Federal income tax law generally restricts the private use of property financed with tax-exempt governmental use bonds or qualified 501(c)(3) bonds. Private use generally refers to use by nongovernmental and non-501(c)(3) users, or to use by a 501(c)(3) organization operating an unrelated trade or business. The federal income tax law does allow for a de minimis amount of private use of tax-exempt bond financed property. However, if there is private use of bond-financed property in excess of the de minimis allowance, tax-exempt governmental use bonds or qualified 501(c)(3) bonds may lose their tax-exempt status and become taxable private activity bonds.
On October 26, 2015, the Department of the Treasury released Final Regulations on allocation and accounting, and certain remedial actions, for purposes of the private activity bond restrictions that apply to tax-exempt bonds. Generally, the Final Regulations address and provide guidance on (i) the allocation of bond proceeds and other sources of funds in mixed use projects for private use purposes, (ii) the treatment of partnerships for purposes of the private use and ownership restrictions and (iii) anticipatory remedial actions.
