New TEFRA Regulations For Qualified Private Activity Bonds

Background

As part of the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA), Congress implemented new rules pertaining to the issuance of tax-exempt private activity bonds. The so-called TEFRA regulations required a local government issuer to, among other things, satisfy a "public approval" process prior to issuing taxexempt bonds for the benefit of a private party. While the IRS has long considered amending the TEFRA regulations, no official amendment has occurred in more than three decades. This changed, however, with the Treasury Department's publication of new regulations on December 31, 2018.

Beginning April 1, 2019, issuers of qualified private activity bonds will be governed by a new set of TEFRA regulations (the Final TEFRA Regulations). The Final TEFRA Regulations, which stem from the Treasury Department's 2017 Proposed Regulations (REG 128841-07, September 28, 2017), retain many of the procedures and requirements described in the 2017 Proposed Regulations. The general requirements of the existing regulations which continue under the Final TEFRA Regulations are listed below:

Either the governmental unit issuing the bonds or the governmental unit on-behalf-of which the bonds are issued must approve the issue (Issuer Approval); The governmental unit presiding over the area in which the bond-financed project will be located must approve the issue (Host Approval, and together with the Issuer Approval, the Public Approval); A public hearing must be held in connection with the proposed issuance of the bonds and the location and nature of the bond-financed project (Public Hearing Requirement); and Public notice must be given as to the time and location of the public hearing, the description of the bond-financed project and the maximum principal amount of the bonds proposed to be issued (Public Notice Requirement). Primary Changes

While the existing TEFRA requirements remain generally intact, the Final TEFRA Regulations offer a more flexible approach to certain procedures which allow issuers and governmental units to streamline their TEFRA obligations. The IRS stated that the new requirements "are not expected to have a significant economic effect on small state or local governmental units because the Final TEFRA Regulations generally would streamline and simplify the Existing Regulations in various respects to reduce the administrative burdens of meeting the statutory public approval requirement." The added flexibility and...

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