IRS Overhauls Safe Harbors for Management Contracts Related to Bond Financed Facilities IRS Overhauls Safe Harbors for Management Contracts Related to Bond Financed Facilities

IRS Overhauls Safe Harbors for Management Contracts Related to Bond Financed Facilities

In early 2017, the Internal Revenue Service (the "IRS") released Revenue Procedure 2017-13 ("17-13"), which contains safe harbors for management contracts (i.e., contracts with non-qualified users of the bond financed space). If the safe harbors in 17-13 are met, the applicable contract will not result in private business use of facilities financed with proceeds of government and 501(c)(3) bonds. Gov 17-13 replaces Revenue Procedures 97-13 ("97-13"), 2014-67 and 2016-44. In releasing 17-13, the IRS has abandoned the formulaic approach of 97-13 relied upon for the last 20 years in favor of a more principled analysis. Although 17-13 maintains the prohibition against compensation being based on a share of net profits, it focuses more on limiting the degree of control the service provider has over the bond financed property. 17-13 contains a substantial list of requirements that must be met in order to demonstrate the qualified user (either a governmental or 501(c)(3) entity) controls the bond financed facility.
 
17-13 provides that the safe harbors of 97-13 may still be applied for management contracts entered into prior to Aug. 18, 2017. For any contract entered in to, extended or materially modified after Aug. 18, 2017, the provisions of 17-13 will apply. Due to the complexity and nuances contained in 17-13, we recommend issuers and borrowers of tax-exempt bonds contact your Ice Miller bond counsel in order to learn more about the requirements of 17-13, which include the addition of a statement in the contract regarding the service provider agreeing not to adopt a tax position with respect to the payments that is inconsistent with the qualified user's treatment. 
 
For further information about our services or a review of the rebate requirements with respect to outstanding bonds, please contact Susan Price, Amy Corsaro, David Nie or another member of the Ice Miller Municipal Finance Group.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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