federal tax issues john r. mcqueen, esq. tax-exempt bonds as a financing tool for construction of...
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FEDERAL TAX ISSUES
John R. McQueen, Esq.
Tax-Exempt Bonds as a Financing Toolfor Construction of New College and University Facilities
April 18, 2008
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MAJOR ISSUES
• Reimbursement Resolutions
• Capital Campaigns
• Limitations on Management Contracts
• Corporate-Sponsored Research
• Financial Covenants
• Tax Enforcement
• Auction Rate Bonds/Bond Insurer Problems
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Reimbursement Resolutions
• Types of Costs Covered
• Timing Requirements
• Content of Reimbursement Resolution
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Types of Costs Covered
• Preliminary Expenditures Up to 20% Not Subject
• Capital Expenditures
• Land Acquisitions and Site Preparation
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Timing Requirements
• 60-day Period Prior Covered
• Reimbursement of Hard Costs Within 18 Months of Placed-in-Service Date
• Reimbursement Within 3 Years of Original Expenditure
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Content of Reimbursement Resolution
• General Project Description
• Maximum Principal Amount of Bonds
• Not Applicable to Prior Financing
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Capital Campaigns
• “Sufficiently Direct Nexus”
• Replacement Proceeds Concept
• Potential Nexus Situations
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Capital Campaigns
• Donor-Restricted Gifts
• Capital Campaign Purposes
• Preliminary Earmarking Not Fatal
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Capital Campaigns
• Wording of Campaign Materials Crucial
• Include Broad Number of Purposes
• Campaign for Debt Service
• Campaign for Operating Expenses
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Management Contracts
• Types of Private Business Use
• Leases
• Corporate-Sponsored Research
• Management Contracts
• Special Legal Entitlements
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Management Contracts
• Term of Agreement
• Type of Compensation
• No Net Profit-Sharing
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Management Contracts
• 15-Year Safe Harbor
• 10-Year Safe Harbor
• 5-Year Safe Harbor
• 3-Year Per-Unit Contracts
• 2-Year Revenue Contracts
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Measurement of Private Business Use
• 5% Limit
• Square Footage Approach
• Fair Rental Value Approach
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Corporate-Sponsored Research
• Basic Research
• Competitive Price
• No Pre-Set Royalties
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Cooperative Research
• Basic Research – Multiple Sponsors
• 501(c)(3) Controls
• Patent Owned by 501(c)(3)
• Non-Exclusive Royalty-Free License
• Federal Rights under Bayh-Dole Act
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Financial Covenants
• Potential Arbitrage Issues
• Liquidity Covenants
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Liquidity Covenant Safe Harbor
• Semi-Annual Testing
• Amount
• Reasonable Needs
• Provide Senior Lien
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Tax Enforcement
• Phase I – 501(c)(3) Audit Program
• Issues
• Compliance Check Questionnaire
• New IRS Form 990, Schedule K
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Auction Rate Bonds/VariableRate Demand Bonds
• Conversion from Auction Rate = No Reissuance
• Purchases by LOC Bank or Conduit Borrower Do Not Retire Debt
• Purchases by Conduit Borrower Do Not ViolateProgram Investment Rules