At the end of last year, the IRS issued its final regulation updating the 147(f) public hearing and approval requirements for tax exempt private activity bonds issued by state and local governments. The updated regulation nods to technological advances since the existing regulation was issued in 1983, and provides additional guidance on the content of the notice and the applicable elected representative who may approve the bonds. Implementation of the new regulation is tied to the date of the public approval, not the issuance of the bonds – tax exempt private activity bonds that are publicly approved on or after April 1, 2019 must comply with the new requirements. The final regulation is largely the same as the proposed regulation (discussed in our September 28, 2017 posting), with a few significant differences that should reduce the complexity of these public approvals and hearings.
Of note, the IRS accepted comments to reduce from 14 days to 7 days the minimum period between the notice and the hearing and to permit notices to be posted to the public website of the approving governmental unit or the on-behalf-of issuer, if applicable, without simultaneously publishing the notice through a non-internet alternative method. The notice should be posted on the primary public website of the governmental unit or the on-behalf-of issuer in an area that is used to inform residents about events affecting the residents.
Larger issuers may have more complex websites and should give thought to whether the location of the public notice is well labeled and easy for residents to find. We sometimes see issuer websites include notices of public hearings that identify the date of the scheduled hearing, but do not indicate the date the notice was first posted to the website. The IRS notes that issuers remain responsible under the new regulation for maintaining records showing that a public notice was timely posted; a date/time stamp on the website posting (either visible on the website page, within the notice, or as part of the website activity audit records) should be included.
The new regulation clarifies that a substantial deviation between the information provided in the notice and approval and the actual use of the proceeds would cause the bond issue to fail to meet the public approval requirement. Bonds issued in an actual stated principal amount greater than 10 percent of the maximum stated principal amount specified in the public notice and approval will be considered to substantially deviate from the public notice (but note that the bonds may be issued in any amount lower than originally specified in the public notice), necessitating a supplemental public approval. However, the maximum stated principal amount specified in the public notice and approval may be determined on any reasonable basis and may take into account contingencies (such as cost overruns) without regard to whether such contingency is reasonably expected at the time of the notice. This gives issuers some breathing room to schedule the public hearing and the approval meeting dates and publish the notice of hearing while still finalizing the exact numbers. If the bond proceeds are to finance multiple projects, the notice and approval must specify the maximum stated principal amount of bonds to be issued to finance each separate project.
Further clarifications on the description of the project in the public notice and approval were discussed in our September 2017 posting and adopted in the final regulation as originally proposed. Finally, special requirements apply to qualified 501(c)(3) bonds issued to finance pooled loan programs.
Issuers currently contemplating an issuance of tax exempt private activity bonds may already be in the process of scheduling the approval meeting, the public hearing and publication of the notice of hearing. If the approval will take place on or after April 1, 2019, the new IRS regulation will apply. For bonds approved prior to the April 1, 2019 date, the new regulation may be voluntarily applied to the public approval and notice in whole but not in part.