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Post-Issuance Tax Compliance Annual Training Session Todays topic: Private Business Use I. Introduction Nancy Winkler, City Treasurer Private Business Use 10/4/13 1 II. Overview Private Use 101 Kim Betterton Ballard Spahr Private

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Post-Issuance Tax Compliance Annual Training Session Today’s topic: Private Business Use

I. Introduction

Nancy Winkler, City Treasurer

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II. Overview

Private Use 101 Kim Betterton Ballard Spahr

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Tax Exemption = Subsidy

Congress promoting public purposes of, and investment by, state

and local governments by lowering cost of capital

Issuers must ensure that uses of bond financed facilities are for the

public good for federal tax purposes

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The Holy Grail: Governmental Bonds

Federal tax code allows for

tax-exempt interest on:  Governmental Bonds “Qualified” Private Activity Bonds

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PAB Tests: Don’t Want No Satisfaction

A Bond is a Private Activity Bond (PAB) if it meets either:
BOTH the Private Business Use and

Private Security and Payment Tests

OR
Private Loan Financing Test

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PAB Tests: Don’t Want No Satisfaction

Private Business Use Test: No more than 10% of the proceeds of

the issue can be used in private business

Private Security or Payment Test: No more than 10% of the debt

service on the bonds may be secured by private security or payment (capped at $15,000,000)

For each of these tests, the 10% is limit is reduced to 5% if the

private business use is unrelated OR disproportionate to the governmental use

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PAB Tests: Don’t Want No Satisfaction

Private Loan Financing Test: No more than the lesser of 5% and

$5,000,000 of the proceeds of the bonds can be used to finance private loans

Grants, unlike loans, are not private use

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What is Private Business Use

Ownership
Leases

– There are exceptions for short-term contracts

Management contracts

– See Rev. Proc. 97-13, as supplemented by Rev. Proc. 2001-39 for “safe harbors”

Output contracts

– There are exceptions for certain types of contracts

Research agreements

– See Rev. Proc. 2007-47 for safe harbors

Other agreements giving special legal entitlement
Special economic benefit in facilities not used by general public

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III. Departmental Spreadsheets

Charles Jones, Executive Director, Sinking Fund Commission

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IRS Concerns

a) What facilities does the City spend tax- exempt bond money on? b) How are those facilities are being used?

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Examples of Private Business Use

a) Transfer of ownership of City property to a nongovernmental person or entity. b) The lease of a City facility to a nongovernmental entity. c) A management contract between the City and a service provider. d) Short-term rentals for more than 100 days. e) Output contracts for the Water Dept. f) Parking facilities. g) Naming rights. h) Advertising. i) An arrangement that conveys special legal entitlements comparable to the other examples already mentioned. j) An informal, unwritten arrangement between City employees and a non-profit or a neighborhood group, such as an athletic association or an after-school group.

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IV. Panel Discussion
Kim Betterton, Ballard Spahr
Jonathan Lichtenstein, Cozen O’Connor
George Magnatta, Saul Ewing
Bob Tuteur, Blank Rome

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V. Questions and Answers

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Thank you for coming.

Forms are due back to Charles.Jones@Phila.gov on November 15th

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