- The American Recovery and Reinvestment Tax Act of 2009
- March 30, 2009
- Law Firm: Adams and Reese LLP - New Orleans Office
NEW BOND PROGRAMS
- Build America Bonds – Taxable tax-credit bonds available to state and local governments through December 31, 2010. The federal tax credit is equal to 35% of the taxable interest. In lieu of bondholders’ receiving the federal tax credit, the issuer can elect to receive a federal payment of 35% of interest paid on the bonds. Build America Bonds may be used for any purpose for which tax-exempt governmental bonds may be issued, except that Build America Bonds with respect to which the issuer has elected to receive the federal payment in lieu of having bondholders receive the federal tax credit must be used to finance capital expenditures.
- Recovery Zone Facility Bonds – Tax-exempt private activity bonds available through December 31, 2010, to finance private projects in areas designated as Recovery Zones (areas having significant poverty, unemployment, or home-foreclosure rates). That national limitation is $15 billion, allocated among the states based on their respective 2008 job losses with further allocations within each state to its counties and large municipalities on the same basis. The minimum amount allocable to any state is $135 million.
- Recovery Zone Economic Development Bonds – Taxable bonds available to state and local governments through December 31, 2010, to finance projects that promote development or economic activity in a Recovery Zone. The federal government pays governmental issuers an amount equal to 45% of the taxable interest paid. The national limitation on Recovery Zone Economic Development Bonds is $10 billion, allocated among the states in the same manner as Recovery Zone Facility Bonds. The minimum amount allocable to any state is $90 million.
- Qualified School Construction Bonds – Non-interest bearing, tax-credit bonds available through December 31, 2010, to finance the construction, rehabilitation, or repair of public school facilities. The federal tax credit rate is the rate that permits the issuance of the bonds at par and without the payment of interest by the issuer. The national limitation for Qualified School Construction Bonds is $11 billion annually for 2009 and 2010, with 60% of that amount allocated to the states in proportion to the amount of local educational grants they receive and 40% allocated to the largest local educational agencies in the United States. An additional $200 million annually for 2009 and 2010 is allocated to Indian tribal schools.
- Tribal Economic Development Bonds – Tax-exempt bonds available to Indian tribal governments to finance projects that could be financed on a tax-exempt basis by state and local governments. The national limitation on Tribal Economic Development Bonds is $2 billion. Indian tribal governments can also issue tax-exempt private activity bonds (although Tribal Economic Development Bonds cannot be used for certain gaming facilities or facilities located outside an Indian reservation).
THE AMERICAN RECOVERY AND REINVESTMENT TAX ACT OF 2009
MODIFICATIONS AND AMENDMENTS TO EXISTING BOND PROVISIONS
- New Clean Renewable Energy Bonds – Increases the amount of New Clean Renewable Energy Bonds that may be issued from $800 million to $2.4 billion.
- Energy Conservation Bonds – Increases the amount of Energy Conservation Bonds that may be issued from $800 million to $3.2 billion.
- Qualified Zone Academy Bonds – Extends authority to issue QZABs in 2009 and 2010 and provides an annual volume limitation for such years of $1.4 billion.
- Expansion of definition of “manufacturing facility” – For bonds issued after the date of enactment through December 31, 2010, tax-exempt private activity bonds can be issued for facilities used in the manufacturing, creation, or production of certain intangible property (any patent, copyright, formula, process, design, know-how, format, or other similar item).
- Changes to bank deductibility of interest related to tax-exempt investments – Tax-exempt bonds issued in 2009 and 2010 shall not be taken into account in determining a financial institution’s interest expense deductibility to the extent that such bonds do not exceed 2% of the financial institution’s total assets. In addition, for purposes of the bank qualification rules, the definition of a “small issuer” is increased from $10 million to $30 million with respect to bonds issued in 2009 and 2010. Further, for purposes of the bank qualification rules, 501(c)(3) bonds issued in 2009 and 2010 are treated as if they were issued by the conduit borrower and not by the actual issuer, so that the $30 million limitation is applied at the conduit borrower level and not at the actual issuer level.
- AMT – Interest on private activity bonds issued in 2009 and 2010 is not a preference item for purposes of the AMT (also applies to refunding bonds if the refunded bond was issued after December 31, 2003). In addition, for corporations there shall be no adjustment to adjusted current earnings for interest on tax-exempt bonds issued in 2009 and 2010 (also applies to refunding bonds if the refunded bond was issued after December 31, 2003).