The eagerly awaited verdict on the proposed political subdivision regulations (Proposed Political Subdivision Regulations) (“Proposed Regulations”) is finally in and their withdrawal has been announced. These regulations have been a frequent subject of our posts (here, here, here, here, here, and here) Treasury issued its interim Report on June 22, 2017 (here) under Executive Order 13789 (here) identifying eight regulations for review, including the Proposed Regulations. (Discussed in previous blogs by Michael Cullers and Johnny Hutchinson here and here.) Now Treasury has issued its “Second Report to the President on Identifying and Reducing Tax Regulatory Burdens,” (“Second Report”) dated October 2, 2017, announcing its recommendations on those eight regulations as well as potentially far-reaching plans for further review of burdensome regulations. Of the eight regulations reviewed, Treasury recommended full withdrawal of only two, one being the Proposed Regulations (the other being an anti-taxpayer regulation addressing transfers of family businesses, which could be an especially sympathetic area under the Trump administration). In recommending withdrawal of the Proposed Regulations, Treasury noted that “some enhanced standards for qualifying as a political subdivision may be appropriate” but that “regulations having as far-reaching an impact on existing legal structures as the proposed regulations are not justified.” So what might we expect in the future?
The title of this post is taken from an observation that a client once made when the strictures of the notice, hearing, and approval requirements set forth in Internal Revenue Code Section 147(f), which with limited exceptions apply to all issues of tax-exempt private activity bonds, worked to prevent a hoped-for use of proceeds of a qualified private activity bond issue. These notice, hearing, and approval requirements were originally enacted as part of the Tax Equity and Fiscal Responsibility Tax Act of 1982, so the acronym “TEFRA” is commonly used in connection with these requirements. According to urban legend, the coarsest of the four-letter words is also an acronym, the components of which the esteemed etymologists Van Halen detailed in the title to the band’s triple platinum 1991 album.
If the application of the bureaucratic acronym has ever exasperated you to the point that you’ve uttered the vulgar one, take heart – relief is at hand. On September 28, 2017, the Treasury Department issued proposed regulations (“Proposed Regulations”) that make the TEFRA rules much more manageable and that can be used before the Proposed Regulations become final. For a summary of the Proposed Regulations, hit the jump below (or, in keeping with the Van Halen references, go ahead and jump).
Efforts to overhaul the Internal Revenue Code have been spearheaded thus far by a group of Republicans referred to as the “Big Six.” Earlier today, the Big Six released a “unified framework to achieve pro-American, fiscally-responsible tax reform” (the “Framework”). The Framework proposes many changes to the U.S. tax system, but does not propose any changes to the municipal bond tax exemption itself.
Here is a link to the Framework, a 9-page document that provides an overview of the various measures that may be included in tax reform. The Framework was preceded by the blueprint for tax reform released by House Republicans on June 24, 2016 (discussed in a previous blog post). This post addresses a few of the highlights from the Framework.
Timing, as they say, is everything. The tax-exempt bond rules are full of deadlines and sunsets, both before and after the issue date and before and after the project is finished. Click above for a diagram of how some of these rules work together. It’s by no means exhaustive, but certainly exhausting. Maybe you’ll find it helpful; it’s designed to be printed on 11 x 17 paper, for those who prefer the analog version, and it’s suitable for framing for those who have empty space on their office walls. We’ll update it from time to time. Enjoy.
Edited 9/26/2017 to adjust the portion of the graphic dealing with the single-issue window.
Are you struggling with what to get your hard-to-buy-for tax advisor for an upcoming birthday or holiday? Struggle no more, as I have the perfect gift idea. A PTIN. Why? Every tax return preparer needs one, and best of all, they are currently free. Continue Reading
(Though the strictures of legal ethics and of logic would counsel us against insinuating that we had anything to do with it, we cannot help but notice the coincidence in timing between this announcement and Alexios’s post on Friday about #SLGSforever.)
For those of you keeping track, the SLGS window has been closed since March 8, 2017. With the recent discussions in Washington regarding a three-month debt limit increase, it is possible that the SLGS window will soon reopen, at least for a short time. (For prior coverage of the history of the SLGS window opening and closing, see here)
Recent news reports from Washington suggest that a permanent fix may be in the works. President Trump, Senate Minority Leader Charles E. Schumer, and House Minority Leader Nancy Pelosi are in discussions to eliminate the need for future debt ceiling votes by Congress. These news reports should be read with a grain of salt, or better yet with an entire salt block. Any such legislation would be a significant departure from historical practices. According to the Congressional Research Service, “Congress has always restricted federal debt.” Were the debt ceiling to be eliminated, Congress would presumably only have to pass appropriation bills. With no debt ceiling, it appears there would be no need ever to close the SLGS window. SLGS FOREVER!
 Don’t get the salt anywhere near the SLGS, though, because it can kill them.
The National Association of Bond Lawyers submitted eight legislative proposals to Treasury on August 22 with the stated purpose of improving the efficiency of tax-advantaged financing of much-needed public infrastructure projects (here is a link to the proposals). The proposals would broaden the availability and simplify the existing forms of tax-exempt bonds as well as create new forms of tax-advantaged bonds. One of the new forms would be Enhanced Infrastructure Bonds (“EIBs”), which could just as easily be called new and improved Build America Bonds (“BABs”). EIBs and direct-pay BABs share many characteristics, including generating federal payments to the issuer while paying taxable interest to holders, with the differences intended to make EIBs an even more attractive financing option and to eliminate the shortcomings of BABs that were discovered over the course of issuing more than $185 billion of direct-pay BABs during the brief period they were available – April 2009 through December 2010. The similarities and differences in EIBs and BABs are identified and explained below.
One of the many recent targets of Twitter criticism from President Trump has been the internet retailer Amazon. Presumably after being informed by his staff that jobs in the retail industry constitute a much more significant share of national employment than those in coal mining (or after hearing about it on CNN), Mr. Trump posted the following tweet on August 16:
On July 18, 2016, the Treasury Department published final regulations on non-issue price arbitrage restrictions (the “Final Regulations”). A copy of the Final Regulations is available here. Since that time, the mid-afternoon naps of issuers, tax lawyers, and possibly Sean from Portlandia have been improved by reading my “comprehensive” blog post on the Final Regulations.
Among other things, the Final Regulations included substantial changes to the working capital financing rules. One such change is to the definition of “available amount” in Section 1.148-6(d)(3)(iii)(A). Very generally, tax-exempt bond proceeds can be used to finance working capital expenditures only to the extent that the working capital expenditures exceed the issuer’s “available amounts.” Under the prior rules, available amounts excluded proceeds of the bond issue that would finance working capital, but included proceeds from the issuer’s other tax-exempt bond issues. Bob Eidnier pointed out an unintended consequence of the prior rules in his blog post on the Final Regulations:
Under the prior rule, for example, an issuer with multiple working capital issues outstanding might have been required to invest the proceeds of one issue in Non-AMT Investments (or use the amounts to redeem bonds) in order for the other issue to satisfy the investment/redemption requirement. This could have defeated the purpose of, or at least placed an unfair burden on, the working capital financings . . . .
To remedy this unintended consequence, the Final Regulations expanded the exclusions from available amounts to include proceeds of “any” issue. Once effective, the modified definition in the Final Regulations makes it easier for issuers to finance working capital expenditures.
Generally, the Final Regulations apply to bonds sold on or after October 17, 2016; however, the Final Regulations (more specifically, Section 1.148-11(k)(1)) failed to include an effective date for the modified definition of available amount in Section 1.148-6(d)(3)(iii)(A). Practitioners (and Sean) were left to wonder whether the Treasury erred in omitting an effective date or whether the error was intentional! <cue Twilight Zone music>
Thankfully, fourteen (14) months later, the matter is resolved. Earlier this week, the Treasury Department acknowledged the error and corrected the mistake by including Section 1.148-6(d)(3)(iii)(A) in the list of Regulations that apply to bonds sold on or after October 17, 2016. The correction is available here.