On April 3, 2019, the IRS published Rev. Proc. 2019-17, which provides that multifamily housing projects (or, for those of you who prefer Grey Poupon, “qualified residential rental projects”) won’t violate the general public use requirement even if the landlord offers units of the project to certain specific groups. Congress had made this point clear for low-income housing tax credits (“LIHTC”), which are often used in connection with tax-exempt multifamily housing bonds. Multifamily housing bonds have their own, separate general public use requirement, and there wasn’t a similar provision allowing group preferences in those rules. This disconnect had stopped many of these deals cold. Rev. Proc. 2019-17 puts the two sets of rules in sync.
Revenue Procedure 2019-17 – The IRS Issues Helpful Guidance on Qualified Residential Rental Projects
On April 3, 2019, the Internal Revenue Service issued Rev. Proc. 2019-17, which provides that a qualified residential rental project will not fail the public use element of Internal Revenue Code Section 142(d), and therefore can be financed with exempt facility bonds (assuming, of course, that other requirements are satisfied[1]), if the project contains units that are reserved for, or are prioritized for, certain, specified groups (such as veterans).
We will soon post an analysis of this very helpful guidance.
[1] Like pretty much everything else life, when it comes to tax-exempt bonds, there are always “other requirements.”
Come See SPB at NABL U’s The Institute
This Thursday and Friday, the National Association of Bond Lawyers, under the newly created “NABL U” umbrella, will be holding “The Institute” (formerly known as the Tax and Securities Law Institute) in Bonita Springs, FL. Those attending will be treated to in-depth discussions of lingering questions from the Tax Cuts and Jobs Act, the just-now-effective amendments to SEC Rule 15c2-12, and the Opportunity Zone program.
I’ll be leading a panel on various and sundry topics relating to private activity bonds. We’ll have two sessions, one on Thursday at 4:15 (guaranteeing that the first glass of the happy hour that follows will taste sweeter than usual), and then another on Friday at 11:45 am. I wanted to let you all know that John Cross, Associate Tax Legislative Counsel at Treasury, will be joining us for the Friday session. Recent developments that we’ll be spending time on include remaining issues from the final TEFRA regulations, the recent IRS private letter ruling regarding allocations of equity to nonqualified uses of private activity bonds (or as some of you may know it colloquially, the “airport wine shop” ruling), and the ongoing saga of group preferences in housing and the public use requirement.
You’ll also get to hear our colleagues Sandy MacLennan and Ryan Callender. Sandy will be on the 15c2-12 panel, and Ryan will be on an ethics panel examining the role of bond counsel and ethics in the digital age. Hope to see y’all there.
IRS Rewrites the Internal Revenue Manual Section on Closing Agreements for Tax-Advantaged Bonds
You have been waiting all weekend to hear the news, so we will get straight to the point. It took three years, but the IRS finally corrected the brain-melter that we posted a few days ago, making fairly comprehensive changes to Part 4, Chapter 81, Section 6 of the Internal Revenue Manual (IRM 4.81.6), titled “Closing Agreements,” on February 20, 2019. Exciting, is it not?
As we’ve discussed before, the Internal Revenue Manual provides detailed rules for calculating the taxpayer exposure that must be paid on an issue that is taken into VCAP or that is ensnared in an audit that reveals a problem with the bonds. Once the issuer calculates the taxpayer exposure amount for each affected year, the issuer must be future-valued forward in time or present-valued back in time to the date on which the issuer enters into a closing agreement with the IRS to fix the problem with the bonds.
The IRS rewrote the example from the weekend into the imperative mood, making it somewhat less incomprehensible.[1]
A Weekend Brain Teaser
Here’s a little puzzle for you, from that eternal font of delight, the Internal Revenue Manual. The Internal Revenue Manual illustrates how an issuer should present-value or future-value penalty amounts in a VCAP or in an audit:
[A] closing agreement expected to be executed on January 15, 2016 includes amounts corresponding to future tax years 2015 through 2026. The amounts representing estimated tax payments due on the assumed April 15 tax payment dates for years 2012 through 2015 would be present valued at the short-term AFR; the amounts assumed to be due on the April 15 tax payment dates for years 2019 through 2024 would be present valued at the mid-term AFR; and the amounts assumed to be due on the April 15 tax payment dates for years 2025 and 2024 would be present valued at the long-term AFR. The applicable AFRs in effect on January 15, 2016 would be the rates used in these present value computations.” (IRM 4.81.6.5.3.9 (01-28-2016)).
If you are just as perplexed as we have been, then you’re in good company. Come back Monday for the solution.
As always, have a great weekend.
Babies, Bathwater, etc. – The IRS Should Keep the Helpful Non-Reissuance Rules from the Reissuance Notices
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.
Infrastructure – Stays In the USA (Please Help)
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.[1]
Letter to House Committee on Ways and Means
[1] Extra credit for artistic renderings of your favorite local infrastructure with the “Stays in the USA” label.
The Proposed Reissuance Regulations: The Thirty Years’ War Continues
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 Shutdown Can’t Stop the Release of the Final TEFRA Regulations
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.
Save the Crew? Will Do!
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, M
ike 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.
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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.
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