- In General.
Revenue Procedure 2018-26, published in the Federal Register on April 11, 2018 (the “Rev. Proc.”), introduces guidelines for effecting remedial actions in connection certain categories of bonds issued under the Internal Revenue Code of 1986, as amended (the “Code”).* These guidelines apply to nonqualified uses in respect of tax-advantaged bonds that take place on or after April 11, 2018, and may apply to such situations occurring prior to April 11, 2018.
The relevant categories of bonds are referred to herein as “tax advantaged bonds” and comprise :
- direct pay bonds, for which the issuer receives refundable tax credits (“direct pay bonds”);
- tax credit bonds, for which holders receive tax credits (“tax credit bonds”); and
- tax-exempt bonds, for which holders receive tax-exempt interest (“TEBs”).
- Definitions.
“Nonqualified use” is (a) a use of tax-advantaged bond financed assets for a purpose other than a qualified use contemplated by the applicable Code section and (b), in connection with direct pay bonds and tax credit bonds, a failure to spend proceeds of such bonds within the applicable spending period; if any.
A nonqualified use occurs in connection with the failure to spend the proceeds of direct pay bonds and/or tax credit bonds on the earlier of (a) the first date on which the issuer fails to have a reasonable expectation to spend the proceeds for a qualified use (within the required expenditure period) or (b) the last day of the expenditure period.
A nonqualified use occurs in connection with facilities financed with the proceeds of direct pay bonds and/or tax credit bonds on the first date on which an action causes proceeds to be used for other than a qualified use.
A nonqualified use occurs in connection with facilities financed with the proceeds of TEBs on the date of a deliberate action, as described in §1.141-2(d)(3).
____________________
* Section references used herein are to applicable provisions of the Internal Revenue Code of 1986, as amended, or Treasury Regulations promulgated thereunder.