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Recovery Zone Bonds, Clean Renewable Energy Bonds, Qualified Tax Credit Bonds and Tribal Economic Development Bonds Volume Cap (National Limitation)

Description: 

A resource for identifying potential volume cap non-compliance for bonds issued under Section 54, Sections 54A through F, Section1400U-1, Section 1400U-2, Section 1400U-3, and Section 7871(f).

IRC Section and Treas. Regulation: 

See the matrix, below.

Resources (Court Cases, Chief Counsel Advice, Revenue Rulings, Internal Resources):    

See the matrix, below.

Analysis:

The following bonds issued under the following statutory sections require an allocation of specific issuance authority, or “volume cap” (also called “National Limitation”):

  • Clean Renewable Energy Bonds (Section 54);
  • Qualified Forestry Conservation Bonds (Section 54A, Section 54B)
  • New Clean Renewable Energy Bonds (Section 54A, Section 54C, Section 6431);
  • Qualified Energy Conservation Bonds (Section 54A, Section 54D, Section 6431);
  • Qualified Zone Academy Bonds (Section 54A, Section 54E, Section 6431);
  • Qualified School Construction Bonds (Section 54A, Section 54F, Section 6431);
  • Recovery Zone Economic Development Bonds (Section 1400U-1, Section 1400U-2, Section 54AA, Section 6431);
  • Recovery Zone Facility Bonds (Section 1400U-1, Section 1400U-3);
  • Tribal Economic Development Bonds (Section 7871(f)).

The volume cap for particular types of bonds is allocated by the IRS, state or local volume cap administrators or, in the case of allocations to Indian schools for Qualified School Construction Bonds, the Secretary of the Interior.

If bonds subject to a volume cap requirement are issued without the issuer obtaining the necessary allocation of volume cap, the bonds are ineligible for tax-advantaged treatment.

The authority that allocates volume cap depends on the type of bond involved. Generally, the amount of volume cap available and the method of its allocation are set out in statutes or other published guidance. Volume cap for some types of bonds is allocated by states, possessions, or political subdivisions. Volume cap for other types of bonds is allocated by the IRS. Volume cap allocations are generally documented through the issuance of an allocation letter from the allocating authority (whether the IRS or a state).

The matrix below presents, for each type of Recovery Zone Bond, Clean Renewable Energy Bond, Qualified Tax Credit Bond and Tribal Economic Development Bond subject to volume cap the general statutory authority and other published guidance for such bonds, the allocating authority, and the specific statutory authority and other published guidance applicable to volume cap allocations for such bonds. Note that these bonds are not subject to the volume cap requirements of Private Activity Bonds set out in Section 146.
 

Bond Type

Authority
(Public Law No. 115-97 repealed the authority to issue tax-credit bonds and direct-pay bonds (including Build America Bonds) after 12/31/17)

Allocation Received From

Volume Cap Guidance

Clean Renewable Energy Bonds (CREB)

Section 54

Notice 2006-7

Secretary

Section 54(f)

Notice 2005-98

Notice 2007-26

Qualified Forestry Conservation Bonds

(QFCB)

Section 54A

Section 54B

Secretary

Section 54B(d)

Notice 2008-70

New Clean Renewable Energy Bonds

(NCREB)

Section 54A

Section 54C

Section 6431

Notice 2010-35

Secretary

Section 54C(c)

Notice 2009-33

Notice 2015-12

Announcement 2010-54

Qualified Energy Conservation Bonds

(QECB)

Section 54A

Section 54D

Section 6431

Notice 2010-35

State/Political Subdivision

Section 54D(e)

Notice 2009-29

Notice 2012-44

Qualified Zone Academy Bonds

(QZAB)

Section 54A

Section 54E

Section 6431

Notice 2010-35

State/Political Subdivision

Section 54E(c)

Notice 2009-30

Notice 2010-22

Rev. Proc. 2011-19

Notice 2013-3

Notice 2015-11

Notice 2016-20

Qualified School Construction Bonds

(QSCB)          

Section 54A

Section 54F

Section 6431

Notice 2010-35

State/ Political Subdivision

Secretary of the Interior (for Indian schools)

 

Section 54F(d)

Notice 2009-35

Notice 2010-17

Recovery Zone Economic Development Bonds (a type of Build America Bond)

(RZEDB)

Section 1400U-1

Section 1400U-2

Section 54AA

Section 6431

Notice 2009-26

State/ Political Subdivision

Section 1400U-1(a)

Notice 2009-50

Section 141(b)(5)

 

Recovery Zone Facility Bonds

Section 1400U-1

Section 1400U-3

State/ Political Subdivision

Section 1400U-1(a)

Notice 2009-50

Tribal Economic Development Bonds

Section 7871(f)

 

 

Secretary

Notice 2009-51

Notice 2012-48

Notice 2015-83 (modifying Notice 2012-48)

Announcement 2010-88 Announcement 2011-71

Office of Chief Counsel memo AM2009-14 (election to use 7871(f) allocation to issue Build America Bonds)

Notice 2009-35 (tax credit bonds to finance public school construction under a $200 million authorization that is administered by the Department of Interior)

 

Issue Indicators or Audit Tips:

For bonds subject to these limitations, ensure the issuer has documents from the proper source allocating volume cap to the bonds, and that the bonds issued do not exceed the allocation received.