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

The IRS recently 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 bond financed facilities. 17-13 replaces Revenue Procedures 97-13 (“97-13”) and 2016-44 and IRS Notice 2014-67. 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 that 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 that 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 August 18, 2017. For any contract that is entered into, extended or materially modified after August 18, 2017, the provisions of 17-13 will apply. Due to the complexity and nuances contained in 17-13, we would recommend that issuers and borrowers of tax-exempt bonds contact bond counsel in order to learn more about the requirements of 17-13. For further information, please contact Susan Price (susan.price@icemiller.com, (317) 236-2334); Amy Corsaro (amy.corsaro@icemiller.com, (317) 236-2174); or David Nie (david.nie@icemiller.com, (317) 236-2377).

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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