To promote voluntary compliance with federal tax laws, Tax Exempt Bonds (TEB) has compiled material to educate and assist issuers and conduit borrowers as they navigate the hazards of defaulted or distressed tax-exempt, tax credit or direct pay debt. Note, however, that these materials should not be relied upon as legal authority. The Internal Revenue Code and applicable regulations are complex and these materials do not address every situation.
Reissuance of Obligations
Actions taken with respect to defaulted or distressed debt can inadvertently trigger a reissuance for federal tax purposes leading to the loss of tax exemption for the debt (or, in the case of tax credit or direct pay bonds, loss of the credit or subsidy). The reissuance rules apply to all tax-exempt, tax credit and direct pay bonds from a large bond issue to a small lease entered into to purchase equipment (for example, police cars) to a note held by a local bank.
- Reissuance of Tax Exempt Obligations: Some Basic Concepts provides an educational overview on reissuance.
- A Reissuance Lesson, part of IRS training materials, discusses situations in which post-issuance changes in the terms of an obligation cause a deemed reissuance. It also discusses the extinguishment of bonds and certain temporary relief provided to issuers who acquire and hold their own bonds.
- Our Reissuance Contact Letter, mailed to some issuers as part of our education and outreach efforts, summarizes some of the causes and consequences of inadvertent reissuance.
Sales or Leases of Bond-Financed Property
In addition to reissuance, the sale or lease of property financed with tax-exempt bonds may make the bonds taxable or, in the case of tax credit or direct pay bonds, cause a loss of the credit or subsidy. Such actions can result in noncompliance with the qualified use requirements jeopardizing the tax-advantaged status of the bonds financing the property. However, certain self-correction options are available to remediate such noncompliance.
- Sale of Assets Financed with Tax-Exempt Bonds by State and Local Governments and 501(c)(3) Organizations provides an outline of the problem and remediation methods.
Whatever the violation, TEB encourages voluntary compliance (including the VCAP Program) as a vehicle for expeditiously correcting self-discovered problems in bond issuances.
If you have questions, email them to TEB and indicate "Financial Restructuring" in the subject line. Be sure to include your name, telephone number and the best time to reach you, as we may reply to your questions by telephone.