IRS Releases New TEFRA Regulations

Yesterday, the IRS released proposed regulations (“Proposed Regulations”) relating to the so-called TEFRA public notice and approval requirement for private activity bonds.  In general, the Proposed Regulations make it easier to satisfy the TEFRA requirements.  For new issues of private activity bonds while the Proposed Regulations are pending, issuers can choose to apply the existing rules or can elect to apply the Proposed Regulations.  The Proposed Regulations cannot apply to bonds already issued or approaching issuance with an approval that cannot be updated.  Below is a very brief summary of how the new proposed requirements differ from the existing rules.

Although notice of the required public hearing is still presumed to be reasonable if given at least 14 days in advance of the hearing, the notice requirement generally is easier to satisfy. 

1. The Proposed Regulations allow for the notice to be published on the issuer’s website or in another manner consistent with applicable state law, so that publication in a newspaper can be avoided if desired; 
2. The description set forth in the notice of the project to be financed does not need as much detail about the type of assets to be financed; 
3. A change in the initial owner of the project is allowed if the owner identified in the notice and the actual initial owner are commonly controlled; 
4. The “host” approval requirement does not apply to bonds issued to finance mortgages, student loans or working capital;
5. On the other hand, the Proposed Regulations make clear that the notice must specify the maximum expected principal amount of bonds to be issued for each different project to be financed if bonds finance more than one project; and
6. It may no longer be sufficient to identify the manager or operator of the project as opposed to the owner.

The Proposed Regulations also provide some very helpful rules that allow for deviations from the information set forth in notice.

1. The principal amount of the bonds actually issued is allowed to be up to 10% more than the amount set forth in the notice; and
2. Changes to the project to be financed that occur after bonds are issued, for example a change in location, can be approved by a new notice, hearing and approval.