On June 13, 2017, U.S. Senators Cory Booker (D-NJ) and James Lankford (R-OK) introduced the latest bill (S. 1342) (“Senate Bill”) intended to end tax-exempt financing of professional sports stadiums. The Senate Bill mirrors the bill (H.R. 811) introduced by Rep. Steve Russell (R-OK) on February 1, 2017, reported in this blog by Johnny Hutchinson (link). Tax-exempt financing of professional sports stadiums has long been a controversial subject and was the subject of my post on April 14, 2016 (link). The debate prompted by the introduction of legislative bills is a healthy exercise. However, arguments that are misleading or inaccurate don’t further but impede that debate. When the bills’ advocates get off track of a productive and thoughtful debate, the misleading arguments need to be called out. That is the subject of today’s post.
July 7, 2017 witnessed a once-in-a-career moment for any tax practitioner. On that date, the Treasury Department released Notice 2017-38, which acknowledged that eight regulatory projects are unduly burdensome and should be reconsidered for modification or repeal – a rare display of administrative modesty. Included in the list of burdensome regulations are the proposed regulations that would re-define the term “political subdivision” for purposes of which entities can issue tax-exempt bonds under Section 103 of the Internal Revenue Code (the “Political Subdivision Proposed Regulations,” which we have previously analyzed here, here, here, here, here, and here).
The Political Subdivision Proposed Regulations are indeed unduly burdensome and therefore merited inclusion in Notice 2017-38. As discussed below, the Political Subdivision Proposed Regulations are also of dubious constitutionality.
The noise that you just heard may be another blessed nail in the coffin of Treasury’s proposed regulations that would have made it more difficult for an entity to qualify as a political subdivision so that it can issue tax-exempt bonds on its own behalf. Treasury just issued Notice 2017-38, which sends 8 regulatory projects, including the proposed political subdivision regulations, to the President in response to his order to identify and pare back or eliminate regulations that add undue financial burden or undue complexity.
Issue Price Regulations Sneak Past the Guards
The fact that Treasury included the proposed political subdivision regulations among the list of burdensome regulations that are now on the chopping block will get all of the headlines, but there’s another story here, too. Treasury somehow concluded that the issue price regulations were not a “significant” tax regulation (apparently they aren’t regular readers of this blog). In other words, Treasury didn’t even consider whether the new issue price regulations might be burdensome. In fact, Treasury says that the issue price regulations were “minor or technical in nature,” and – you’ll love this – “generated minimal public comment.”
Not unlike the American Broadcasting Company’s Wide World of Sports, our blog attempts to provide you the reader with blogs covering a wide variety of topics directly and indirectly related to tax-exempt bonds. In the category of topics indirectly related to tax-exempt bonds, this blog will address a recent Tax Court Memorandum (Fakiris, George v. Commissioner; No. 18292-12; T.C. Memo 2017-126) in which the Tax Court upheld an IRS notice of deficiency based on a disallowed charitable contribution deduction. The Memorandum isn’t the topic of this week’s blog because it is rare for a charitable contribution deduction to be disallowed in full or in part; rather, the Tax Court’s decision is noteworthy because of the incredible effort that the Tax Court went through to reach its conclusion!
This post is for those of you who like reading dictionaries (or about the making of dictionaries). Have you ever wondered why bonds are called bonds? To (try) to answer this question, let’s review what the Professor and the Madman have to say.
A few years ago, I wrote a blog post entitled “The P3 Wars” in which I provided a brief explanation of how a P3 (i.e., a public-private partnership) works, and the general arguments for and against the use of P3s. More recently, President Trump proposed a $1 trillion U.S. infrastructure plan that likely includes the use of P3s. Although no details of his plan have been released, Elaine Chao, his Secretary of Transportation, recently told the Senate Environment and Public Works Committee that of the $1 trillion dollar infrastructure investment, approximately $200 billion would consist of public funding, which leaves $800 billion of private financing. Continue Reading
The effective date of the new issue price regulations (Regulations) is less than a week away, and because of the need to discuss and plan for application of the new rules with issuers, underwriters and financial advisors for bonds that will be subject to the new rules, we are already gaining experience with documentation relating to the Regulations. NABL and SIFMA have done an excellent job of providing model documents – sale documents in the case of SIFMA and issue price certifications in the case of NABL – that will significantly smooth the transition from a reasonable expectations standard for establishing issue price to a general rule based on actual sales. Use of these model documents, with some variations, should ease the burden, which could otherwise be overwhelming, of negotiating these documents for each type of bond sale with each underwriter. Like all model documents, however, there will undoubtedly be fine tuning as we gain more and more experience working with the Regulations and negotiating documents for specific transactions. This post notes two negotiating issues that have been raised in current transactions.
Three score and thirteen years (and one day) after D-Day (June 7, 2017, for the non-history-buffs), the new regulations that prescribe the methods for determining the issue price of tax-advantaged bonds take effect. Of the various methods for determining the issue price of tax-advantaged bonds, the hold-the-offering-price method is the only one that allows an issuer of such bonds in an underwritten transaction to know with certainty in advance of the sale date of the bonds that the issue price of the bonds will be established on the sale date. As discussed below, however, this method will come at a cost to issuers of tax-advantaged bonds.
The question thus becomes, which federal tax circumstances warrant the increased cost of the hold-the-offering-price method to be assured that the issue price of the bonds will be established on the sale date? For the answer, read on.
On June 7, 2017, the Final Issue Price Regulations (the “Final Regulations”) become effective. More specifically, the Final Regulations apply to bonds sold on or after June 7, 2017 and without regard to the bonds’ issuance date. Suffice it to say, if you have read our blog or been practicing in the area of municipal finance for any period of time, you know that June 7, 2017 is a date that is YEARS in the making.