April 17, 2018
Tax-Exempt Bond Update: IRS Releases Remedial Action Guidance
On April 11, 2018, the Internal Revenue Service released Revenue Procedure 2018-26, expanding the availability of certain remedial actions for tax-exempt and tax-advantaged bonds.
Bonds that are tax-exempt or otherwise tax-advantaged (such as tax credit and direct pay bonds) are subject to various requirements with respect to the expenditure of bond proceeds and the on-going use of any facilities financed with bond proceeds. If a change in use of a bond-financed facility results in “nonqualified use” of bond proceeds, existing Regulations provide remedial actions to cure the nonqualified use in certain situations. These Regulations apply generally to bonds issued for the benefit of governmental entities and 501(c)(3) organizations. Existing remedial actions include:
- Redemption or defeasance of nonqualified bonds
- Alternative use of disposition proceeds
- Alternative use of facility
In most cases, disposition proceeds must be treated as proceeds of the bonds for arbitrage purposes (i.e. must be yield restricted until spent).