§141 — Private activity bond; qualified bond
58 citing cases
Statute Text — 26 U.S.C. §141
For purposes of this title, the term “private activity bond” means any bond issued as part of an issue—
which meets—
the private business use test of paragraph (1) of subsection (b), and
the private security or payment test of paragraph (2) of subsection (b), or
which meets the private loan financing test of subsection (c).
Except as otherwise provided in this subsection, an issue meets the test of this paragraph if more than 10 percent of the proceeds of the issue are to be used for any private business use.
Except as otherwise provided in this subsection, an issue meets the test of this paragraph if the payment of the principal of, or the interest on, more than 10 percent of the proceeds of such issue is (under the terms of such issue or any underlying arrangement) directly or indirectly—
secured by any interest in—
property used or to be used for a private business use, or
payments in respect of such property, or
to be derived from payments (whether or not to the issuer) in respect of property, or borrowed money, used or to be used for a private business use.
An issue shall be treated as meeting the tests of paragraphs (1) and (2) if such tests would be met if such paragraphs were applied—
by substituting “5 percent” for “10 percent” each place it appears, and
by taking into account only—
the proceeds of the issue which are to be used for any private business use which is not related to any government use of such proceeds,
the disproportionate related business use proceeds of the issue, and
payments, property, and borrowed money with respect to any use of proceeds described in subclause (I) or (II).
For purposes of subparagraph (A), the disproportionate related business use proceeds of an issue is an amount equal to the aggregate of the excesses (determined under the following sentence) for each private business use of the proceeds of an issue which is related to a government use of such proceeds. The excess determined under this sentence is the excess of—
the proceeds of the issue which are to be used for the private business use, over
the proceeds of the issue which are to be used for the government use to which such private business use relates.
An issue 5 percent or more of the proceeds of which are to be used with respect to any output facility (other than a facility for the furnishing of water) shall be treated as meeting the tests of paragraphs (1) and (2) if the nonqualified amount with respect to such issue exceeds the excess of—
$15,000,000, over
the aggregate nonqualified amounts with respect to all prior tax-exempt issues 5 percent or more of the proceeds of which are or will be used with respect to such facility (or any other facility which is part of the same project).
There shall not be taken into account under subparagraph (B) any bond which is not outstanding at the time of the later issue or which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue.
If the nonqualified amount with respect to an issue—
exceeds $15,000,000, but
does not exceed the amount which would cause a bond which is part of such issue to be treated as a private activity bond without regard to this paragraph,
such bond shall nonetheless be treated as a private activity bond unless the issuer allocates a portion of its volume cap under section 146 to such issue in an amount equal to the excess of such nonqualified amount over $15,000,000.
For purposes of this subsection, the term “private business use” means use (directly or indirectly) in a trade or business carried on by any person other than a governmental unit. For purposes of the preceding sentence, use as a member of the general public shall not be taken into account.
For purposes of the 1st sentence of subparagraph (A), any activity carried on by a person other than a natural person shall be treated as a trade or business.
For purposes of this subsection, the sale of carbon dioxide produced by a qualified carbon dioxide capture facility (as defined in section 142(o)) which is owned by a governmental unit shall not constitute private business use.
The term “government use” means any use other than a private business use.
For purposes of this subsection, the term “nonqualified amount” means, with respect to an issue, the lesser of—
the proceeds of such issue which are to be used for any private business use, or
the proceeds of such issue with respect to which there are payments (or property or borrowed money) described in paragraph (2).
There shall not be taken into account under this subsection or subsection (c) the portion of the proceeds of an issue which (if issued as a separate issue) would be treated as a qualified 501(c)(3) bond if the issuer elects to treat such portion as a qualified 501(c)(3) bond.
An issue meets the test of this subsection if the amount of the proceeds of the issue which are to be used (directly or indirectly) to make or finance loans (other than loans described in paragraph (2)) to persons other than governmental units exceeds the lesser of—
5 percent of such proceeds, or
$5,000,000.
For purposes of paragraph (1), a loan is described in this paragraph if such loan—
enables the borrower to finance any governmental tax or assessment of general application for a specific essential governmental function,
is a nonpurpose investment (within the meaning of section 148(f)(6)(A)), or
is a qualified natural gas supply contract (as defined in section 148(b)(4)).
For purposes of this title, the term “private activity bond” includes any bond issued as part of an issue if the amount of the proceeds of the issue which are to be used (directly or indirectly) for the acquisition by a governmental unit of nongovernmental output property exceeds the lesser of—
5 percent of such proceeds, or
$5,000,000.
Except as otherwise provided in this subsection, for purposes of paragraph (1), the term “nongovernmental output property” means any property (or interest therein) which before such acquisition was used (or held for use) by a person other than a governmental unit in connection with an output facility (within the meaning of subsection (b)(4)) (other than a facility for the furnishing of water). For purposes of the preceding sentence, use (or the holding for use) before October 14, 1987, shall not be taken into account.
For purposes of paragraph (1)—
The term “nongovernmental output property” shall not include any property which is to be used in connection with an output facility 95 percent or more of the output of which will be consumed in—
a qualified service area of the governmental unit acquiring the property, or
a qualified annexed area of such unit.
For purposes of subparagraph (A)—
The term “qualified service area” means, with respect to the governmental unit acquiring the property, any area throughout which such unit provided (at all times during the 10-year period ending on the date such property is acquired by such unit) output of the same type as the output to be provided by such property. For purposes of the preceding sentence, the period before October 14, 1987, shall not be taken into account.
The term “qualified annexed area” means, with respect to the governmental unit acquiring the property, any area if—
such area is contiguous to, and annexed for general governmental purposes into, a qualified service area of such unit,
output from such property is made available to all members of the general public in the annexed area, and
the annexed area is not greater than 10 percent of such qualified service area.
Subclause (III) of subparagraph (B)(ii) shall not apply to an annexation of an area by a governmental unit if the output capacity of the property acquired in connection with the annexation, when added to the output capacity of all other property which is not treated as nongovernmental output property by reason of subparagraph (A)(ii) with respect to such annexed area, does not exceed 10 percent of the output capacity of the property providing output of the same type to the qualified service area into which it is annexed.
For purposes of subparagraphs (B)(ii) and (C)—
The size of any qualified service area and the output capacity of property serving such area shall be determined as the close of the calendar year preceding the calendar year in which the acquisition of nongovernmental output property or the annexation occurs.
A qualified annexed area shall be treated as part of the qualified service area into which it is annexed for purposes of determining whether any other area annexed in a later year is a qualified annexed area.
For purposes of paragraph (1)—
The term “nongovernmental output property” shall not include any property which is to be converted to a use not in connection with an output facility.
Subparagraph (A) shall not apply to any property which is part of the output function of a nuclear power facility.
In the case of a bond which is a private activity bond solely by reason of this subsection—
subsections (c) and (d) of section 147 (relating to limitations on acquisition of land and existing property) shall not apply, and
paragraph (8) of section 142(a) shall be applied as if it did not contain “local”.
With respect to nongovernmental output property acquired by a joint action agency the members of which are governmental units, this subsection shall be applied at the member level by treating each member as acquiring its proportionate share of such property.
The term “nongovernmental output property” shall not include any contract for the prepayment of electricity or natural gas which is not investment property under section 148(b)(2).
For purposes of this part, the term “qualified bond” means any private activity bond if—
Such bond is—
an exempt facility bond,
a qualified mortgage bond,
a qualified veterans’ mortgage bond,
a qualified small issue bond,
a qualified student loan bond,
a qualified redevelopment bond, or
a qualified 501(c)(3) bond.
Such bond is issued as part of an issue which meets the applicable requirements of section 146, and 11 So in original. Probably should end with a period after “146”.
Such bond meets the applicable requirements of each subsection of section 147.
Treasury Regulations
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Treas. Reg. §1.141-0Table of contents
This section lists the captioned paragraphs contained in §§ 1.141-1 through 1.141-16.
(a) In general.
(b) Certain general definitions.
(c) Elections.
(d) Related parties.
(e) Partnerships.
(a) Overview.
(b) Scope.
(c) General definition of private activity bond.
(d) Reasonable expectations and deliberate actions.
(1) In general.
(2) Reasonable expectations test.
(3) Deliberate action defined.
(4) Special rule for dispositions of personal property in the ordinary course of an established governmental program.
(5) Special rule for general obligation bond programs that finance a large number of separate purposes.
(e) When a deliberate action occurs.
(f) Certain remedial actions.
(g) Examples.
(a) General rule.
(1) In general.
(2) Indirect use.
(3) Aggregation of private business use.
(b) Types of private business use arrangements.
(1) In general.
(2) Ownership.
(3) Leases.
(4) Management contracts.
(5) Output contracts.
(6) Research agreements.
(7) Other actual or beneficial use.
(c) Exception for general public use.
(1) In general.
(2) Use on the same basis.
(3) Long-term arrangements not treated as general public use.
(4) Relation to other use.
(d) Other exceptions.
(1) Agents.
(2) Use incidental to financing arrangements.
(3) Exceptions for arrangements other than arrangements resulting in ownership of financed property by a nongovernmental person.
(4) Temporary use by developers.
(5) Incidental use.
(6) Qualified improvements.
(e) Special rule for tax assessment bonds.
(f) Examples.
(g) Measurement of private business use.
(1) In general.
(2) Measurement period.
(3) Determining average percentage of private business use.
(4) Determining the average amount of private business use for a 1-year period.
(5) Common areas.
(6) Allocation of neutral costs.
(7) Commencement of measurement of private business use.
(8) Examples.
(a) General rule.
(1) Private security or payment.
(2) Aggregation of private payments and security.
(3) Underlying arrangement.
(b) Measurement of private payments and security.
(1) Scope.
(2) Present value measurement.
(c) Private payments.
(1) In general.
(2) Payments taken into account.
(3) Allocation of payments.
(d) Private security.
(1) In general.
(2) Security taken into account.
(3) Pledge of unexpended proceeds.
(4) Secured by any interest in property or payments.
(5) Payments in respect of property.
(6) Allocation of security among issues.
(e) Generally applicable taxes.
(1) General rule.
(2) Definition of generally applicable taxes.
(3) Special charges.
(4) Manner of determination and collection.
(5) Payments in lieu of taxes.
(f) Certain waste remediation bonds.
(1) Scope.
(2) Persons that are not private users.
(3) Persons that are private users.
(g) Examples.
(a) In general.
(b) Measurement of test.
(c) Definition of private loan.
(1) In general.
(2) Application only to purpose investments.
(3) Grants.
(4) Hazardous waste remediation bonds.
(d) Tax assessment loan exception.
(1) General rule.
(2) Tax assessment loan defined.
(3) Mandatory tax or other assessment.
(4) Specific essential governmental function.
(5) Equal basis requirement.
(6) Coordination with private business tests.
(e) Examples.
(a) Allocation of proceeds to expenditures, projects, and uses in general.
(1) Allocations to expenditures.
(2) Allocations of sources to a project and its uses.
(3) Definition of project.
(b) Special allocation rules for eligible mixed-use projects.
(1) In general.
(2) Definition of eligible mixed-use project.
(3) Definition of qualified equity.
(4) Same plan of financing.
(c) Allocations of private payments.
(d) Allocations of proceeds to common costs of an issue.
(e) Allocations of proceeds to bonds.
(f) Examples.
(a) Overview.
(b) Definitions.
(1) Available output.
(2) Measurement period.
(3) Sale at wholesale.
(4) Take contract and take or pay contract.
(5) Requirements contract.
(6) Nonqualified amount.
(c) Output contracts.
(1) General rule.
(2) Take contract or take or pay contract.
(3) Requirements contract.
(4) Output contract properly characterized as a lease.
(d) Measurement of private business use.
(e) Measurement of private security or payment.
(f) Exceptions for certain contracts.
(1) Small purchases of output.
(2) Swapping and pooling arrangements.
(3) Short-term output contracts.
(4) Certain conduit parties disregarded.
(g) Special rules for electric output facilities used to provide open access.
(1) Operation of transmission facilities by nongovernmental persons.
(2) Certain use by nongovernmental persons under output contracts.
(3) Ancillary services.
(4) Exceptions to deliberate action rules.
(5) Additional transactions as permitted by the Commissioner.
(h) Allocations of output facilities and systems.
(1) Facts and circumstances analysis.
(2) Illustrations.
(3) Transmission and distribution contracts.
(4) Allocation of payments.
(i) Examples.
(a) In general.
(1) General rule.
(2) Reduction in $15 million output limitation for outstanding issues.
(3) Benefits and burdens test applicable.
(b) Definition of project.
(1) General rule.
(2) Separate ownership.
(3) Generating property.
(4) Transmission and distribution.
(5) Subsequent improvements.
(6) Replacement property.
(c) Examples.
(a) General rules.
(1) Description of test.
(2) Application of unrelated or disproportionate use test.
(b) Unrelated use.
(1) In general.
(2) Use for the same purpose as government use.
(c) Disproportionate use.
(1) Definition of disproportionate use.
(2) Aggregation of related uses.
(3) Allocation rule.
(d) Maximum use taken into account.
(e) Examples.
(a) Conditions to taking remedial action.
(1) Reasonable expectations test met.
(2) Maturity not unreasonably long.
(3) Fair market value consideration.
(4) Disposition proceeds treated as gross proceeds for arbitrage purposes.
(5) Proceeds expended on a governmental purpose.
(b) Effect of a remedial action.
(1) In general.
(2) Effect on bonds that have been advance refunded.
(c) Disposition proceeds.
(1) Definition.
(2) Allocating disposition proceeds to an issue.
(3) Allocating disposition proceeds to different sources of funding.
(d) Redemption or defeasance of nonqualified bonds.
(1) In general.
(2) Special rule for dispositions for cash.
(3) Anticipatory remedial action.
(4) Notice of defeasance.
(5) Special limitation.
(6) Defeasance escrow defined.
(e) Alternative use of disposition proceeds.
(1) In general.
(2) Special rule for use by 501(c)(3) organizations.
(f) Alternative use of facility.
(g) Rules for deemed reissuance.
(h) Authority of Commissioner to provide for additional remedial actions.
(i) Effect of remedial action on continuing compliance.
(j) Nonqualified bonds.
(1) Amount of nonqualified bonds.
(2) Allocation of nonqualified bonds.
(k) Examples.
(a) In general.
(b) Application of private business use test and private loan financing test.
(1) Allocation of proceeds.
(2) Determination of amount of private business use.
(c) Application of private security or payment test.
(1) Separate issue treatment.
(2) Combined issue treatment.
(3) Special rule for arrangements not entered into in contemplation of the refunding issue.
(d) Multipurpose issue allocations.
(1) In general.
(2) Exceptions.
(e) Application of reasonable expectations test to certain refunding bonds.
(f) Special rule for refundings of certain general obligation bonds.
(g) Examples.
(a) Authority of Commissioner to reflect substance of transactions.
(b) Examples.
(a) Scope.
(b) Effective dates.
(1) In general.
(2) Certain short-term arrangements.
(3) Certain prepayments.
(4) Certain remedial actions.
(c) Refunding bonds.
(d) Permissive application of regulations.
(e) Permissive retroactive application of certain sections.
(1) In general.
(2) Transition rule for pre-effective date bonds.
(f) Effective dates for certain regulations relating to output facilities.
(1) General rule.
(2) Transition rule for requirements contracts.
(g) Refunding bonds for output facilities.
(h) Permissive retroactive application.
(i) Permissive application of certain regulations relating to output facilities.
(j) Effective dates for certain regulations relating to refundings.
(k) Effective/applicability dates for certain regulations relating to generally applicable taxes and payments in lieu of tax.
(l) Applicability date for certain regulations related to allocation and accounting.
(1) In general.
(2) Refunding bonds.
(3) Permissive application.
(m) Permissive retroactive application of certain regulations.
(n) Effective/applicability dates for certain regulations relating to certain definitions.
(a) Scope.
(b) Effective dates.
(c) Permissive application.
(d) Certain remedial actions.
(1) General rule.
(2) Special rule for allocations of nonqualified bonds.
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Treas. Reg. §1.141-0(a)Scope.
Scope.
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Treas. Reg. §1.141-0(b)Effective dates.
Effective dates.
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Treas. Reg. §1.141-0(c)Permissive application.
Permissive application.
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Treas. Reg. §1.141-0(d)Certain remedial actions.
Certain remedial actions.
(1) General rule.
(2) Special rule for allocations of nonqualified bonds.
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Treas. Reg. §1.141-0(e)Permissive retroactive application of certain sections.
Permissive retroactive application of certain sections.
(1) In general.
(2) Transition rule for pre-effective date bonds.
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Treas. Reg. §1.141-0(f)Effective dates for certain regulations relating to output facilities.
Effective dates for certain regulations relating to output facilities.
(1) General rule.
(2) Transition rule for requirements contracts.
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Treas. Reg. §1.141-0(g)Refunding bonds for output facilities.
Refunding bonds for output facilities.
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Treas. Reg. §1.141-0(h)Permissive retroactive application.
Permissive retroactive application.
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Treas. Reg. §1.141-0(i)Permissive application of certain regulations relating to output facilities.
Permissive application of certain regulations relating to output facilities.
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Treas. Reg. §1.141-0(j)Effective dates for certain regulations relating to refundings.
Effective dates for certain regulations relating to refundings.
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Treas. Reg. §1.141-0(k)Effective/applicability dates for certain regulations relating to generally applicable taxes and payments in lieu of tax.
Effective/applicability dates for certain regulations relating to generally applicable taxes and payments in lieu of tax.
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Treas. Reg. §1.141-0(l)Applicability date for certain regulations related to allocation and accounting.
Applicability date for certain regulations related to allocation and accounting.
(1) In general.
(2) Refunding bonds.
(3) Permissive application.
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Treas. Reg. §1.141-0(m)Permissive retroactive application of certain regulations.
Permissive retroactive application of certain regulations.
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Treas. Reg. §1.141-0(n)Effective/applicability dates for certain regulations relating to certain definitions.
Effective/applicability dates for certain regulations relating to certain definitions.
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Treas. Reg. §1.141-1Definitions and rules of general application
(a) In general. For purposes of §§ 1.141-0 through 1.141-16, the following definitions and rules apply: The definitions in this section, the definitions in § 1.150-1, the definition of placed in service in § 1.150-2(c), the definition of reasonably required reserve or replacement fund in § 1.148-2(f), and the definitions in § 1.148-1 of bond year, commingled fund, fixed yield issue, higher yielding investments, investment, investment proceeds, issue price, issuer, nonpurpose investment, purpose investment, qualified guarantee, qualified hedge, reasonable expectations or reasonableness, rebate amount, replacement proceeds, sale proceeds, variable yield issue and yield.
(b) Certain general definitions.
Common areas means portions of a facility that are equally available to all users of a facility on the same basis for uses that are incidental to the primary use of the facility. For example, hallways and elevators generally are treated as common areas if they are used by the different lessees of a facility in connection with the primary use of that facility.
Consistently applied means applied uniformly to account for proceeds and other amounts.
Deliberate action is defined in § 1.141-2(d)(3).
Discrete portion means a portion of a facility that consists of any separate and discrete portion of a facility to which use is limited, other than common areas. A floor of a building and a portion of a building separated by walls, partitions, or other physical barriers are examples of a discrete portion.
Disposition is defined in § 1.141-12(c)(1).
Disposition proceeds is defined in § 1.141-12(c)(1).
Essential governmental function is defined in § 1.141-5(d)(4)(ii).
Financed means constructed, reconstructed, or acquired with proceeds of an issue.
Governmental bond has the same meaning as in § 1.150-1(b), except that, for purposes of § 1.141-13, governmental bond is defined in § 1.141-13(b)(2)(iv).
Governmental person means a state or local governmental unit as defined in § 1.103-1 or any instrumentality thereof. It does not include the United States or any agency or instrumentality thereof.
Hazardous waste remediation bonds is defined in § 1.141-4(f)(1).
Measurement period is defined in § 1.141-3(g)(2).
Nongovernmental person means a person other than a governmental person.
Output facility means electric and gas generation, transmission, distribution, and related facilities, and water collection, storage, and distribution facilities.
Private business tests means the private business use test and the private security or payment test of section 141(b).
Proceeds means the sale proceeds of an issue (other than those sale proceeds used to retire bonds of the issue that are not deposited in a reasonably required reserve or replacement fund). Proceeds also include any investment proceeds from investments that accrue during the project period (net of rebate amounts attributable to the project period). Disposition proceeds of an issue are treated as proceeds to the extent provided in § 1.141-12. The Commissioner may treat any replaced amounts as proceeds.
Project period means the period beginning on the issue date and ending on the date that the project is placed in service. In the case of a multipurpose issue, the issuer may elect to treat the project period for the entire issue as ending on either the expiration of the temporary period described in § 1.148-2(e)(2) or the end of the fifth bond year after the issue date.
Public utility property means public utility property as defined in section 168(i)(10).
Qualified bond means a qualified bond as defined in section 141(e).
Renewal option means a provision under which either party has a legally enforceable right to renew the contract. Thus, for example, a provision under which a contract is automatically renewed for 1-year periods absent cancellation by either party is not a renewal option (even if it is expected to be renewed).
Replaced amounts means replacement proceeds other than amounts that are treated as replacement proceeds solely because they are sinking funds or pledged funds.
Weighted average maturity is determined under section 147(b).
Weighted average reasonably expected economic life is determined under section 147(b). The reasonably expected economic life of property may be determined by reference to the class life of the property under section 168.
(c) Elections. Elections must be made in writing on or before the issue date and retained as part of the bond documents, and, once made, may not be revoked without the permission of the Commissioner.
(d) Related parties. Except as otherwise provided, all related parties are treated as one person and any reference to “person” includes any related party.
(e) Partnerships. A partnership (as defined in section 7701(a)(2)) is treated as an aggregate of its partners, rather than as an entity.
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Treas. Reg. §1.141-1(a)In general.
In general. For purposes of §§ 1.141-0 through 1.141-16, the following definitions and rules apply: The definitions in this section, the definitions in § 1.150-1, the definition of placed in service in § 1.150-2(c), the definition of reasonably required reserve or replacement fund in § 1.148-2(f), and the definitions in § 1.148-1 of bond year, commingled fund, fixed yield issue, higher yielding investments, investment, investment proceeds, issue price, issuer, nonpurpose investment, purpose investment, qualified guarantee, qualified hedge, reasonable expectations or reasonableness, rebate amount, replacement proceeds, sale proceeds, variable yield issue and yield.
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Treas. Reg. §1.141-1(b)Certain general definitions.
Certain general definitions.
Common areas means portions of a facility that are equally available to all users of a facility on the same basis for uses that are incidental to the primary use of the facility. For example, hallways and elevators generally are treated as common areas if they are used by the different lessees of a facility in connection with the primary use of that facility.
Consistently applied means applied uniformly to account for proceeds and other amounts.
Deliberate action is defined in § 1.141-2(d)(3).
Discrete portion means a portion of a facility that consists of any separate and discrete portion of a facility to which use is limited, other than common areas. A floor of a building and a portion of a building separated by walls, partitions, or other physical barriers are examples of a discrete portion.
Disposition is defined in § 1.141-12(c)(1).
Disposition proceeds is defined in § 1.141-12(c)(1).
Essential governmental function is defined in § 1.141-5(d)(4)(ii).
Financed means constructed, reconstructed, or acquired with proceeds of an issue.
Governmental bond has the same meaning as in § 1.150-1(b), except that, for purposes of § 1.141-13, governmental bond is defined in § 1.141-13(b)(2)(iv).
Governmental person means a state or local governmental unit as defined in § 1.103-1 or any instrumentality thereof. It does not include the United States or any agency or instrumentality thereof.
Hazardous waste remediation bonds is defined in § 1.141-4(f)(1).
Measurement period is defined in § 1.141-3(g)(2).
Nongovernmental person means a person other than a governmental person.
Output facility means electric and gas generation, transmission, distribution, and related facilities, and water collection, storage, and distribution facilities.
Private business tests means the private business use test and the private security or payment test of section 141(b).
Proceeds means the sale proceeds of an issue (other than those sale proceeds used to retire bonds of the issue that are not deposited in a reasonably required reserve or replacement fund). Proceeds also include any investment proceeds from investments that accrue during the project period (net of rebate amounts attributable to the project period). Disposition proceeds of an issue are treated as proceeds to the extent provided in § 1.141-12. The Commissioner may treat any replaced amounts as proceeds.
Project period means the period beginning on the issue date and ending on the date that the project is placed in service. In the case of a multipurpose issue, the issuer may elect to treat the project period for the entire issue as ending on either the expiration of the temporary period described in § 1.148-2(e)(2) or the end of the fifth bond year after the issue date.
Public utility property means public utility property as defined in section 168(i)(10).
Qualified bond means a qualified bond as defined in section 141(e).
Renewal option means a provision under which either party has a legally enforceable right to renew the contract. Thus, for example, a provision under which a contract is automatically renewed for 1-year periods absent cancellation by either party is not a renewal option (even if it is expected to be renewed).
Replaced amounts means replacement proceeds other than amounts that are treated as replacement proceeds solely because they are sinking funds or pledged funds.
Weighted average maturity is determined under section 147(b).
Weighted average reasonably expected economic life is determined under section 147(b). The reasonably expected economic life of property may be determined by reference to the class life of the property under section 168.
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Treas. Reg. §1.141-1(c)Elections.
Elections. Elections must be made in writing on or before the issue date and retained as part of the bond documents, and, once made, may not be revoked without the permission of the Commissioner.
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Treas. Reg. §1.141-1(d)Related parties.
Related parties. Except as otherwise provided, all related parties are treated as one person and any reference to “person” includes any related party.
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Treas. Reg. §1.141-1(e)Partnerships.
Partnerships. A partnership (as defined in section 7701(a)(2)) is treated as an aggregate of its partners, rather than as an entity.
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Treas. Reg. §1.141-12Remedial actions
(a) Conditions to taking remedial action. An action that causes an issue to meet the private business tests or the private loan financing test is not treated as a deliberate action if the issuer takes a remedial action described in paragraph (d), (e), or (f) of this section with respect to the nonqualified bonds and if all of the requirements in paragraphs (a) (1) through (5) of this section are met.
(1) Reasonable expectations test met. The issuer reasonably expected on the issue date that the issue would meet neither the private business tests nor the private loan financing test for the entire term of the bonds. For this purpose, if the issuer reasonably expected on the issue date to take a deliberate action prior to the final maturity date of the issue that would cause either the private business tests or the private loan financing test to be met, the term of the bonds for this purpose may be determined by taking into account a redemption provision if the provisions of § 1.141-2(d)(2)(ii) (A) through (C) are met.
(2) Maturity not unreasonably long. The term of the issue must not be longer than is reasonably necessary for the governmental purposes of the issue (within the meaning of § 1.148-1(c)(4)). Thus, this requirement is met if the weighted average maturity of the bonds of the issue is not greater than 120 percent of the average reasonably expected economic life of the property financed with the proceeds of the issue as of the issue date.
(3) Fair market value consideration. Except as provided in paragraph (f) of this section, the terms of any arrangement that results in satisfaction of either the private business tests or the private loan financing test are bona fide and arm's-length, and the new user pays fair market value for the use of the financed property. Thus, for example, fair market value may be determined in a manner that takes into account restrictions on the use of the financed property that serve a bona fide governmental purpose.
(4) Disposition proceeds treated as gross proceeds for arbitrage purposes. The issuer must treat any disposition proceeds as gross proceeds for purposes of section 148. For purposes of eligibility for temporary periods under section 148(c) and exemptions from the requirement of section 148(f) the issuer may treat the date of receipt of the disposition proceeds as the issue date of the bonds and disregard the receipt of disposition proceeds for exemptions based on expenditure of proceeds under § 1.148-7 that were met before the receipt of the disposition proceeds.
(5) Proceeds expended on a governmental purpose. Except for a remedial action under paragraph (d) of this section, the proceeds of the issue that are affected by the deliberate action must have been expended on a governmental purpose before the date of the deliberate action.
(b) Effect of a remedial action—(1) In general. The effect of a remedial action is to cure use of proceeds that causes the private business use test or the private loan financing test to be met. A remedial action does not affect application of the private security or payment test.
(2) Effect on bonds that have been advance refunded. If proceeds of an issue were used to advance refund another bond, a remedial action taken with respect to the refunding bond proportionately reduces the amount of proceeds of the advance refunded bond that is taken into account under the private business use test or the private loan financing test.
(c) Disposition proceeds—(1) Definition. Disposition proceeds are any amounts (including property, such as an agreement to provide services) derived from the sale, exchange, or other disposition (disposition) of property (other than investments) financed with the proceeds of an issue.
(2) Allocating disposition proceeds to an issue. In general, if the requirements of paragraph (a) of this section are met, after the date of the disposition, the proceeds of the issue allocable to the transferred property are treated as financing the disposition proceeds rather than the transferred property. If a disposition is made pursuant to an installment sale, the proceeds of the issue continue to be allocated to the transferred property. If an issue does not meet the requirements for remedial action in paragraph (a) of this section or the issuer does not take an appropriate remedial action, the proceeds of the issue are allocable to either the transferred property or the disposition proceeds, whichever allocation produces the greater amount of private business use and private security or payments.
(3) Allocating disposition proceeds to different sources of funding. If property has been financed by different sources of funding, for purposes of this section, the disposition proceeds from that property are first allocated to the outstanding bonds that financed that property in proportion to the principal amounts of those outstanding bonds. In no event may disposition proceeds be allocated to bonds that are no longer outstanding or to a source of funding not derived from a borrowing (such as revenues of the issuer) if the disposition proceeds are not greater than the total principal amounts of the outstanding bonds that are allocable to that property. For purposes of this paragraph (c)(3), principal amount has the same meaning as in § 1.148-9(b)(2) and outstanding bonds do not include advance refunded bonds.
(d) Redemption or defeasance of nonqualified bonds—(1) In general. The requirements of this paragraph (d) are met if all of the nonqualified bonds of the issue are redeemed. Proceeds of tax-exempt bonds must not be used for this purpose, unless the tax-exempt bonds are qualified bonds, taking into account the purchaser's use of the facility. Except as provided in paragraph (d)(3) of this section, if the bonds are not redeemed within 90 days of the date of the deliberate action, a defeasance escrow must be established for those bonds within 90 days of the deliberate action.
(2) Special rule for dispositions for cash. If the consideration for the disposition of financed property is exclusively cash, the requirements of this paragraph (d) are met if the disposition proceeds are used to redeem a pro rata portion of the nonqualified bonds at the earliest call date after the deliberate action. If the bonds are not redeemed within 90 days of the date of the deliberate action, the disposition proceeds must be used to establish a defeasance escrow for those bonds within 90 days of the deliberate action.
(3) Anticipatory remedial action. The requirements of paragraphs (d)(1) and (2) of this section for redemption or defeasance of the nonqualified bonds within 90 days of the deliberate action are met if the issuer declares its official intent to redeem or defease all of the bonds that would become nonqualified bonds in the event of a subsequent deliberate action that would cause the private business tests or the private loan financing test to be met and redeems or defeases such bonds prior to that deliberate action. The issuer must declare its official intent on or before the date on which it redeems or defeases such bonds, and the declaration of intent must identify the financed property or loan with respect to which the anticipatory remedial action is being taken and describe the deliberate action that potentially may result in the private business tests being met (for example, sale of financed property that the buyer may then lease to a nongovernmental person). Rules similar to those in § 1.150-2(e) (regarding official intent for reimbursement bonds) apply to declarations of intent under this paragraph (d)(3), including deviations in the descriptions of the project or loan and deliberate action and the reasonableness of the official intent.
(4) Notice of defeasance. The issuer must provide written notice to the Commissioner of the establishment of the defeasance escrow within 90 days of the date the defeasance escrow is established.
(5) Special limitation. The establishment of a defeasance escrow does not satisfy the requirements of this paragraph (d) if the period between the issue date and the first call date of the bonds is more than 10
1/2 years.
(6) Defeasance escrow defined. A defeasance escrow is an irrevocable escrow established to redeem bonds on their earliest call date in an amount that, together with investment earnings, is sufficient to pay all the principal of, and interest and call premium on, bonds from the date the escrow is established to the earliest call date. The escrow may not be invested in higher yielding investments or in any investment under which the obligor is a user of the proceeds of the bonds.
(e) Alternative use of disposition proceeds—(1) In general. The requirements of this paragraph (e) are met if—
(i) The deliberate action is a disposition for which the consideration is exclusively cash;
(ii) The issuer reasonably expects to expend the disposition proceeds within two years of the date of the deliberate action;
(iii) The disposition proceeds are treated as proceeds for purposes of section 141 and are used in a manner that does not cause the issue to meet either the private business tests or the private loan financing test, and the issuer does not take any action subsequent to the date of the deliberate action to cause either of these tests to be met; and
(iv) If the issuer does not use all of the disposition proceeds for an alternative use described in paragraph (e)(1)(iii) of this section, the issuer uses those remaining disposition proceeds for a remedial action that meets paragraph (d) of this section.
(2) Special rule for use by 501(c)(3) organizations. If the disposition proceeds are to be used by a 501(c)(3) organization, the nonqualified bonds must in addition be treated as reissued for purposes of sections 141, 145, 147, 149, and 150 and, under this treatment, satisfy all of the applicable requirements for qualified 501(c)(3) bonds. Thus, beginning on the date of the deliberate action, nonqualified bonds that satisfy these requirements must be treated as qualified 501(c)(3) bonds for all purposes, including sections 145(b) and 150(b).
(f) Alternative use of facility. The requirements of this paragraph (f) are met if—
(1) The facility with respect to which the deliberate action occurs is used in an alternative manner (for example, used for a qualifying purpose by a nongovernmental person or used by a 501(c)(3) organization rather than a governmental person);
(2) The nonqualified bonds are treated as reissued, as of the date of the deliberate action, for purposes of sections 55 through 59 and 141, 142, 144, 145, 146, 147, 149 and 150, and under this treatment, the nonqualified bonds satisfy all the applicable requirements for qualified bonds throughout the remaining term of the nonqualified bonds;
(3) The deliberate action does not involve a disposition to a purchaser that finances the acquisition with proceeds of another issue of tax-exempt bonds; and
(4) Any disposition proceeds other than those arising from an agreement to provide services (including disposition proceeds from an installment sale) resulting from the deliberate action are used to pay the debt service on the bonds on the next available payment date or, within 90 days of receipt, are deposited into an escrow that is restricted to the yield on the bonds to pay the debt service on the bonds on the next available payment date.
(g) Rules for deemed reissuance. For purposes of determining whether bonds that are treated as reissued under paragraphs (e) and (f) of this section are qualified bonds—
(1) The provisions of the Code and regulations thereunder in effect as of the date of the deliberate action apply; and
(2) For purposes of paragraph (f) of this section, section 147(d) (relating to the acquisition of existing property) does not apply.
(h) Authority of Commissioner to provide for additional remedial actions. The Commissioner may, by publication in the Federal Register or the Internal Revenue Bulletin, provide additional remedial actions, including making a remedial payment to the United States, under which a subsequent action will not be treated as a deliberate action for purposes of § 1.141-2.
(i) Effect of remedial action on continuing compliance. Solely for purposes of determining whether deliberate actions that are taken after a remedial action cause an issue to meet the private business tests or the private loan financing test—
(1) If a remedial action is taken under paragraph (d) of this section, the amount of private business use or private loans resulting from the deliberate action that is taken into account for purposes of determining whether the bonds are private activity bonds is that portion of the remaining bonds that is used for private business use or private loans (as calculated under paragraph (j) of this section);
(2) If a remedial action is taken under paragraph (e) or (f) of this section, the amount of private business use or private loans resulting from the deliberate action is not taken into account for purposes of determining whether the bonds are private activity bonds; and
(3) After a remedial action is taken, the amount of disposition proceeds is treated as equal to the proceeds of the issue that had been allocable to the transferred property immediately prior to the disposition. See paragraph (k) of this section, Example 5.
(j) Nonqualified bonds—(1) Amount of nonqualified bonds. The nonqualified bonds are a portion of the outstanding bonds in an amount that, if the remaining bonds were issued on the date on which the deliberate action occurs, the remaining bonds would not meet the private business use test or private loan financing test, as applicable. For this purpose, the amount of private business use is the greatest percentage of private business use in any one-year period commencing with the one-year period in which the deliberate action occurs.
(2) Allocation of nonqualified bonds. Allocations of nonqualified bonds must be made on a pro rata basis, except that, for purposes of paragraph (d) of this section (relating to redemption or defeasance), an issuer may treat any bonds of an issue as the nonqualified bonds so long as—
(i) The remaining weighted average maturity of the issue, determined as of the date on which the nonqualified bonds are redeemed or defeased (determination date), and excluding from the determination the nonqualified bonds redeemed or defeased by the issuer in accordance with this section, is not greater than
(ii) The remaining weighted average maturity of the issue, determined as of the determination date, but without regard to the redemption or defeasance of any bonds (including the nonqualified bonds) occurring on the determination date.
(k) Examples. The following examples illustrate the application of this section:
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Treas. Reg. §1.141-12(a)Conditions to taking remedial action.
Conditions to taking remedial action. An action that causes an issue to meet the private business tests or the private loan financing test is not treated as a deliberate action if the issuer takes a remedial action described in paragraph (d), (e), or (f) of this section with respect to the nonqualified bonds and if all of the requirements in paragraphs (a) (1) through (5) of this section are met.
(1) Reasonable expectations test met. The issuer reasonably expected on the issue date that the issue would meet neither the private business tests nor the private loan financing test for the entire term of the bonds. For this purpose, if the issuer reasonably expected on the issue date to take a deliberate action prior to the final maturity date of the issue that would cause either the private business tests or the private loan financing test to be met, the term of the bonds for this purpose may be determined by taking into account a redemption provision if the provisions of § 1.141-2(d)(2)(ii) (A) through (C) are met.
(2) Maturity not unreasonably long. The term of the issue must not be longer than is reasonably necessary for the governmental purposes of the issue (within the meaning of § 1.148-1(c)(4)). Thus, this requirement is met if the weighted average maturity of the bonds of the issue is not greater than 120 percent of the average reasonably expected economic life of the property financed with the proceeds of the issue as of the issue date.
(3) Fair market value consideration. Except as provided in paragraph (f) of this section, the terms of any arrangement that results in satisfaction of either the private business tests or the private loan financing test are bona fide and arm's-length, and the new user pays fair market value for the use of the financed property. Thus, for example, fair market value may be determined in a manner that takes into account restrictions on the use of the financed property that serve a bona fide governmental purpose.
(4) Disposition proceeds treated as gross proceeds for arbitrage purposes. The issuer must treat any disposition proceeds as gross proceeds for purposes of section 148. For purposes of eligibility for temporary periods under section 148(c) and exemptions from the requirement of section 148(f) the issuer may treat the date of receipt of the disposition proceeds as the issue date of the bonds and disregard the receipt of disposition proceeds for exemptions based on expenditure of proceeds under § 1.148-7 that were met before the receipt of the disposition proceeds.
(5) Proceeds expended on a governmental purpose. Except for a remedial action under paragraph (d) of this section, the proceeds of the issue that are affected by the deliberate action must have been expended on a governmental purpose before the date of the deliberate action.
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Treas. Reg. §1.141-12(b)Effect of a remedial action—(1) In general.
Effect of a remedial action—(1) In general. The effect of a remedial action is to cure use of proceeds that causes the private business use test or the private loan financing test to be met. A remedial action does not affect application of the private security or payment test.
(2) Effect on bonds that have been advance refunded. If proceeds of an issue were used to advance refund another bond, a remedial action taken with respect to the refunding bond proportionately reduces the amount of proceeds of the advance refunded bond that is taken into account under the private business use test or the private loan financing test.
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Treas. Reg. §1.141-12(c)Disposition proceeds—(1) Definition.
Disposition proceeds—(1) Definition. Disposition proceeds are any amounts (including property, such as an agreement to provide services) derived from the sale, exchange, or other disposition (disposition) of property (other than investments) financed with the proceeds of an issue.
(2) Allocating disposition proceeds to an issue. In general, if the requirements of paragraph (a) of this section are met, after the date of the disposition, the proceeds of the issue allocable to the transferred property are treated as financing the disposition proceeds rather than the transferred property. If a disposition is made pursuant to an installment sale, the proceeds of the issue continue to be allocated to the transferred property. If an issue does not meet the requirements for remedial action in paragraph (a) of this section or the issuer does not take an appropriate remedial action, the proceeds of the issue are allocable to either the transferred property or the disposition proceeds, whichever allocation produces the greater amount of private business use and private security or payments.
(3) Allocating disposition proceeds to different sources of funding. If property has been financed by different sources of funding, for purposes of this section, the disposition proceeds from that property are first allocated to the outstanding bonds that financed that property in proportion to the principal amounts of those outstanding bonds. In no event may disposition proceeds be allocated to bonds that are no longer outstanding or to a source of funding not derived from a borrowing (such as revenues of the issuer) if the disposition proceeds are not greater than the total principal amounts of the outstanding bonds that are allocable to that property. For purposes of this paragraph (c)(3), principal amount has the same meaning as in § 1.148-9(b)(2) and outstanding bonds do not include advance refunded bonds.
58 Citing Cases
net income under a consolidated return) to effect in any case such a distribution, apportionment or allocation of gross income, deductions, or any item of either, as would produce a result equivalent to a computation of consolidated net income under section 141.[44] (c) Application.--Transactions between one controlled taxpayer and another will be subjected to special scrutiny to ascertain whether the common control is being used to reduce, avoid, or escape taxes.
103(a) provides that "[e]xcept as provided in subsection (b), gross income does not include interest on any State or local bond." Sec.
can be separately - 12 - conveyed to and held by someone other than the owner of the surface estate. After the minerals are severed and removed from the land, they become personal property. See generally id. at 959; 58 C.J.S., Mines and Minerals, sec. 141 (1998). As pertinent to this case, New Mexico has adopted section 2- 107 of the Uniform Commercial Code, which addresses minerals to be severed from realty by the seller. In pertinent part, N.M. Stat. Ann. section 55-2-107 (Michie 1993) provid
in place can be separately conveyed to and held by someone other than the owner of the surface estate. After the minerals are severed and removed from the land, they become personal property. See generally id. at 959; 58 C.J.S., Mines and Minerals, sec. 141 (1998). As pertinent to this case, New Mexico has adopted section 2-107 of the Uniform Commercial Code, which addresses minerals to be severed from realty by the seller. In pertinent part, N.M. Stat. Ann. section 55-2-107 (Michie 1993) provi
Section 141.4975-13, Temporary Excise Tax Regs., 41 Fed. Reg. 32890 (Aug. 5, 1976) and 51 Fed. Reg. 16305 (May 2, 1986), provides that, absent permanent regulations for section 4975(f)(4) and (5), section 53.4941(e)-1, Foundation Excise Tax Regs., shall be relied upon to interpret terms contained in section 4975(f). Section 53.4941(e)-1(c)(4)(i), F
ers.--In the case of a taxpayer with respect to whom a deduction under section 151(e) is allowable to another taxpayer for the taxable year-- “(1) the percentage standard deduction shall be computed only with reference to so much of his adjusted gross income as is attributable to his earned income (as defined in section 911(b)), and “(2) the low income allowance shall not exceed his earned income for the taxable year.” The Tax Reduction and Simplification Act of 1977 Section 102(a) of the Tax Re
1.141-3(d)(5), Income Tax Regs., excepts incidental uses of a financed facility which do not exceed 2.5 percent of the proceeds used to finance the facility. In responding to the potential application of that provision, respondent states without explanation that the latter provision does not apply “in light of the extensive rights the Company has with respect to the capacity of the Pipeline Project.” - 32 - We hold that the private business use test is not met.
ovision that the lease is “to be automatically renewed year to year”. Many states recognize a distinction between an extension and a renewal of a lease. See 51C C.J.S., Landlord and Tenant, sec. 54b, at 164 (1968); 49 Am.Jur.2d, Landlord and Tenant, sec. 141 (1995). In such states, an extension creates on its own force an additional term, and the same lease continues in force during the additional period. See 51C C.J.S., Landlord and Tenant, sec. 54b, at 164 (1968); 49 Am.Jur.2d, Landlord and Te
loan), the regulations define the "amount involved" as the "greater of the amount paid for such use or the fair market value of such use". Sec. 53.4941(e)-1(b)(2)(ii), Foundation Excise Tax Regs.; see also id. subpar. (4), Example (2). See generally sec. 141.4975-13, Temporary Excise Tax Regs., 41 Fed. Reg. 32890 (Aug. 5, 1976) and 51 Fed. Reg. 16305 (May 2, 1986) (providing that the Foundation Excise Tax Regulations define the term "amount involved" for purposes of section 4975 until permanent
141.4975-13, Temporary Excise Tax Regs., 41 Fed. Reg. 32890 (Aug. 6, 1976); see also Leib v. Commissioner, 88 T.C. 1474, 1482 (1987). The regulations under section 4941, which relate to self-dealings involving private foundations, are instructive in deciding whether a prohibited transaction has been properly corrected. Section 53.4941(e)-1(c)(
141 (1927); see also H. Rept. 2, 70th Cong. 1st Sess. (1927), 1939-1 C.B. (Part 2) 384, 397. The Senate Finance Committee was not convinced that elimina- tion of the privilege of filing consolidated returns was an appropriate solution to the wide range of problems and potential abuses to which the Joint Committee report alluded that had emerge
141 (1927); see also H. Rept. 2, 70th Cong., 1st Sess. (1927), 1939-1 C.B. (Part 2) 384, 397. The Senate Finance Committee was not convinced that elimination of the privilege of filing consolidated returns was an appropriate solution to the wide range of problems and potential abuses to which the Joint Committee report alluded thát had emerged