2023 Agenda

A robust post-issuance compliance (“PIC”) program is essential to maintaining the exempt status of tax-exempt bonds. Developing a program founded on best practices related to policies and procedures for private business use (“PBU”) and arbitrage rebate monitoring will equip organizations with the tools to withstand IRS scrutiny in this area. This session will review the elements of a successful PIC program, discuss the benefits of an effective program, and provide participants with an introduction and baseline for the additional detailed discussions at the Workshop.

The federal tax rules and regulations relating to PBU are complex and require active monitoring over the life of the bonds. This session will provide a detailed overview of the federal tax rules and regulations relating to PBU (and unrelated trade or business use for 501(c)(3) organizations). In addition, panelists will discuss the available exceptions to PBU, including short-term and incidental use. Understanding the relevant PBU rules and exceptions will help issuers and borrowers of tax-exempt bonds manage their tax-exempt financed facilities in the most efficient way while maintaining compliance with the PBU restrictions. In today’s economic environment, this information is increasingly important as issuers and borrowers look to maximize revenue generating activities in their facilities.

Increasingly, organizations are looking for ways to maximize revenue, recruit and retain faculty, and form relationships with the private sector, and sponsored research and related arrangements often are one of the options considered. Sponsored scientific research, research joint ventures and third-party access occurring in tax-exempt financed facilities may give rise to PBU depending on how rights to use intellectual property resulting from the research are managed. This session will discuss these arrangements, including the difference between basic and applied research and the IRS safe harbor rules relating to sponsored research as provided in Rev Proc 2007-47. As the trend continues for organizations to take on more sponsored research in their bond financed facilities, participants will be better equipped to make educated decisions regarding the use of such facilities in sponsored research endeavors and to structure agreements to be safe harbor compliant.

Management contracts and other service agreements with third party providers occurring in bond financed space may give rise to PBU depending on how such contracts are structured. In Rev Proc 2017-13, the IRS has provided guidance in the form of certain safe harbor requirements for contracts for services rendered in tax-exempt bond-financed facilities. While this revenue procedure can be helpful, organizations need to carefully navigate these principle-based concepts to help minimize the impact that noncompliant contracts may have on their PBU percentage. This session will provide an overview of why organizations enter into these agreements and discuss the rules and safe harbors that govern them Specific guidance for structuring contracts and agreements to be safe harbor compliant will also be discussed.

With interest rates higher than they have been in over 10 years, there are both opportunities and obstacles for organizations who borrow on a tax-exempt basis. This session will review current market trends and offer suggestions for organizations with respect to debt issuance and the investment of bond proceeds.

With interest rates higher than they have been in over 10 years, there are both opportunities and obstacles for tax-exempt issuers and borrowers. Higher interest rates may present additional hurdles to getting tax-exempt financings to market Panelist will discuss recent debt-issuance trends and the current challenges around issuing debt.

While the cost of borrowing on a tax-exempt basis will cost organizations more in the current environment, there are excellent opportunities available to issuers and borrowers with respect to the investment of bond proceeds. Panelists will discuss the current reinvest market and provide specific examples of maximizing earnings on bond proceeds, along with specific steps that organizations can take to position themselves to be able to take advantage of certain investment options.

With rising interest rates comes, once again, the potential for positive arbitrage. After over 10 years of negative arbitrage, positive arbitrage is once again a reality for issuers and borrowers of tax-exempt debt. While there are certainly challenges in managing arbitrage rebate compliance in this environment, there are also opportunities for organizations to earn and potentially keep more or even all of their earnings on invested bond proceeds. Our panelists will discuss the rules and regulations relating to arbitrage rebate and yield restriction and offer strategies to maximize the retainable earnings in a positive arbitrage environment.

Accurately calculating PBU for tax-exempt bond issues can be challenging due to the complex nature of the IRS rules, regulations, and restrictions. These calculations are an essential element of an active and effective PIC program. Panelists will examine the available methods for quantifying PBU and walk through examples of these calculations. The discussion will include calculating PBU for typical types of use including: sponsored research, management contracts and leases, summer use of facilities, central utility plants, and physician group contracts for hospitals. This session will also discuss how utilizing “qualified equity” can be a powerful tool in minimizing PBU. Participants will gain a better understanding of the impact of various types of noncompliant use on the overall PBU within a single tax-exempt bond issue.

Robust and evolving post-issuance compliance programs are important for issuers and borrowers of tax-exempt bonds. This session will highlight the PIC programs of two organizations, one higher ed and one healthcare. Our panelists will discuss their efforts to position the organization to comply with the various IRS and SEC requirements, with specific details on how they manage PBU, arbitrage rebate, and secondary market disclosure compliance. This discussion can serve as a valuable resource to other organizations facing similar tax compliance burdens.

The Tax Exempt and Government Entities (TE/GE) division at the IRS has an active enforcement process relating to tax-exempt bonds, with the focus changing on a yearly basis. With the return of positive arbitrage and the increased likelihood of rebate payments, there may be an increase in IRS enforcement activity and oversight. In addition, over the last few years the IRS has received an increase in budget and has been adding additional staff. This session will provide an update on the TE/GE enforcement activities and what that means for issuers and borrowers. Orrick and BLX have extensive experience with respect to tax-exempt bond audits and will provide guidance on what issuers and borrowers should be aware of when responding to an IRS audit.

While PBU calculations are necessary for organizations to document compliance with IRS rules and regulations and be prepared in the event of an IRS audit, they can also be used for so much more. Having accurate calculations of PBU allows organizations to make educated decisions about future use of their tax-exempt bond financed facilities, taking on a use or activity that may generate PBU while still allowing the bond issue to remain in compliance with the PBU limitations. Panelists will discuss specific examples of how PBU calculations may be used as a planning and forecasting tool, and how this can be helpful to organizations looking to maximize revenue for the organization.

This session will provide an overview of recent events relating to SEC Rule 15c2-12 and a summary of the Financial Data Transparency Act of 2022 (FDTA) that was signed into law as part of the National Defense Authorization Act (NDAA).