26 USC 149 - Bonds must be registered to be tax exempt; other requirements

U.S Code last checked for updates: May 17, 2024

§ 149.

Bonds must be registered to be tax exempt; other requirements

(a)

Bonds must be registered to be tax exempt

(1)

General rule

(2)

Registration-required bond

For purposes of paragraph (1), the term “registration-required bond” means any bond other than a bond which—

(A)

is not of a type offered to the public, or

(B)

has a maturity (at issue) of not more than 1 year.

(3)

Special rules

(A)

Book entries permitted

(B)

Nominees

(b)

Federally guaranteed bond is not tax exempt

(1)

In general

(2)

Federally guaranteed defined

For purposes of paragraph (1), a bond is federally guaranteed if—

(A)

the payment of principal or interest with respect to such bond is guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof),

(B)

such bond is issued as part of an issue and 5 percent or more of the proceeds of such issue is to be—

(i)

used in making loans the payment of principal or interest with respect to which are to be guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof), or

(ii)

invested (directly or indirectly) in federally insured deposits or accounts, or

(C)

the payment of principal or interest on such bond is otherwise indirectly guaranteed (in whole or in part) by the United States (or an agency or instrumentality thereof).

(3)

Exceptions

(A)

Certain insurance programs

A bond shall not be treated as federally guaranteed by reason of—

(i)

any guarantee by the Federal Housing Administration, the Department of Veterans Affairs, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association,

(ii)

any guarantee of student loans and any guarantee by the Student Loan Marketing Association to finance student loans,

(iii)

any guarantee by the Bonneville Power Authority pursuant to the Northwest Power Act (16 U.S.C. 839d) as in effect on the date of the enactment of the Tax Reform Act of 1984, or

(iv)

subject to subparagraph (E), any guarantee by a Federal home loan bank made in connection with the original issuance of a bond during the period beginning on the date of the enactment of this clause and ending on December 31, 2010 (or a renewal or extension of a guarantee so made).

(B)

Debt service, etc.

Paragraph (1) shall not apply to—

(i)

proceeds of the issue invested for an initial temporary period until such proceeds are needed for the purpose for which such issue was issued,

(ii)

investments of a bona fide debt service fund,

(iii)

investments of a reserve which meet the requirements of section 148(d),

(iv)

investments in bonds issued by the United States Treasury, or

(v)

other investments permitted under regulations.

(C)

Exception for housing programs

(i)

In general

Except as provided in clause (ii), paragraph (1) shall not apply to—

(I)

a private activity bond for a qualified residential rental project or a housing program obligation under section 11(b) of the United States Housing Act of 1937,

(II)

a qualified mortgage bond, or

(III)

a qualified veterans’ mortgage bond.

(ii)

Exception not to apply where bond invested in federally insured deposits or accounts

(D)

Loans to, or guarantees by, financial institutions

(E)

Safety and soundness requirements for Federal home loan banks

(4)

Definitions

For purposes of this subsection—

(A)

Treatment of certain entities with authority to borrow from United States

(B)

Federally insured deposit or account

(c)

Tax exemption must be derived from this title

(1)

General rule

(2)

Certain prior exemptions

(A)

Prior exemptions continued

(B)

Additional requirements for bonds issued after 1983

(C)

Description of bond

A bond is described in this subparagraph (and treated as described in subparagraph (A)) if—

(i)

such bond is issued pursuant to the Northwest Power Act (16 U.S.C. 839d), as in effect on July 18, 1984;

(ii)

such bond is issued pursuant to section 608(a)(6)(A) of Public Law 97–468, as in effect on the date of the enactment of the Tax Reform Act of 1986; or

(iii)

such bond is issued before June 19, 1984 under section 11(b) of the United States Housing Act of 1937.

(d)

Advance refundings

(1)

In general

(2)

Advance refunding

(3)

Regulations

(e)

Information reporting

(1)

In general

(2)

Information reporting requirements

A bond satisfies the requirements of this paragraph if the issuer submits to the Secretary, not later than the 15th day of the 2d calendar month after the close of the calendar quarter in which the bond is issued (or such later time as the Secretary may prescribe with respect to any portion of the statement), a statement concerning the issue of which the bond is a part which contains—

(A)

the name and address of the issuer,

(B)

the date of issue, the amount of net proceeds of the issue, the stated interest rate, term, and face amount of each bond which is part of the issue, the amount of issuance costs of the issue, and the amount of reserves of the issue,

(C)

where required, the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved,

(D)

the name, address, and employer identification number of—

(i)

each initial principal user of any facility provided with the proceeds of the issue,

(ii)

the common parent of any affiliated group of corporations (within the meaning of section 1504(a)) of which such initial principal user is a member, and

(iii)

if the issue is treated as a separate issue under section 144(a)(6)(A), any person treated as a principal user under section 144(a)(6)(B),

(E)

a description of any property to be financed from the proceeds of the issue,

(F)

a certification by a State official designated by State law (or, where there is no such official, the Governor) that the bond meets the requirements of section 146 (relating to cap on private activity bonds), if applicable, and

(G)

such other information as the Secretary may require.

Subparagraphs (C) and (D) shall not apply to any bond which is not a private activity bond. The Secretary may provide that certain information specified in the 1st sentence need not be included in the statement with respect to an issue where the inclusion of such information is not necessary to carry out the purposes of this subsection.

(3)

Extension of time

(f)

Treatment of certain pooled financing bonds

(1)

In general

(2)

Reasonable expectation requirement

(A)

In general

The requirements of this paragraph are met with respect to an issue if the issuer reasonably expects that—

(i)

as of the close of the 1-year period beginning on the date of issuance of the issue, at least 30 percent of the net proceeds of the issue (as of the close of such period) will have been used directly or indirectly to make or finance loans to ultimate borrowers, and

(ii)

as of the close of the 3-year period beginning on such date of issuance, at least 95 percent of the net proceeds of the issue (as of the close of such period) will have been so used.

(B)

Certain factors may not be taken into account in determining expectations

(C)

Net proceeds

(D)

Refunding bonds

(3)

Cost of issuance payment requirements

The requirements of this paragraph are met with respect to an issue if—

(A)

the payment of legal and underwriting costs associated with the issuance of the issue is not contingent, and

(B)

at least 95 percent of the reasonably expected legal and underwriting costs associated with the issuance of the issue are paid not later than the 180th day after the date of the issuance of the issue.

(4)

Written loan commitment requirement

(A)

In general

(B)

Exception

Subparagraph (A) shall not apply with respect to any issuer which—

(i)

is a State (or an integral part of a State) issuing pooled financing bonds to make or finance loans to subordinate governmental units of such State, or

(ii)

is a State-created entity providing financing for water-infrastructure projects through the federally-sponsored State revolving fund program.

(5)

Redemption requirement

The requirement of this paragraph is met if to the extent that less than the percentage of the proceeds of an issue required to be used under clause (i) or (ii) of paragraph (2)(A) is used by the close of the period identified in such clause, the issuer uses an amount of proceeds equal to the excess of—

(A)

the amount required to be used under such clause, over

(B)

the amount actually used by the close of such period,

to redeem outstanding bonds within 90 days after the end of such period.

(6)

Pooled financing bond

For purposes of this subsection—

(A)

In general

(B)

Exceptions

Such term shall not include any bond if—

(i)

section 146 applies to the issue of which such bond is a part (other than by reason of section 141(b)(5)) or would apply but for section 146(i), or

(ii)

section 143(l)(3) applies to such issue.

(7)

Definition of loan; treatment of mixed use issues

(A)

Loan

For purposes of this subsection, the term “loan” does not include—

(i)

any loan which is a nonpurpose investment (within the meaning of section 148(f)(6)(A), determined without regard to section 148(b)(3)), and

(ii)

any use of proceeds by an agency of the issuer unless such agency is a political subdivision or instrumentality of the issuer.

(B)

Portion of issue to be used for loans treated as separate issue

(g)

Treatment of hedge bonds

(1)

In general

Section 103(a) shall not apply to any hedge bond unless, with respect to the issue of which such bond is a part—

(A)

the requirement of paragraph (2) is met, and

(B)

the requirement of subsection (f)(3) is met.

(2)

Reasonable expectations as to when proceeds will be spent

An issue meets the requirement of this paragraph if the issuer reasonably expects that—

(A)

10 percent of the spendable proceeds of the issue will be spent for the governmental purposes of the issue within the 1-year period beginning on the date the bonds are issued,

(B)

30 percent of the spendable proceeds of the issue will be spent for such purposes within the 2-year period beginning on such date,

(C)

60 percent of the spendable proceeds of the issue will be spent for such purposes within the 3-year period beginning on such date, and

(D)

85 percent of the spendable proceeds of the issue will be spent for such purposes within the 5-year period beginning on such date.

(3)

Hedge bond

(A)

In general

For purposes of this subsection, the term “hedge bond” means any bond issued as part of an issue unless—

(i)

the issuer reasonably expects that 85 percent of the spendable proceeds of the issue will be used to carry out the governmental purposes of the issue within the 3-year period beginning on the date the bonds are issued, and

(ii)

not more than 50 percent of the proceeds of the issue are invested in nonpurpose investments (as defined in section 148(f)(6)(A)) having a substantially guaranteed yield for 4 years or more.

(B)

Exception for investment in tax-exempt bonds not subject to minimum tax

(i)

In general

Such term shall not include any bond issued as part of an issue 95 percent of the net proceeds of which are invested in bonds—

(I)

the interest on which is not includible in gross income under section 103, and

(II)

which are not specified private activity bonds (as defined in section 57(a)(5)(C)).

(ii)

Amounts in bona fide debt service fund

(iii)

Amounts held pending reinvestment or redemption

(C)

Exception for refunding bonds

(i)

In general

(ii)

General rule for refunding of pre-effective date bonds

A refunding bond shall be treated as meeting the requirements of this subsection if—

(I)

this subsection does not apply to the original bond,

(II)

the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, and

(III)

the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.

(iii)

Refunding of pre-effective date bonds entitled to 5-year temporary period

A refunding bond shall be treated as meeting the requirements of this subsection if—

(I)

this subsection does not apply to the original bond,

(II)

the issuer reasonably expected that 85 percent of the spendable proceeds of the issue of which the original bond is a part would be used to carry out the governmental purposes of the issue within the 5-year period beginning on the date the original bonds were issued but did not reasonably expect that 85 percent of such proceeds would be so spent within the 3-year period beginning on such date, and

(III)

at least 85 percent of the spendable proceeds of the original issue (and all other prior original issues issued to finance the governmental purposes of such issue) were spent before the date the refunding bonds are issued.

(4)

Special rules

For purposes of this subsection—

(A)

Construction period in excess of 5 years

(B)

Rules for determining expectations

(5)

Regulations

(Added Pub. L. 99–514, title XIII, § 1301(b), Oct. 22, 1986, 100 Stat. 2646; amended Pub. L. 100–647, title I, § 1013(a)(20)–(22), title V, § 5051(a), Nov. 10, 1988, 102 Stat. 3542, 3676; Pub. L. 101–239, title VII, § 7651(a), Dec. 19, 1989, 103 Stat. 2383; Pub. L. 104–188, title I, § 1704(b)(1), Aug. 20, 1996, 110 Stat. 1878; Pub. L. 109–222, title V, § 508(a), (b), (d)(1), (2), May 17, 2006, 120 Stat. 361, 362; Pub. L. 110–289, div. C, title I, § 3023(a), (b), July 30, 2008, 122 Stat. 2894, 2895; Pub. L. 111–147, title V, § 502(a)(2)(A), Mar. 18, 2010, 124 Stat. 107; Pub. L. 115–97, title I, § 13532(a), (b)(1), Dec. 22, 2017, 131 Stat. 2154; Pub. L. 115–141, div. U, title IV, § 401(a)(2)(A), Mar. 23, 2018, 132 Stat. 1184.)

cite as: 26 USC 149