§ 144.
Qualified small issue bond; qualified student loan bond; qualified redevelopment bond
(a)
Qualified small issue bond
(1)
In general
For purposes of this part, the term “qualified small issue bond” means any bond issued as part of an issue the aggregate authorized face amount of which is $1,000,000 or less and 95 percent or more of the net proceeds of which are to be used—
(A)
for the acquisition, construction, reconstruction, or improvement of land or property of a character subject to the allowance for depreciation, or
(B)
to redeem part or all of a prior issue which was issued for purposes described in subparagraph (A) or this subparagraph.
(2)
Certain prior issues taken into account
If—
(A)
the proceeds of 2 or more issues of bonds (whether or not the issuer of each such issue is the same) are or will be used primarily with respect to facilities located in the same incorporated municipality or located in the same county (but not in any incorporated municipality),
(B)
the principal user of such facilities is or will be the same person or 2 or more related persons, and
(C)
but for this paragraph, paragraph (1) (or the corresponding provision of prior law) would apply to each such issue,
then, for purposes of paragraph (1), in determining the aggregate face amount of any later issue there shall be taken into account the aggregate face amount of tax-exempt bonds issued under all prior such issues and outstanding at the time of such later issue (not including as outstanding any bond which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue).
(3)
Related persons
For purposes of this subsection, a person is a related person to another person if—
(A)
the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or
(B)
such persons are members of the same controlled group of corporations (as defined in section 1563(a), except that “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears therein).
(4)
$10,000,000 limit in certain cases
(A)
In general
At the election of the issuer with respect to any issue, this subsection shall be applied—
(i)
by substituting “$10,000,000” for “$1,000,000” in paragraph (1), and
(ii)
in determining the aggregate face amount of such issue, by taking into account not only the amount described in paragraph (2), but also the aggregate amount of capital expenditures with respect to facilities described in subparagraph (B) paid or incurred during the 6-year period beginning 3 years before the date of such issue and ending 3 years after such date (and financed otherwise than out of the proceeds of outstanding tax-exempt issues to which paragraph (1) (or the corresponding provision of prior law) applied), as if the aggregate amount of such capital expenditures constituted the face amount of a prior outstanding issue described in paragraph (2).
(B)
Facilities taken into account
For purposes of subparagraph (A)(ii), the facilities described in this subparagraph are facilities—
(i)
located in the same incorporated municipality or located in the same county (but not in any incorporated municipality), and
(ii)
the principal user of which is or will be the same person or 2 or more related persons.
For purposes of clause (i), the determination of whether or not facilities are located in the same governmental unit shall be made as of the date of issue of the issue in question.
(C)
Certain capital expenditures not taken into account
For purposes of subparagraph (A)(ii), any capital expenditure—
(i)
to replace property destroyed or damaged by fire, storm, or other casualty, to the extent of the fair market value of the property replaced,
(ii)
required by a change made after the date of issue of the issue in question in a Federal or State law or local ordinance of general application or required by a change made after such date in rules and regulations of general application issued under such a law or ordinance,
(iii)
required by circumstances which could not be reasonably foreseen on such date of issue or arising out of a mistake of law or fact (but the aggregate amount of expenditures not taken into account under this clause with respect to any issue shall not exceed $1,000,000), or
(iv)
described in clause (i) or (ii) of section 41(b)(2)(A) for which a deduction was allowed under section 174(a),
shall not be taken into account.
(D)
Limitation on loss of tax exemption
(E)
Certain refinancing issues
(F)
Aggregate amount of capital expenditures where there is urban development action grant
(G)
Additional capital expenditures not taken into account
(5)
Issues for residential purposes
(6)
Limitations on treatment of bonds as part of the same issue
(A)
In general
For purposes of this subsection, separate lots of bonds which (but for this subparagraph) would be treated as part of the same issue shall be treated as separate issues unless the proceeds of such lots are to be used with respect to 2 or more facilities—
(i)
which are located in more than 1 State, or
(ii)
which have, or will have, as the same principal user the same person or related persons.
(B)
Franchises
For purposes of subparagraph (A), a person (other than a governmental unit) shall be considered a principal user of a facility if such person (or a group of related persons which includes such person)—
(i)
guarantees, arranges, participates in, or assists with the issuance (or pays any portion of the cost of issuance) of any bond the proceeds of which are to be used to finance or refinance such facility, and
(ii)
provides any property, or any franchise, trademark, or trade name (within the meaning of section 1253), which is to be used in connection with such facility.
(7)
Subsection not to apply if bonds issued with certain other tax-exempt bonds
(8)
Restrictions on financing certain facilities
This subsection shall not apply to an issue if—
(A)
more than 25 percent of the net proceeds of the issue are to be used to provide a facility the primary purpose of which is one of the following: retail food and beverage services, automobile sales or service, or the provision of recreation or entertainment; or
(B)
any portion of the proceeds of the issue is to be used to provide the following: any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, or racetrack.
(9)
Aggregation of issues with respect to single project
(10)
Aggregate limit per taxpayer
(B)
Outstanding tax-exempt facility-related bonds
(i)
In general
For purposes of applying subparagraph (A) with respect to any issue, the outstanding tax-exempt facility-related bonds of any person who is a test-period beneficiary with respect to such issue is the aggregate amount of tax-exempt bonds referred to in clause (ii)—
(I)
which are allocated to such beneficiary, and
(II)
which are outstanding at the time of such later issue (not including as outstanding any bond which is to be redeemed (other than in an advance refunding) from the net proceeds of the later issue).
(ii)
Bonds taken into account
For purposes of clause (i), the bonds referred to in this clause are—
(I)
exempt facility bonds, qualified small issue bonds, and qualified redevelopment bonds, and
(II)
industrial development bonds (as defined in section 103(b)(2), as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) to which section 141(a) does not apply.
(C)
Allocation of face amount of issue
(D)
Test-period beneficiary
For purposes of this paragraph, except as provided in regulations, the term “test-period beneficiary” means any person who is an owner or a principal user of facilities being financed by the issue at any time during the 3-year period beginning on the later of—
(i)
the date such facilities were placed in service, or
(E)
Treatment of related persons
(11)
Limitation on acquisition of depreciable farm property
(B)
Depreciable farm property
(C)
Prior issues taken into account
(12)
Termination dates
(A)
In general
This subsection shall not apply to—
(i)
any bond (other than a bond described in clause (ii)) issued after December 31, 1986, or
(ii)
any bond (or series of bonds) issued to refund a bond issued on or before such date unless—
(I)
the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue,
(II)
the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and
(III)
the net proceeds of the refunding bond are used to redeem the refunded bond not later than 90 days after the date of the issuance of the refunding bond.
For purposes of clause (ii)(I), average maturity shall be determined in accordance with section 147(b)(2)(A).
(B)
Bonds issued to finance manufacturing facilities and farm property
Subparagraph (A) shall not apply to any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide—
(i)
any manufacturing facility, or
(ii)
any land or property in accordance with section 147(c)(2).
(C)
Manufacturing facility
For purposes of this paragraph—
(ii)
Certain facilities included
Such term includes facilities which are directly related and ancillary to a manufacturing facility (determined without regard to this clause) if—
(I)
such facilities are located on the same site as the manufacturing facility, and
(II)
not more than 25 percent of the net proceeds of the issue are used to provide such facilities.
(iii)
Special rules for bonds issued in 2009 and 2010
In the case of any issue made after the date of enactment of this clause and before January 1, 2011, clause (ii) shall not apply and the net proceeds from a bond shall be considered to be used to provide a manufacturing facility if such proceeds are used to provide—
(I)
a facility which is used in the creation or production of intangible property which is described in section 197(d)(1)(C)(iii), or
(II)
a facility which is functionally related and subordinate to a manufacturing facility (determined without regard to this subclause) if such facility is located on the same site as the manufacturing facility.
(b)
Qualified student loan bond
For purposes of this part—
(1)
In general
The term “qualified student loan bond” means any bond issued as part of an issue the applicable percentage or more of the net proceeds of which are to be used directly or indirectly to make or finance student loans under—
(A)
a program of general application to which the Higher Education Act of 1965 applies if—
(i)
limitations are imposed under the program on—
(I)
the maximum amount of loans outstanding to any student, and
(II)
the maximum rate of interest payable on any loan,
(ii)
the loans are directly or indirectly guaranteed by the Federal Government,
(iii)
the financing of loans under the program is not limited by Federal law to the proceeds of tax-exempt bonds, and
(iv)
special allowance payments under section 438 of the Higher Education Act of 1965—
(I)
are authorized to be paid with respect to loans made under the program, or
(II)
would be authorized to be made with respect to loans under the program if such loans were not financed with the proceeds of tax-exempt bonds, or
(B)
a program of general application approved by the State if no loan under such program exceeds the difference between the total cost of attendance and other forms of student assistance (not including loans pursuant to section 428B(a)(1) of the Higher Education Act of 1965 (relating to parent loans) or subpart I
1
See References in Text note below.
of part C of title VII of the Public Health Service Act (relating to student assistance)) for which the student borrower may be eligible. A program shall not be treated as described in this subparagraph if such program is described in subparagraph (A).
A bond shall not be treated as a qualified student loan bond if the issue of which such bond is a part meets the private business tests of paragraphs (1) and (2) of section 141(b) (determined by treating 501(c)(3) organizations as governmental units with respect to their activities which do not constitute unrelated trades or businesses, determined by applying section 513(a)).
(2)
Applicable percentage
For purposes of paragraph (1), the term “applicable percentage” means—
(A)
90 percent in the case of the program described in paragraph (1)(A), and
(B)
95 percent in the case of the program described in paragraph (1)(B).
(3)
Student borrowers must be residents of issuing State, etc.
A student loan shall be treated as being made or financed under a program described in paragraph (1) with respect to an issue only if the student is—
(A)
a resident of the State from which the volume cap under section 146 for such loan was derived, or
(B)
enrolled at an educational institution located in such State.
(4)
Discrimination on basis of school location not permitted
(c)
Qualified redevelopment bond
For purposes of this part—
(2)
Additional requirements
A bond shall not be treated as a qualified redevelopment bond unless—
(A)
the issue described in paragraph (1) is issued pursuant to—
(i)
a State law which authorizes the issuance of such bonds for redevelopment purposes in blighted areas, and
(ii)
a redevelopment plan which is adopted before such issuance by the governing body described in paragraph (4)(A) with respect to the designated blighted area,
(B)
(i)
the payment of the principal and interest on such issue is primarily secured by taxes of general applicability imposed by a general purpose governmental unit, or
(ii)
any increase in real property tax revenues (attributable to increases in assessed value) by reason of the carrying out of such purposes in such area is reserved exclusively for debt service on such issue (and similar issues) to the extent such increase does not exceed such debt service,
(C)
each interest in real property located in such area—
(i)
which is acquired by a governmental unit with the proceeds of the issue, and
(ii)
which is transferred to a person other than a governmental unit,
is transferred for fair market value,
(D)
the financed area with respect to such issue meets the no additional charge requirements of paragraph (5), and
(E)
the use of the proceeds of the issue meets the requirements of paragraph (6).
(3)
Redevelopment purposes
For purposes of paragraph (1)—
(A)
In general
The term “redevelopment purposes” means, with respect to any designated blighted area—
(i)
the acquisition (by a governmental unit having the power to exercise eminent domain) of real property located in such area,
(ii)
the clearing and preparation for redevelopment of land in such area which was acquired by such governmental unit,
(iii)
the rehabilitation of real property located in such area which was acquired by such governmental unit, and
(iv)
the relocation of occupants of such real property.
(B)
New construction not permitted
(4)
Designated blighted area
For purposes of this subsection—
(C)
Designated areas may not exceed 20 percent of total assessed value of real property in government’s jurisdiction
(ii)
Designation percentage
(iii)
Exception where bonds not outstanding
(D)
Minimum designated area
(ii)
10-acre minimum in certain cases
(5)
No additional charge requirements
The financed area with respect to any issue meets the requirements of this paragraph if, while any bond which is part of such issue is outstanding—
(A)
no owner or user of property located in the financed area is subject to a charge or fee which similarly situated owners or users of comparable property located outside such area are not subject, and
(B)
the assessment method or rate of real property taxes with respect to property located in the financed area does not differ from the assessment method or rate of real property taxes with respect to comparable property located outside such area.
For purposes of the preceding sentence, the term “comparable property” means property which is of the same type as the property to which it is being compared and which is located within the jurisdiction of the designating governmental unit.
(6)
Use of proceeds requirements
The use of the proceeds of an issue meets the requirements of this paragraph if—
(A)
not more than 25 percent of the net proceeds of such issue are to be used to provide (including the provision of land for) facilities described in subsection (a)(8) or section 147(e), and
(B)
no portion of the proceeds of such issue is to be used to provide (including the provision of land for) any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.
(8)
Restriction on acquisition of land not to apply
(Added [Pub. L. 99–514, title XIII, § 1301(b)], Oct. 22, 1986, [100 Stat. 2621]; amended [Pub. L. 100–647, title I, § 1013(a)(4)(A)], (B)(i), (ii), (C), (5), title VI, § 6176(a), Nov. 10, 1988, [102 Stat. 3537], 3538, 3726; [Pub. L. 101–239, title VII, § 7105], Dec. 19, 1989, [103 Stat. 2306]; [Pub. L. 101–508, title XI, § 11409(a)], Nov. 5, 1990, [104 Stat. 1388–478]; [Pub. L. 102–227, title I, § 109(a)], Dec. 11, 1991, [105 Stat. 1688]; [Pub. L. 103–66, title XIII, § 13122(a)], Aug. 10, 1993, [107 Stat. 432]; [Pub. L. 108–357, title III, § 340], Oct. 22, 2004, [118 Stat. 1485]; [Pub. L. 109–222, title II, § 208], May 17, 2006, [120 Stat. 351]; [Pub. L. 111–5, div. B, title I, § 1301(a)], Feb. 17, 2009, [123 Stat. 344].)