The March 1 deadline for submitting comments on the proposed reissuance regulations to the IRS is coming up fast. We make a general comment here – the existing guidance contains helpful ancillary rules that aren’t directly implicated by the core reissuance rules. The IRS should not exclude these helpful ancillary rules from the final regulations. They’ve proved helpful to issuers, and there’s no policy reason to scrap them.
According to the Federal Trade Commission’s website, only products made with “all or virtually all” U.S. parts that are processed in the U.S. may bear the cherished Made in the USA label. In addition, according to the FTC’s guidelines, products that include foreign parts, but that are assembled in the U.S., may bear an Assembled in the USA label. Although the FTC does not appear to have guidelines on a Stays in the USA label, or a Comprises the USA label, we can think of at least one sort of item that might qualify – our country’s infrastructure – its roads, airports, hospitals, schools and utilities. (And if we tried to print up labels to slap on all of those, we would need to add “labelmakers” to that list, too.)
It will not surprise you that this blog will then make what is for you, our readers, an obvious progression – in order to have solid infrastructure, however, we will need for the #1 financing tool for infrastructure – tax-exempt bonds – to be strong. For more than a century, tax-exempt municipal bonds have provided a significant portion of all infrastructure financing. Let’s keep it that way. In an effort to nip in the bud any future flirtations with the idea of eliminating or taking a road-grader to tax-exempt bonds (if you need a reminder of what happened in the fall of 2017 click here, here or here), Rep. Dutch Ruppersberger (D-MD) and Rep. Steve Stivers (R-OH), who are the co-chairs of the Municipal Finance Caucus, drafted a letter to the House Committee on Ways and Means highlighting the benefits of tax-exempt municipal bonds. There’s something for everyone in the letter (“an expression of fiscal federalism . . . freeing up resources for other needs. . . “), which is all of one page (clear ideas don’t require too many words, after all). We ask that you (yes, you) contact your Congressional representatives and ask them to sign onto the letter and, if you are feeling ambitious, also ask them to consider joining (if they are not already a part of) the Municipal Finance Caucus.
 Extra credit for artistic renderings of your favorite local infrastructure with the “Stays in the USA” label.
Johnny Hutchinson could tell you, from memory, that the Defenestration of Prague occurred on May 23, 1618, and it precipitated the Thirty Years’ War, which ended on May 15, 1648 upon the ratification of the first of a series of peace treaties that comprised the Peace of Westphalia.
In 1988, 370 years after the Defenestration of Prague, the IRS began its campaign of guidance regarding the reissuance for federal tax purposes of tax-exempt bonds (specifically, qualified tender bonds) with the issuance of Notice 88-130. 20 years later, in 2008, the financial crisis and collapse of the auction rate securities market compelled the Service to update this guidance, which it did by releasing Notice 2008-41. On the very last day of 2018, more than 30 years after commencing this line of guidance (a period longer than the Thirty Years’ War), the IRS and Treasury released proposed regulations that, if finalized, would unify and complete the rules for determining whether tax-exempt bonds have been reissued for federal tax purposes (the “Proposed Reissuance Regulations“).
The Proposed Reissuance Regulations will take effect 90 days after they are published as final regulations in the Federal Register, but issuers of tax-exempt obligations can elect to apply the Proposed Reissuance Regulations now. Alternatively, issuers can apply either Notice 88-130 or Notice 2008-41. Dealer’s choice. Comments and requests for a public hearing on the Proposed Reissuance Regulations must be received by the Treasury on or before March 1, 2019. A brief summary of the Proposed Reissuance Regulations follows the jump.
The most recent partial shutdown of the federal government has halted many operations of the U.S. Department of the Treasury, including those of the Internal Revenue Service. The shutdown has, however, evidently left untrammeled the Treasury Department’s ability to promulgate regulations. On Friday, December 28, the Treasury released final regulations under Internal Revenue Code Section 147(f) regarding the public notice, hearing, and approval requirements that apply to qualified private activity bonds (the “Final TEFRA Regulations“). The Final TEFRA Regulations put into final, effective form the proposed TEFRA regulations that were issued on September 28, 2017 (the proposed TEFRA regulations are available, and are analyzed, here). The promulgation of the Final TEFRA Regulations allows the IRS and Treasury to check-off a perennial item on their annual priority guidance plan, and during a shutdown of the federal government, no less. That’s dedication. For a brief summary of the Final TEFRA Regulations, hit the jump.
The Grateful Dead were noted in their live performances for, among other things, beginning a song and then segueing to one or more other songs before concluding the first song in the thread. Sometimes, the Dead would wait several concerts to complete the original song.
Today we emulate the Grateful Dead by completing a string of posts that began in May about the potential relocation of Major League Soccer’s Columbus Crew to Austin, Texas. In our first post, we described the lawsuit brought by then-Ohio Attorney General, and now Governor-Elect, Mike Dewine to apply Ohio’s “Art Modell Law” to halt the Crew’s departure. We observed in this post that if successful, Ohio’s Art Modell Law could serve as a model to other states to prevent the relocation of professional sports franchises that have benefited from publicly financed arenas, stadiums, and other facilities. Our second post reported Major League Soccer’s award of an expansion franchise to Cincinnati, which demonstrates that a state’s enactment of an Art Modell Law evidently will not dissuade a professional sports league from expanding to that state.
We can now conclude the trilogy and report that the lawsuit brought by Mr. Dewine has had the desired effect. After the motion to dismiss the lawsuit was rejected, Major League Soccer negotiated the sale of the Columbus Crew franchise to a new ownership group that includes Dee and Jimmy Haslam, who also own the Cleveland Browns. (The Browns can partially blame their early season kicking woes if their slim playoff chances are dashed, but purchasing a soccer team to groom and procure kicking talent seems like an unconventional, and expensive, reaction). The new ownership group has until December 31, 2018 to obtain a location and plan for a new stadium; incentive packages passed by the State of Ohio and the City of Columbus have gone a long way toward meeting this requirement (and will also subject the new ownership group to the Art Modell Law). Although a court did not decide the merits of the Art Modell Law, the invocation of that law succeeded to compel Major League Soccer to negotiate Columbus’ retention of the Crew franchise, and at the same time it did not thwart the expansion of Major League Soccer in Ohio. Perhaps these events will spur other states to adopt their own versions of the Art Modell Law.
Absent any late-breaking public finance tax news, this will be our last post for 2018. As always, we are grateful to, and appreciative of, our readers. We wish you all the best for a wonderful holiday season and a healthy and prosperous 2019.
The Public Finance Tax Blog
On June 1, 2016, the New York Transportation Development Corporation issued over $2.25 billion in tax-exempt bonds as part of a public-private partnership to redevelop the Central Terminal building (known as Terminal B to passengers) at LaGuardia Airport in New York City. As The Bond Buyer reported, the deal broke all kinds of records – it was the largest P3 ever, the largest airport transaction ever, and the largest AMT bond issue ever.
In a ceremony on Thursday at the airport, New York Governor Andrew Cuomo and others gathered to celebrate the opening of the first new concourse. From the pictures in the press, the new concourse looks suspiciously like a modern airport facility; most importantly, news reports say that the new concourse will contain a Shake Shack. We are proud to have served as co-bond counsel with D. Seaton and Associates for the bond issue (had we known there’d be a Shake Shack, we might have gotten more creative with our fee arrangement), and we offer our congratulations to all the participants, including the team at LaGuardia Gateway Partners, the consortium of equity sponsors that was formed to construct and operate the new terminal. The other concourses at the replacement for the Central Terminal are up next, and Delta is working on redeveloping Terminals C and D.
From 2016: Bond Buyer spotlight
The midterm elections are (mostly!) over. What’s coming next? No one is in a better position to tell you the answer than our Public Policy colleagues. Here for your reading and savoring are two pieces – a breakdown that spans all areas of law, and an analysis of what the election means specifically for tax policy.
The Opportunity Zone program was created by the 2017 Tax Cuts and Jobs Act and is intended to increase investment in areas designated as Opportunity Zones (i.e., economically distressed communities). The general idea behind the program (which we have previously written about here) is that investors are able to defer paying tax on gains from selling property by investing the proceeds from the sale into an Opportunity Zone Fund.
The IRS recently issued much needed guidance on how the Opportunity Zone program will work. Specifically, the IRS released anxiously-awaited proposed regulations, along with Rev. Rul. 2018-29, and a draft Form 8996 (that entities will need to file with the IRS to certify that they qualify as a Qualified Opportunity Fund).
Our colleague, Steve Mount, has been at the forefront of the Opportunity Zone program from its inception. He has written yet another insightful article in Bloomberg’s Tax Management Real Estate Journal describing the new guidance in more detail. Click here to read the article. You can read Steve’s earlier articles on Opportunity Zones here and here.
For those who still had doubts, the IRS has now made it crystal clear: You can still issue tax-exempt bonds to advance refund most taxable bonds. In other words, the much-lamented “repeal of tax-exempt advance refunding bonds” in the Tax Cuts and Jobs Act from December 2017 isn’t ironclad. The repeal prevents the issuance of tax-exempt bonds to advance refund only (1) other tax-exempt bonds and (2) a very limited subset of taxable bonds. The IRS expressed this conclusion in Chief Counsel Advice Memorandum 201843009, dated August 31 and released on October 26.
Following the logic of this guidance, the only taxable bonds that can’t be advance refunded with tax-exempt bonds are taxable bonds that:
- Have a federal subsidy, such as Build America Bonds (i.e., “tax-advantaged bonds,” as defined in Reg. 1.150-1(b), that are not tax-exempt bonds) and
- Do not lose their subsidy at the time that the tax-exempt bonds that advance refund them are issued.
One way to force a tax-advantaged taxable bond to lose its tax advantage is to “legally defease” it, which happens in almost all advance refundings once the issuer deposits Treasury securities acquired with proceeds of the advance refunding bonds into the refunding escrow on the issue date. Perhaps the only exception – certain governmental bonds cannot be legally defeased under state law.
That’s the bottom line. Read on for a little more about this guidance and the history behind it.
As readers of this blog know, the version of the Tax Cuts and Jobs Act that was passed by the House of Representatives would not have allowed any private activity bond (including any qualified 501(c)(3) bond) to be issued as a tax-exempt bond after December 31, 2017. The version of the Tax Cuts and Jobs Act passed by the Senate, and the version ultimately enacted into law, did not include this repeal of tax-exempt private activity bonds.
We’ve previously explored (here) why the House wanted to eliminate tax-exempt private activity bonds and debunked the purported policy bases that were articulated by members of the House in support of the repeal of tax-exempt private activity bonds. The need for exploration and debunking remains, in light of both the Republicans’ insatiable desire to enact tax cuts and the release by the Congressional Research Service of its report titled “Private Activity Bonds: An Introduction,” which appears to have been drafted to afford a policy rationale to eliminate the income tax exemption for interest paid on certain private activity bonds (which elimination would, of course, be used to cover the cost of income tax rate reductions). To discover the errors in CRS’s report, hit the jump.