IRS Sets New Rules for Private Business Municipal Bonds – Finance and Banking

IRS Sets New Rules for Private Business Municipal Bonds - Finance and Banking

Taft Stettinius & Hollister

25 November 2021

Highlights


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For calendar year 2022, the amounts used under § 146(d) of
the Internal Revenue Code to calculate the state ceiling for the
volume cap for private activity bonds is the greater of (1) $110
multiplied by the State population, or (2) $335,115,000. In
addition, Rev. Proc. 2021-45 places limits on the issuance of
agricultural bonds. For calendar year 2022, the loan limit amount
on agricultural bonds under § 147(c)(2)(A) for first-time
farmers is $575,400.

On November 10, 2021, the IRS released Rev. Proc. 2021-45
setting forth calendar year 2022 methodologies for establishing
private activity bonds volume cap (state ceiling) as well as
brokerage commissions on guaranteed investment contracts or
investments purchased for a yield restricted defeasance escrows,
such as those often used in housing and other community-oriented
private activity bonds.

Rev. Proc. 2021-45 also set forth safe harbor rules for
brokerage commissions on guaranteed investment contracts or
investments purchased for a yield restricted defeasance escrow. For
calendar year 2022, under § 1.148-5(e)(2)(iii)(B)(1), a
broker’s commission or similar fee for the acquisition of a
guaranteed investment contract or investments purchased for a yield
restricted defeasance escrow is reasonable if (1) the amount of the
fee that the issuer treats as a qualified administrative cost does
not exceed the lesser of (A) $43,000, and (B) 0.2 percent of the
computational base (as defined in § 1.148-5(e)(2)(iii)(B)(2))
or, if more, $4,000; and (2) for any issue, the issuer does not
treat more than $122,000 in brokers’ commissions or similar
fees as qualified administrative costs for all guaranteed
investment contracts and investments for yield restricted
defeasance escrows purchased with gross proceeds of the issue.

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guide to the subject matter. Specialist advice should be sought
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