Teb1-lesson7.pdf

When bonds are issued to finance a specific project, parties expect everything to go as planned, but sometimes projects don't work out, and changes occur, such as selling a hospital to a for-profit hospital system, which can cause bonds to meet private business tests, potentially affecting their tax-exempt status. This lesson discusses post-issuance events and their impact on tax-advantaged status, including remedial actions and change in use rules. Typical transactions that may affect bond status include sale, transfer, or lease of property to a private business user, jeopardizing tax-exempt status. A change in use can cause bonds to become taxable unless remedial action is taken. Historically, the IRS has moved away from basing tax exemption on reasonable expectations at issue date, now requiring actual facts over the bond term to determine private activity bond tests. Current rules, effective for bonds issued on or after May 16, 1997, cover remedial action rules for governmental and qualified 501(c)(3) bonds, with some rules applicable to outstanding bonds issued before this date. Remedial actions can preserve tax-exemption or tax-advantaged status if properly taken by issuers.