Committee Draft Bill May Affect the Municipal Bond Market

House Ways and Means Committee Draft Bill May Affect the Municipal Bond Market

On September 10, 2021 the House Ways and Means Committee released details for their portion of the reconciliation package.  While the Committee will continue to work, the following is what has been released.

Credit for Certain Infrastructure Bonds

American Recovery and Reinvestment Act issuers of qualified infrastructure bonds would receive a credit equal to an applicable percentage of the interest, providing direct financing support for infrastructure investments made by state and local governments.  To receive the credit, the entire net proceeds must be used for capital expenditures or the operation and maintenance of capital expenditures.  100% of the bond proceeds must meet the requirements of the Davis-Bacon Act.  This would apply to bonds issued after December 31, 2021.

Advance Refunding Bonds

Advance refunding would once again be permitted.  The interest on advance refunding bonds issued by state and local governments would be exempt from tax.

Permanent Modification of the Small Issuer Exception to Tax Exempt Interest Expense Allocation Rules for Financial Institutions.

Currently, there’s an exception for interest expense allocable to certain tax-exempt obligations issued by qualified small issues.  Qualified small issues are defined as issues that are not reasonably expected to issue more than $10 million in tax exempt obligations during a calendar year, generally.  This revision would increase the $10 million limit to $30 million (indexed annually for inflation).  Also, qualified 501(c)(3) bonds would be treated as tax exempt obligations for purposes of the small issue exception.

Modification to Qualified Small Issue Bonds

The definition of eligible manufacturing facilities eligible for financing through qualified small issue bonds would be expanded to include facilities used for the creation or production of intangible property, and facilities functionally related and subordinate to facilities used for the manufacturing, creation, or productions of tangible and intangible property.  The aggregate cap would also be increased to $30 million, indexed annually for inflation.

Expansion of Certain Exceptions to the Private Activity Bond Rules for First Time Farmers

The limitation on the exemption of the use of private activity bonds for first-time farmers would be increased to $552,500, indexed for inflation on an annual basis.  The separate lower dollar limitation on the purchase of used farm equipment would be repealed.

Water and Sewage Facility Bonds

As of July 1, 2020, exempt facility bonds for existing water and sewage facilities would be exempt from the private activity bond volume cap.

Exempt Facility Bonds to Include Zero Emission Vehicle Infrastructure

The definition of exempt facility bond eligible for tax exempt private activity bond financing would be expanded to include zero emission vehicle infrastructure.   Zero emission vehicle infrastructure is defined as any depreciable property (excluding a building and its structural components) used to charge or fuel zero emissions vehicles.

Davis Bacon Act’s Prevailing Wage Requirement

The Davis Bacon Act’s prevailing wage requirements will be required to proceeds of exempt facility bonds used for the construction, alteration, or repair of water furnishing facilities, sewage facilities, zero emission vehicle infrastructure facilities, or highway or surface freight transfer facilities after the date of enactment.

 

Victoria S. Byerly is an attorney in KAV’s Public Finance Group. A specialist in Section 103 of the Internal Revenue Code, her practice is exclusively dedicated to state and federal tax matters related to the issuance of tax-exempt debt obligations.

Current Proposals May Affect Availability of Various Tax Credits

Credit for Government Owned Broadband

The proposal includes a 30% credit for state, local, and tribal governments for the operation and maintenance of government owned broadband systems.  Requirements for the credit include a download speed of at least 25 Mbps and an upload speed of at least 3 Mbps.  Expenses are capped at $400 per newly subscribed household living in a low-income community.  The credit phases down to 26% in 2027, 24% in 2028, and expires at the beginning of 2029.

New Markets Tax Credit

The new markets tax credit would be permanent, if accepted in its current form.  For the 2022 and 2023 allocation rounds, it provides an additional allocation amount of $2 billion (for a total of $7 billion in 2022) and $1 billion (for a total of $6 billion in 2023). It sets the allocation amounts at $5 billion for 2024 and all years thereafter. Beginning in 2024, it indexes the annual allocation amount to inflation. Finally, the provision provides AMT relief to taxpayers claiming the NMTC.

Low Income Housing Tax Credit

There are a number of proposed changes affecting the low-income housing tax credit.  The 9% housing credit and the small state minimum would increase by 50% and phases in this increase over five years.  This would be effective for buildings financed by the proceeds of certain tax-exempt bonds issued in calendar years 2022, 2023, 2024, 2025, 2026, 2027, or 2028 (and not financed by previous bonds issued in tax years 2019-2021) for buildings placed in service in taxable years after December 31, 2021.

For buildings designated to serve extremely low-income households, there would be a 50% basis boost for LIHTC buildings that designate at least 20% of their occupied units for extremely low-income tenants and limit rent to no more than 30% of the greater of: 30% of area median income or the federal poverty line.  For more details, contact our office or your tax professional.

 

Victoria S. Byerly is an attorney in KAV’s Public Finance Group. A specialist in Section 103 of the Internal Revenue Code, her practice is exclusively dedicated to state and federal tax matters related to the issuance of tax-exempt debt obligations.

IRS Extended Guidance Issued On Telephonic Hearings

In Revenue Procedure 2021-39, the IRS extended guidance issued in Revenue Procedure 2020-21 regarding TEFRA hearings.  Under Section 147(f), public approval is required for tax exempt private activity bonds.  Refundings are an exception.  Under Section 147(f)(2)(B), an issue will be treated as approved by any governmental unit if the issue is approved by the applicable elective representative of the governmental unit after a public hearing following reasonable public notice, or by voter referendum of the governmental unit.

Revenue Procedure 2020-21 permitted telephonic hearings that are accessible to residents of the approving governmental unit, in light of the Covid 19 Pandemic.  Since the Covid 19 Pandemic continues, Revenue Procedure 2021-39 extends the time period for use of telephonic hearings to March 31, 2022.

Victoria S. Byerly is an attorney in KAV’s Public Finance Group. A specialist in Section 103 of the Internal Revenue Code, her practice is exclusively dedicated to state and federal tax matters related to the issuance of tax-exempt debt obligations.

Infrastructure Bill May Affect Aspects of Cryptocurrency

Infrastructure Bill May Affect Reporting and Tax Requirements for Cryptocurrency

Since August 10, 2021, the Senate passed the infrastructure bill with amended language (H.R. 3684).  There was a dispute regarding reporting and tax requirements on cryptocurrency transactions.  H.R. 3684 now moves to the House.  With respect to bonds, the Senate’s package includes language to expand permitted use of private activity bonds for broadband projects, expand permitted use of private activity bonds for carbon capture technology, and increase the nationwide cap for highway or surface freight transfer facility bonds from $15 billion to $30 billion.

Victoria S. Byerly is an attorney in KAV’s Public Finance Group. A specialist in Section 103 of the Internal Revenue Code, her practice is exclusively dedicated to state and federal tax matters related to the issuance of tax-exempt debt obligations.

Welcome Courtney Blackburn!

Kline Alvarado Veio, P.C. is pleased to welcome experienced transactional attorney Courtney Blackburn as an Associate in the firm’s Public Finance, Real Estate, and Commercial Transactions practice groups.

Courtney has a broad transactional practice with substantial real estate experience. She has worked on various transactions with lenders, developers, residential communities, private landowners, the federal government, and various municipalities. Courtney also has advised clients on a wide range of state and federal regulations.

Courtney has extensive experience reviewing title reports and surveys and providing solutions to cure or mitigate risks associated with various property issues, including restrictive covenants, tax liens, encumbrances, interfering easements, and HOA/planned community compliance issues.

Courtney has acted as counsel to Fortune 100 companies serving as the liaison between in-house legal departments and their local business markets to ensure best practices and to analyze risks to help clients make informed and strategic business decisions.  Courtney is proactive in identifying issues and proposing solutions for clients.

Prior to joining the firm, Courtney was an Associate at Sherman & Howard L.L.C. She also has prior experience working in-house at a large, publicly traded energy company.

Courtney can be reached at cblackburn@kvfirm.com or at 720-745-7161.

The I.R.S. Provides Temporary Guidance on Public Hearing Requirements

On November 4, 2020, the Internal Revenue Service issued Revenue Procedure 2020-49, which provides temporary guidance regarding the public approval requirement under §147(f) of the Internal Revenue Code for tax-exempt qualified private activity bonds, which, among other, mandates that certain hearings must be held in-person.

Earlier this year (May 2020), the IRS announced that the public approval requirement under Section 147(f) could be met by having telephonic hearings, due the Coronavirus Disease 2019 (COVID-19) pandemic.  Recently, the IRS issued Revenue Procedure 2020-49 which extends the ability to have telephonic hearings to September 30, 2021 due to the COVID-19 Pandemic.

Qualified tax-exempt private activity bonds are subject to public approval.  The bonds must not only be approved by the governmental unit issuing the bonds but must also be approved by the governmental unit having jurisdiction over the area in which the facility (to be financed by the bonds) will be located. Treasury Reg Section 1.147(f)-1(d)(1) provides that there must be a public hearing that gives a reasonable opportunity for interested persons to express their views with respect to the proposed bond(s).  Rev Procedure 2020-49 extends the IRS’s May 2020 guidance that hearings held by teleconference that are accessible to the residents of the approving governmental unit by calling a toll-free telephone number will be treated as held in a location that, based on the facts and circumstances, is convenient for residents of the approving governmental unit for purposes of § 1.147(f)-1(d)(2).

Victoria S. Byerly is an attorney in KAV’s Public Finance Group. A specialist in Section 103 of the Internal Revenue Code, her practice is exclusively dedicated to state and federal tax matters related to the issuance of tax-exempt debt obligations.