation as an empowerment zone or an enterprise community.
Paragraphs (1) and (2) shall not apply to any cessation resulting from bankruptcy.
In the case of an empowerment zone facility bond—
such bond shall not be treated as a private activity bond for purposes of section 146, and
subsection (c) of this section shall not apply.
Paragraph (1) shall apply to an empowerment zone facility bond only if such bond is designated for purposes of this subsection by the local government which nominated the area to which such bond relates.
The aggregate face amount of bonds which may be designated under subparagraph (A) with respect to any empowerment zone shall not exceed—
$60,000,000 if such zone is in a rural area,
$130,000,000 if such zone is in an urban area and the zone has a population of less than 100,000, and
$230,000,000 if such zone is in an urban area and the zone has a population of at least 100,000.
Bonds to which paragraph (1) applies shall not be taken into account in applying the limitation of subsection (c) to other bonds.
In the case of a refunding (or series of refundings) of a bond designated under this paragraph, the refunding obligation shall be treated as designated under this paragraph (and shall not be taken into account in applying subparagraph (B)) if—
the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
the refunded bond is redeemed not later than 90 days after the date of issuance of the refunding bond.
For purposes of this subsection, the term “empowerment zone facility bond” means any bond which would be described in subsection (a) if—
in the case of obligations issued before
January 1, 2002
, only empowerment zones designated under section 1391(g) were taken into account under sections 1397C and 1397D, and
in the case of obligations issued after
December 31, 2001
, all empowerment zones (other than the District of Columbia Enterprise Zone) were taken into account under sections 1397C and 1397D.
Treasury Regulations
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Treas. Reg. §1.1394-0Table of contents
This section lists the major paragraph headings contained in § 1.1394-1.
(a) Scope.
(b) Period of compliance.
(1) In general.
(2) Compliance after an issue is retired.
(3) Deemed compliance.
(c) Special rules for requirements of sections 1397B and 1397C.
(1) Start of compliance period.
(2) Compliance period for certain prohibited activities.
(3) Minimum compliance period.
(4) Initial testing date.
(d) Testing on an average basis.
(e) Resident employee requirements.
(1) Determination of employee status.
(2) Employee treated as zone resident.
(3) Resident employee percentage.
(f) Application to pooled financing bond and loan recycling programs.
(g) Limitation on amount of bonds.
(1) Determination of outstanding amount.
(2) Pooled financing bond programs.
(h) Original use requirement for purposes of qualified zone property.
(i) Land.
(j) Principal user.
(1) In general.
(2) Rental of real property.
(3) Pooled financing bond program.
(k) Treatment as separately incorporated business.
(l) Substantially all.
(m) Application of sections 142 and 146 through 150.
(1) In general.
(2) Maturity limitation.
(3) Volume cap.
(4) Remedial actions.
(n) Continuing compliance and change of use penalties.
(1) In general.
(2) Coordination with deemed compliance provisions.
(3) Application to pooled financing bond and loan recycling programs.
(4) Section 150(b)(4) inapplicable.
(o) Refunding bonds.
(1) In general.
(2) Maturity limitation.
(p) Examples.
(q) Effective dates.
(1) In general.
(2) Elective retroactive application in whole.
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Treas. Reg. §1.1394-0(a)Scope.
Scope.
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Treas. Reg. §1.1394-0(b)Period of compliance.
Period of compliance.
(1) In general.
(2) Compliance after an issue is retired.
(3) Deemed compliance.
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Treas. Reg. §1.1394-0(c)Special rules for requirements of sections 1397B and 1397C.
Special rules for requirements of sections 1397B and 1397C.
(1) Start of compliance period.
(2) Compliance period for certain prohibited activities.
(3) Minimum compliance period.
(4) Initial testing date.
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Treas. Reg. §1.1394-0(d)Testing on an average basis.
Testing on an average basis.
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Treas. Reg. §1.1394-0(e)Resident employee requirements.
Resident employee requirements.
(1) Determination of employee status.
(2) Employee treated as zone resident.
(3) Resident employee percentage.
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Treas. Reg. §1.1394-0(f)Application to pooled financing bond and loan recycling programs.
Application to pooled financing bond and loan recycling programs.
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Treas. Reg. §1.1394-0(g)Limitation on amount of bonds.
Limitation on amount of bonds.
(1) Determination of outstanding amount.
(2) Pooled financing bond programs.
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Treas. Reg. §1.1394-0(h)Original use requirement for purposes of qualified zone property.
Original use requirement for purposes of qualified zone property.
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Treas. Reg. §1.1394-0(i)Land.
Land.
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Treas. Reg. §1.1394-0(j)Principal user.
Principal user.
(1) In general.
(2) Rental of real property.
(3) Pooled financing bond program.
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Treas. Reg. §1.1394-0(k)Treatment as separately incorporated business.
Treatment as separately incorporated business.
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Treas. Reg. §1.1394-0(l)Substantially all.
Substantially all.
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Treas. Reg. §1.1394-0(m)Application of sections 142 and 146 through 150.
Application of sections 142 and 146 through 150.
(1) In general.
(2) Maturity limitation.
(3) Volume cap.
(4) Remedial actions.
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Treas. Reg. §1.1394-0(n)Continuing compliance and change of use penalties.
Continuing compliance and change of use penalties.
(1) In general.
(2) Coordination with deemed compliance provisions.
(3) Application to pooled financing bond and loan recycling programs.
(4) Section 150(b)(4) inapplicable.
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Treas. Reg. §1.1394-0(o)Refunding bonds.
Refunding bonds.
(1) In general.
(2) Maturity limitation.
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Treas. Reg. §1.1394-0(p)Examples.
Examples.
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Treas. Reg. §1.1394-0(q)Effective dates.
Effective dates.
(1) In general.
(2) Elective retroactive application in whole.
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Treas. Reg. §1.1394-1Enterprise zone facility bonds
(a) Scope. This section contains rules relating to tax-exempt bonds under section 1394 (enterprise zone facility bonds) to provide enterprise zone facilities in both empowerment zones and enterprise communities (zones). See sections 1394, 1397B, and 1397C for other rules and definitions.
(b) Period of compliance—(1) In general. Except as provided in paragraphs (b)(2) and (c) of this section, the requirements under sections 1394 (a) and (b) applicable to enterprise zone facility bonds must be complied with throughout the greater of the following—
(i) The remainder of the period during which the zone designation is in effect under section 1391 (zone designation period); and
(ii) The period that ends on the weighted average maturity date of the enterprise zone facility bonds.
(2) Compliance after an issue is retired. Except as provided in paragraph (c)(3) of this section, the requirements applicable to enterprise zone facility bonds do not apply to an issue after the date on which no enterprise zone facility bonds of the issue are outstanding.
(3) Deemed compliance—(i) General rule. An issue is deemed to comply with the requirements of sections 1394 (a) and (b) if—
(A) The issuer and the principal user in good faith attempt to meet the requirements of sections 1394 (a) and (b) throughout the period of compliance required under this section; and
(B) Any failure to meet these requirements is corrected within a one-year period after the failure is first discovered.
(ii) Exception. The provisions of paragraph (b)(3)(i) of this section do not apply to the requirements of section 1397B(d)(5)(A) (relating to certain prohibited business activities).
(iii) Good faith. In order to satisfy the good faith requirement of paragraph (b)(3)(i)(A) of this section, the principal user must at least annually demonstrate to the issuer the principal user's monitoring of compliance with the requirements of sections 1394 (a) and (b).
(c) Special rules for requirements of sections 1397B and 1397C—(1) Start of compliance period. Except as provided in paragraph (c)(2) of this section, the requirements of sections 1397B (relating to qualification as an enterprise zone business) and 1397C (relating to satisfaction of the rules for qualified zone property) do not apply prior to the initial testing date (as defined in paragraph (c)(4) of this section) if—
(i) The issuer and the principal user reasonably expect on the issue date of the enterprise zone facility bonds that those requirements will be met by the principal user on or before the initial testing date; and
(ii) The issuer and the principal user exercise due diligence to meet those requirements prior to the initial testing date.
(2) Compliance period for certain prohibited activities. The requirements of section 1397B(d)(5)(A) (relating to certain prohibited business activities) must be complied with throughout the term of the enterprise zone facility bonds.
(3) Minimum compliance period. The requirements of sections 1397B (b) or (c) and 1397C must be satisfied for a continuous period of at least three years after the initial testing date, notwithstanding that—
(i) The period of compliance required under paragraph (b)(1) of this section expires before the end of the three-year period; or
(ii) The enterprise zone facility bonds are retired before the end of the three-year period.
(4) Initial testing date—(i) In general. Except as otherwise provided in paragraph (c)(4)(ii) of this section, the initial testing date is the date that is 18 months after the later of the issue date of the enterprise zone facility bonds or the date on which the financed property is placed in service; provided, however, it is not later than—
(A) Three years after the issue date; or
(B) Five years after the issue date, if the issue finances a construction project for which both the issuer and a licensed architect or engineer certify on or before the issue date of the enterprise zone facility bonds that more than three years after the issue date is necessary to complete construction of the project.
(ii) Alternative initial testing date. If the issuer identifies as the initial testing date a date after the issue date of the enterprise zone facility bonds and prior to the initial testing date that would have been determined under paragraph (c)(4)(i) of this section, that earlier date is treated as the initial testing date.
(d) Testing on an average basis. Compliance with each of the requirements of section 1397B (b) or (c) is tested each taxable year. Compliance with any of the requirements may be tested on an average basis, taking into account up to four immediately preceding taxable years plus the current taxable year. The earliest taxable year that may be taken into account for purposes of the preceding sentence is the taxable year that includes the initial testing date. A taxable year is disregarded if the part of the taxable year that falls in a required compliance period does not exceed 90 days.
(e) Resident employee requirements—(1) Determination of employee status. For purposes of the requirement of section 1397B (b)(6) or (c)(5) that at least 35 percent of the employees are residents of the zone, the issuer and the principal user may rely on a certification, signed under penalties of perjury by the employee, provided—
(i) The certification provides to the principal user the address of the employee's principal residence;
(ii) The employee is required by the certification to notify the principal user of a change of the employee's principal residence; and
(iii) Neither the issuer nor the principal user has actual knowledge that the principal residence set forth in the certification is not the employee's principal residence.
(2) Employee treated as zone resident. If an issue fails to comply with the requirement of section 1397B (b)(6) or (c)(5) because an employee who initially resided in the zone moves out of the zone, that employee is treated as still residing in the zone if—
(i) That employee was a bona fide resident of the zone at the time of the certification described in paragraph (e)(1) of this section;
(ii) That employee continues to perform services for the principal user in an enterprise zone business and substantially all of those services are performed in the zone; and
(iii) A resident of the zone meeting the requirements of section 1397B (b)(5) or (c)(4) is hired by the principal user for the next available comparable (or lesser) position.
(3) Resident employee percentage. For purposes of meeting the requirement of section 1397B (b)(6) or (c)(5) that at least 35 percent of the employees of an enterprise zone business are residents of a zone, paragraphs (e)(3) (i) and (ii) of this section apply.
(i) The term employee includes a self-employed individual within the meaning of section 401(c)(1).
(ii) The resident employee percentage is determined on any reasonable basis consistently applied throughout the period of compliance required under this section. The per-employee fraction (as defined in paragraph (e)(3)(ii)(A) of this section) or the employee actual work hour fraction (as defined in paragraph (e)(3)(ii)(B) of this section) are both reasonable methods.
(A) The term per-employee fraction means the fraction, the numerator of which is, during the taxable year, the number of employees who work at least 15 hours a week for the principal user, who reside in the zone, and who are employed for at least 90 days, and the denominator of which is, during the same taxable year, the aggregate number of all employees who work at least 15 hours a week for the principal user and who are employed for at least 90 days.
(B) The term employee actual work hour fraction means the fraction, the numerator of which is the aggregate total actual hours of work for the principal user of employees who reside in the zone during a taxable year, and the denominator of which is the aggregate total actual hours of work for the principal user of all employees during the same taxable year.
(f) Application to pooled financing bond and loan recycling programs. In the case of a pooled financing bond program described in paragraph (g)(2) of this section or a loan recycling program described in paragraph (m)(2)(ii) of this section, the requirements of paragraphs (b) through (e) of this section apply on a loan-by-loan basis. See also paragraphs (g)(2) (relating to limitation on amount of bonds), (m)(2) (relating to maturity limitations), (m)(3) (relating to volume cap), and (m)(4) (relating to remedial actions) of this section.
(g) Limitation on amount of bonds—(1) Determination of outstanding amount. Whether an issue satisfies the requirements of section 1394(c) (relating to the $3 million and $20 million aggregate limitations on the amount of outstanding enterprise zone facility bonds) is determined as of the issue date of that issue, based on the issue price of that issue and the adjusted issue price of outstanding enterprise zone facility bonds. Amounts of outstanding enterprise zone facility bonds allocable to any entity are determined under rules contained in section 144(a)(10)(C) and the underlying regulations. Thus, the definition of principal user for purposes of section 1394(c) is different from the definition of principal user for purposes of paragraph (j) of this section.
(2) Pooled financing bond programs—(i) In general. The limitations of section 1394(c) for an issue for a pooled financing bond program are determined with regard to the amount of the actual loans to enterprise zone businesses rather than the amount lent to intermediary lenders as defined in paragraph (g)(2)(ii) of this section. This paragraph (g)(2) applies only to the extent the proceeds of those enterprise zone facility bonds are loaned to one or more enterprise zone businesses within 42 months of the issue date of the enterprise zone facility bonds or are used to redeem enterprise zone facility bonds of the issue within that 42-month period.
(ii) Pooled financing bond program defined. For purposes of this section, a pooled financing bond program is a program in which the issuer of enterprise zone facility bonds, in order to provide loans to enterprise zone businesses, lends the proceeds of the enterprise zone facility bonds to a bank or similar intermediary (intermediary lender) which must then relend the proceeds to two or more enterprise zone businesses.
(h) Original use requirement for purposes of qualified zone property. In general, for purposes of section 1397C(a)(1)(B), the term original use means the first use to which the property is put within the zone. For purposes of section 1394, if property is vacant for at least a one-year period including the date of zone designation, use prior to that period is disregarded for purposes of determining original use. For this purpose, de minimis incidental uses of property, such as renting the side of a building for a billboard, are disregarded.
(i) Land. The determination of whether land is functionally related and subordinate to qualified zone property is made in a manner consistent with the rules for exempt facilities under section 142.
(j) Principal user—(1) In general. Except as provided in paragraph (j)(2) of this section, the term principal user means the owner of financed property.
(2) Rental of real property—(i) A lessee as the principal user. If an owner of real property financed with enterprise zone facility bonds is not an enterprise zone business within the meaning of section 1397B, but the rental of the property is a qualified business within the meaning of section 1397B(d)(2), the term principal user for purposes of sections 1394 (b) and (e) means the lessee or lessees.
(ii) Allocation of enterprise zone facility bonds. If a lessee is the principal user of real property under paragraph (j)(2)(i) of this section, then proceeds of enterprise zone facility bonds may be allocated to expenditures for real property only to the extent of the property allocable to the lessee's leased space, including expenditures for common areas.
(3) Pooled financing bond program. An intermediary lender in a pooled financing bond program described in paragraph (g)(2) of this section is not treated as the principal user.
(k) Treatment as separately incorporated business. For purposes of section 1394(b)(3)(B), a trade or business may be treated as separately incorporated if allocations of income and activities attributable to the business conducted within the zone are made using a reasonable allocation method and if that trade or business has evidence of those allocations sufficient to establish compliance with the requirements of paragraphs (b) through (f) of this section. Whether an allocation method is reasonable will depend upon the facts and circumstances. An allocation method will not be considered to be reasonable unless the allocation method is applied consistently by the trade or business and is consistent with the purposes of section 1394.
(l) Substantially all. For purposes of sections 1397B and 1397C(a), the term substantially all means 85 percent.
(m) Application of sections 142 and 146 through 150—(1) In general. Except as provided in this paragraph (m), enterprise zone facility bonds are treated as exempt facility bonds that are described in section 142(a), and all regulations generally applicable to exempt facility bonds apply to enterprise zone facility bonds. For this purpose, enterprise zone businesses are treated as meeting the public use requirement. Sections 147(c)(1)(A) (relating to limitations on financing the acquisition of land), 147(d) (relating to financing the acquisition of existing property), and 142(b)(2) (relating to limitations on financing office space) do not apply to enterprise zone facility bonds. See also paragraph (n)(4) of this section.
(2) Maturity limitation—(i) Requirements. An issue of enterprise zone facility bonds, the proceeds of which are to be used as part of a loan recycling program, satisfies the requirements of section 147(b) if—
(A) Each loan satisfies the requirements of section 147(b) (determined by treating each separate loan as a separate issue); and
(B) The term of the issue does not exceed 30 years.
(ii) Loan recycling program defined. A loan recycling program is a program in which—
(A) The issuer reasonably expects as of the issue date of the enterprise zone facility bonds that loan repayments from principal users will be used to make additional loans during the zone designation period;
(B) Repayments of principal on loans (including prepayments) received during the zone designation period are used within six months of the date of receipt either to make new loans to enterprise zone businesses or to redeem enterprise zone facility bonds that are part of the issue; and
(C) Repayments of principal on loans (including prepayments) received after the zone designation period are used to redeem enterprise zone facility bonds that are part of the issue within six months of the date of receipt.
(3) Volume cap. For purposes of applying section 146(f)(5)(A) (relating to elective carryforward of unused volume limitation), issuing enterprise zone facility bonds is a carryforward purpose.
(4) Remedial actions. In the case of a pooled financing bond program described in paragraph (g)(2) of this section or a loan recycling program described in paragraph (m)(2)(ii) of this section, if a loan fails to meet the requirements of paragraphs (b) through (f) of this section, within six months of noncompliance (after taking into account the deemed compliance provisions of paragraph (b)(3) of this section, if applicable), an amount equal to the outstanding loan principal must be prepaid and the issuer must—
(i) Reloan the amount of the prepayment; or
(ii) Use the prepayment to redeem an amount of outstanding enterprise zone facility bonds equal to the outstanding principal amount of the loan that no longer meets those requirements.
(n) Continuing compliance and change of use penalties—(1) In general. The penalty provisions of section 1394(e) apply throughout the period of compliance required under paragraph (b)(1) of this section.
(2) Coordination with deemed compliance provisions. Section 1394(e)(2) does not apply during any period during which the issue is deemed to comply with the requirements of section 1394 under the deemed compliance provisions of paragraph (b)(3) of this section.
(3) Application to pooled financing bond and loan recycling programs. In the case of a pooled financing bond program described in paragraph (g)(2) of this section or a loan recycling program described in paragraph (m)(2)(ii) of this section, section 1394(e) applies on a loan-by-loan basis.
(4) Section 150(b)(4) inapplicable. Section 150(b)(4) does not apply to enterprise zone facility bonds.
(o) Refunding bonds—(1) In general. An issue of bonds issued after the zone designation period to refund enterprise zone facility bonds (other than in an advance refunding) are treated as enterprise zone facility bonds if the refunding issue and the prior issue, if treated as a single combined issue, would meet all of the requirements for enterprise zone facility bonds, except the requirements in section 1394(c). For example, the compliance period described in paragraph (b)(1) of this section is calculated taking into account any extension of the weighted average maturity of the refunding issue compared to the remaining weighted average maturity of the prior issue. The proceeds of the refunding issue are allocated to the same expenditures and purpose investments as the prior issue.
(2) Maturity limitation. The maturity limitation of section 147(b) is applied to a refunding issue by taking into account the issuer's reasonable expectations about the economic life of the financed property as of the issue date of the prior issue and the actual weighted average maturity of the combined refunding issue and prior issue.
(p) Examples. The following examples illustrate paragraphs (a) through (o) of this section:
(q) Effective dates—(1) In general. Except as otherwise provided in this section, the provisions of this section apply to all issues issued after July 30, 1996, and subject to section 1394.
(2) Elective retroactive application in whole. An issuer may apply the provisions of this section in whole, but not in part, to any issue that is outstanding on July 30, 1996, and is subject to section 1394.
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Treas. Reg. §1.1394-1(a)Scope.
Scope. This section contains rules relating to tax-exempt bonds under section 1394 (enterprise zone facility bonds) to provide enterprise zone facilities in both empowerment zones and enterprise communities (zones). See sections 1394, 1397B, and 1397C for other rules and definitions.
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Treas. Reg. §1.1394-1(b)Period of compliance—(1) In general.
Period of compliance—(1) In general. Except as provided in paragraphs (b)(2) and (c) of this section, the requirements under sections 1394 (a) and (b) applicable to enterprise zone facility bonds must be complied with throughout the greater of the following—
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Treas. Reg. §1.1394-1(c)Special rules for requirements of sections 1397B and 1397C—(1) Start of compliance period.
Special rules for requirements of sections 1397B and 1397C—(1) Start of compliance period. Except as provided in paragraph (c)(2) of this section, the requirements of sections 1397B (relating to qualification as an enterprise zone business) and 1397C (relating to satisfaction of the rules for qualified zone property) do not apply prior to the initial testing date (as defined in paragraph (c)(4) of this section) if—
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Treas. Reg. §1.1394-1(d)Testing on an average basis.
Testing on an average basis. Compliance with each of the requirements of section 1397B (b) or (c) is tested each taxable year. Compliance with any of the requirements may be tested on an average basis, taking into account up to four immediately preceding taxable years plus the current taxable year. The earliest taxable year that may be taken into account for purposes of the preceding sentence is the taxable year that includes the initial testing date. A taxable year is disregarded if the part of the taxable year that falls in a required compliance period does not exceed 90 days.
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Treas. Reg. §1.1394-1(e)Resident employee requirements—(1) Determination of employee status.
Resident employee requirements—(1) Determination of employee status. For purposes of the requirement of section 1397B (b)(6) or (c)(5) that at least 35 percent of the employees are residents of the zone, the issuer and the principal user may rely on a certification, signed under penalties of perjury by the employee, provided—
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Treas. Reg. §1.1394-1(f)Application to pooled financing bond and loan recycling programs.
Application to pooled financing bond and loan recycling programs. In the case of a pooled financing bond program described in paragraph (g)(2) of this section or a loan recycling program described in paragraph (m)(2)(ii) of this section, the requirements of paragraphs (b) through (e) of this section apply on a loan-by-loan basis. See also paragraphs (g)(2) (relating to limitation on amount of bonds), (m)(2) (relating to maturity limitations), (m)(3) (relating to volume cap), and (m)(4) (relating to remedial actions) of this section.