“Issue Snapshots” and The Wayback Machine

The IRS recently sent out an email (to those of you brave enough to willingly put yourselves on a government email list – rather like those intrepid souls who voluntarily follow @CIA on Twitter), regarding its “Issue Snapshots” webpage. The email lists the latest Snapshots, but the full list can be found at the bottom of the page here.

The IRS says that Issue Snapshots are not “official pronouncements of law or directives” (unclear what the difference between those two things is for this purpose). Issue Snapshots “cannot be used, cited or relied upon” as either “law or directives.” They are intended to “provide an overview of an issue and are a means for collaborating and sharing knowledge among IRS employees.” In essence, we are being allowed a window into the IRS’s employee education program. Although the Snapshots may lack the comedic content of certain other employee training programs, and although some of them are rather untimely against the backdrop of recent legislative changes, they are an interesting glimpse into topics that the IRS thinks are worthy of clarifying for its employees. They may also provide hints as to likely future audit targets (the Issue Snapshots usually contain a section ominously called “Issue Indicators or Audit Tips”).

The Issue Snapshots are the latest example of a long tradition of the IRS making its internal educational documents public.  You can also review the IRS’s current Tax-Exempt Bonds Training Materials (Phases I, II, and III), which provides a more comprehensive overview of various topics.

You can also find prior employee training manuals that are no longer on the IRS website. This miracle is possible because of that most marvelous (or terrifying, depending on how your perspective changes from one situation to the next) tool: The Wayback Machine, available at http://web.archive.org. There’s even an app.  The Wayback Machine periodically “crawls” across the entire known internet, archiving various websites periodically.  As an example, here are the Continuing Professional Education texts from 2003. The 2003 texts were the most current ones available for a number of years. (Caution, though; there’s no telling why the IRS removed any particular text. One possible inference is that the IRS wanted to move away from the position described in a particular instructional text.)

Your ability to actually click around and view different parts of a particular website that has been saved by The Wayback Machine will vary from site to site. (One fun exercise, particularly for our readers at law firms, is to search for your website’s URL and select the earliest saved version. Interesting outfits and hairdos abound. Our firm’s Y2K preparation materials are a particularly interesting relic.)



Save the Crew (Part Two)!

Last week, we posted a story about the lawsuit brought by the Ohio Attorney General under Ohio’s “Art Modell Law” to prevent Major League Soccer’s Columbus Crew from moving to Austin, Texas.  We wondered aloud whether other states might enact similar laws if Ohio can succeed in preventing the Crew’s departure.  Readers might have wondered (aloud or otherwise) whether Ohio’s efforts to enforce the Art Modell Law would inhibit professional sports leagues from expanding to Ohio.

The answer, at least for now, appears to be “no.”  Major League Soccer announced on May 29 that Cincinnati has been awarded an expansion team, FC Cincinnati, which will commence play in 2019.  The stadium in which FC Cincinnati will play will be financed, in part, with taxpayer funding, which will bring the team within the scope of the Art Modell Law.  The law didn’t impede MLS expansion in Ohio, and it just might leave Ohio with two MLS teams, rather than one.

Save the Crew!

The Tax Cuts and Jobs Act, as introduced in the House of Representatives on November 2, 2017, would have prohibited the issuance after that date of tax-exempt bonds to finance a professional sports stadium.  The Tax Cuts and Jobs Act, as enacted, did not contain this prohibition.

Even if it had, it would likely not have ended the financial assistance that state and local governments lavish upon top-level professional sports franchises to keep those franchises in their current cities or to induce them to relocate.  Major League Baseball, Major League Soccer, the National Basketball Association, the National Football League, and the National Hockey League each hold a monopoly in the United States on the allocation of top-level professional franchises in their respective sports.  As long as these monopolies exist, state and local governments will afford the leagues financial assistance to claim one of the artificially limited number of franchises, regardless of whether tax-exempt bonds can be used to finance the stadiums in which the franchises play.

Is there anything state and local governments can do to ensure that one of these franchises, after having received public benefits and financial assistance, will not relocate?  Read on after the jump.

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Reflections on US Tax Reform from Our Tax and Public Policy Colleagues

Our tax and public policy colleagues have prepared a newsletter that illustrates some of the key take-home points for businesses based on our experience of the first few months after US tax reform. While US tax reform may not have been all that the business community hoped for, it has given taxpayers, both in the US and around the world, plenty to ponder, analyze and consider with respect to planning. With the benefit of having seen US tax reform “in action” over the last few months, they set out some of the key issues and challenges, as well as the potential opportunities, most commonly encountered by multinationals with US business interests, such as banks and underwriters of municipal bonds.

While it’s not strictly public finance tax, we (grudgingly) acknowledge that there are other tax topics and other aspects of US tax reform worth considering. Click through to read the analysis.


Oyez! The Supreme Court Hears Oral Arguments in Wayfair, and Now We Play the Waiting Game

On April 17, 2018, the U.S. Supreme Court heard oral arguments in the case of South Dakota v. Wayfair, IncWayfair is a direct challenge of the Court’s holding in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), that, under the dormant Commerce Clause, a remote/online vendor does not have to collect and remit sales/use tax on sales made to customers who reside in a given state unless the vendor has a physical presence in that state.  Click here and here for background on this issue and its importance to state and local governmental units, and click here for SCOTUSblog’s analysis of the oral arguments in Wayfair. 

The Court’s decision in Wayfair is expected by late June.  Until then, we are left to speculate as to how the Court will rule.  It is clear from the oral arguments that the Court is divided and that Wayfair could be a 5 – 4 decision.  It most likely will not, however, be a 5 – 4 decision along the ideological lines to which we’ve grown accustomed, with the Court’s liberal justices (Ginsburg, Breyer, Sotomayor, and Kagan) split from the conservative justices (Thomas, Roberts, Alito, and Gorsuch) and Justice Kennedy providing the deciding vote.

Based on (i) questions posed and comments made during oral argument (Kennedy, Ginsburg, and Gorsuch), (ii) having openly invited a challenge to Quill (Kennedy), and (iii) having previously expressed skepticism of/hostility towards the dormant commerce clause (Thomas and Gorsuch), there are likely four votes in favor of overruling Quill – Justices Kennedy, Thomas, Ginsburg, and Gorsuch.  It appeared at oral argument that Justices Roberts, Alito, Sotomayor, and Kagan were inclined to preserve the Quill decision.  These are not the typical Supreme Court blocs.

Justice Breyer expressed at oral argument that he saw the merits of both sides in Wayfair, and he has emerged as the swing vote in this case.  Which ideologically diverse group will prevail upon Breyer?  The fantasy gaming crowd at FantasySCOTUS (yes, that is a thing) believes that Justice Breyer will side with Justices Roberts, Alito, Sotomayor, and Kagan to uphold QuillAre the fantasy gamers selling the Notorious RBG short?  We’ll find out this June.    

Kicking the Sequestration Can Down the Road

This past summer, I wrote a blog post showing how the sequestration rate, which reduces federal subsidy payments to issuers of “Direct Pay Bonds” (defined below), has generally been decreasing since the spending cuts enacted by the Budget Control Act of 2011 (“BCA”) began on March 1, 2013.  As a reminder, sequestration refers to the automatic, across-the-board spending cuts that apply to many of the federal government’s programs, projects and activities.  Issuers of “Direct Pay Bonds” (i.e., Build America Bonds, Recovery Zone Economic Development Bonds and all qualified tax credit bonds that were issued on a direct payment rather than a tax credit basis), who are entitled to receive federal government subsidies tied to the interest paid on these bonds, have been negatively impacted by these spending cuts.  The higher the sequestration rate, the lower the subsidy. Continue Reading

New “Remedial Actions” for BABs and other Direct Pay Bonds and Long-term Leases of Bond-financed Property

The IRS has given us new “remedial actions” for issuers of build America bonds and other direct pay bonds and for long-term leases of bond-financed property.  These new rules are in Revenue Procedure 2018-26, and you can apply them immediately to cure the violations that the Revenue Procedure covers.

The beauty of the remedial action rules is that remedial actions are largely self-effectuating. Contrast them with the Voluntary Closing Agreement Program, which requires an application, IRS approval, negotiations, a closing agreement, etc. etc. Under the remedial action rules, you take the action described to cure the violation described, and you’re done, and you don’t have to ask the IRS’s permission.

BABs and Other Direct Pay Bonds. Before this Revenue Procedure, there were no remedial actions that applied to BABs and other tax-credit and direct pay bonds. The only means for solving a problem was to go through VCAP. This Revenue Procedure provides new options.

Long-term Leases. In addition, for issuers of all bonds, generally the only remedial action available for leases of bond-financed property that caused the bonds to violate the private business limits was to redeem an amount of bonds corresponding to the amount of leased property. If you couldn’t currently redeem the bonds, you had to fund a defeasance escrow with cash until the redemption date. In recent years, that has meant earning a pitifully low return. To add insult to injury, the lease does not generate any “disposition proceeds” that could be used to help fund the defeasance escrow, so issuers had to come up with their own funds, which couldn’t be generated by issuing additional tax-exempt bonds. In contrast, if the issuer sold the bond-financed property, the issuer would receive disposition proceeds, which it could instead redeploy for qualifying assets to remedy the excess private business use. For certain long-term leases, the new Revenue Procedure provides some limited relief (though it does not directly solve the problem of having cash up front) to this situation by allowing issuers to calculate an amount equal to the present value of the lease payments, and to redeploy that amount on qualifying uses.

As always, dangers, opportunities, and questions lurk in between the lines. We’ll have much more to say about those things in future posts.







What does “control” mean in the context of affiliated 501(c)(3) organizations?

The IRS recently issued Private Letter Ruling 201811009, which provides helpful insight into how the IRS construes the term “control” for purposes of determining whether two affiliated 501(c)(3) organizations are “related” for purposes of the definition of “refunding issue.”

The ruling involved a 501(c)(3) university (“Seller”) that sold its medical center to another 501(c)(3) organization (“Buyer”). The Buyer was operationally independent of the Seller, but the Seller could appoint 30% of the Buyer’s board and the Seller also had approval rights over certain major Buyer decisions, such as major transactions and changes to the mission of the Buyer. If the Buyer and the Seller were treated as related, the proposed bonds (“Proposed Bonds”) to be issued for the Buyer to finance the purchase of the Seller’s medical center would be treated as refunding bonds, and they therefore could not qualify as tax-exempt bonds. This was because the Seller had previously used part of the proceeds of prior bonds to finance the medical center, and those bonds had previously been advance refunded. As readers of this blog know, post-1985 qualified 501(c)(3) bonds could be advance refunded once and only once until tax-exempt advance refundings were repealed last year. Read below to see how the IRS tackled the analysis of control, which is still relevant even though tax-exempt advance refundings aren’t permitted anymore.

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Solicitor General Asserts that States Can Require Online Vendors to Collect and Remit Sales/Use Tax on Online Retail Sales

In January, the Supreme Court granted a writ of certiorari in the case of South Dakota v. Wayfair (discussed here).  Wayfair, which will be argued before the Court on April 17, is a direct challenge to Quill Corp. v. North Dakota, in which the Supreme Court held that a vendor does not have to collect and remit the sales/use tax owed on sales made to customers who reside in a given state unless the vendor has a physical presence in that state (we have discussed this issue here and here).

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Combining Tax-Exempt Bonds with Public-Private Partnerships under Current Law

On February 13, the Trump Administration released its proposal to finance improvements of the nation’s infrastructure.  This proposal promotes the use of public-private partnership (“P3”) arrangements to fund these improvements by expanding exempt facility bonds (a type of tax-exempt private activity bond that can be used to finance a list of specific types of projects, such as airports, sewage facilities, etc.) so that tax-exempt bonds can be used more easily in conjunction with P3 arrangements. For example, many public infrastructure projects, such as convention centers, courthouses, and fiber optic networks, do not fit within the patchwork list of projects that qualify for private activity bond financing, and so they cannot be financed with tax-exempt bonds if the bonds would exceed the private activity limits.

The day after the Trump Administration released its proposal, House Ways and Means Chairman Kevin Brady made it clear that he does not support an expansion of tax-exempt private activity bonds($).  If the scope of exempt facility bonds is not expanded to facilitate the more ready use of tax-exempt bonds in P3 financing structures, and Chairman Brady’s resistance could make this a likely outcome, P3 arrangements that wish to include tax-exempt bond financing will need to satisfy current law.  One way to accomplish this objective is for the private party in the P3 arrangement not to be the owner or long-term lessee of the tax-exempt bond-financed property but instead to use this property under a management contract that complies with Revenue Procedure 2017-13 (which we have analyzed here, here, and here).

What if the P3 arrangement contemplates that the private party will hold attributes of ownership in the subject property that will result in excessive private business use of the bonds that would finance that property, so that the qualified management contract approach is not a solution? One technique, which is often used to allow the use of tax-exempt bonds to finance professional sports stadiums (which, since the Tax Reform Act of 1986, have not been among the list of projects that can be financed with exempt facility bonds), presents a potential alternative solution.

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