I.R.C. § 149(a) Bonds Must Be Registered To Be Tax Exempt
I.R.C. § 149(a)(1) General Rule —
Nothing in section 103(a) or in any other provision of law shall be construed to provide an exemption from
Federal income tax for interest on any registration-required bond unless such bond
is in registered form.
I.R.C. § 149(a)(2) Registration-Required Bond —
For purposes of paragraph (1), the term “registration-required bond” means any bond other than a bond which—
I.R.C. § 149(a)(2)(A) —
is not of a type offered to the public, or
I.R.C. § 149(a)(2)(B) —
has a maturity (at issue) of not more than 1 year.
I.R.C. § 149(a)(3) Special Rules
I.R.C. § 149(a)(3)(A) Book Entries Permitted —
For purposes of paragraph (1), a book entry bond shall be treated as in registered form if the right to the principal
of, and stated interest on, such bond may be transferred only through a book entry
consistent with regulations prescribed by the Secretary.
I.R.C. § 149(a)(3)(B) Nominees —
The Secretary shall prescribe such regulations as may be necessary to carry out
the purpose of paragraph (1) where there is a nominee or chain of nominees.
I.R.C. § 149(b) Federally Guaranteed Bond Is Not Tax Exempt
I.R.C. § 149(b)(1) In General —
Section 103(a) shall not apply to any State or local bond if such bond is federally guaranteed.
I.R.C. § 149(b)(2) Federally Guaranteed Defined —
For purposes of paragraph (1), a bond is federally guaranteed if—
I.R.C. § 149(b)(2)(A) —
the payment of principal or interest with respect to such bond is guaranteed (in
whole or in part) by the United States (or any agency or instrumentality thereof),
I.R.C. § 149(b)(2)(B) —
such bond is issued as part of an issue and 5 percent or more of the proceeds of
such issue is to be—
I.R.C. § 149(b)(2)(B)(i) —
used in making loans the payment of principal or interest with respect to which
are to be guaranteed
(in whole or in part) by the United States (or any agency or instrumentality thereof),
or
I.R.C. § 149(b)(2)(B)(ii) —
invested (directly or indirectly)
in federally insured deposits or accounts, or
I.R.C. § 149(b)(2)(C) —
the payment of principal or interest on such bond is otherwise indirectly guaranteed
(in whole or in part)
by the United States (or an agency or instrumentality thereof).
I.R.C. § 149(b)(3) Exceptions
I.R.C. § 149(b)(3)(A) Certain Insurance Programs —
A bond shall not be treated as federally guaranteed by reason of—
I.R.C. § 149(b)(3)(A)(i) —
any guarantee by the Federal Housing Administration, the Department of Veterans Affairs,
the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation,
or the Government National Mortgage Association,
I.R.C. § 149(b)(3)(A)(ii) —
any guarantee of student loans and any guarantee by the Student Loan Marketing Association
to finance student loans,
I.R.C. § 149(b)(3)(A)(iii) —
any guarantee by the Bonneville Power Authority pursuant to the Northwest Power
Act (16 U.S.C. 839d) as in effect on the date of the enactment of the Tax Reform Act of 1984, or
I.R.C. § 149(b)(3)(A)(iv) —
subject to subparagraph (E), any guarantee by a Federal home loan bank made in connection with the original issuance
of a bond during the period beginning on the date of the enactment of this clause
and ending on December 31, 2010 (or a renewal or extension of a guarantee so made).
I.R.C. § 149(b)(3)(B) Debt Service, Etc. —
Paragraph (1) shall not apply to—
I.R.C. § 149(b)(3)(B)(i) —
proceeds of the issue invested for an initial temporary period until such proceeds
are needed for the purpose for which such issue was issued,
I.R.C. § 149(b)(3)(B)(ii) —
investments of a bona fide debt service fund,
I.R.C. § 149(b)(3)(B)(iii) —
investments of a reserve which meet the requirements of section 148(d),
I.R.C. § 149(b)(3)(B)(iv) —
investments in bonds issued by the United States Treasury, or
I.R.C. § 149(b)(3)(B)(v) —
other investments permitted under regulations.
I.R.C. § 149(b)(3)(C) Exception For Housing Programs
I.R.C. § 149(b)(3)(C)(i) In General —
Except as provided in clause (ii), paragraph (1) shall not apply to—
I.R.C. § 149(b)(3)(C)(i)(I) —
a private activity bond for a qualified residential rental project or a housing
program obligation under section 11(b) of the United States Housing Act of 1937,
I.R.C. § 149(b)(3)(C)(i)(II) —
a qualified mortgage bond, or
I.R.C. § 149(b)(3)(C)(i)(III) —
a qualified veterans' mortgage bond.
I.R.C. § 149(b)(3)(C)(ii) Exception Not To Apply Where Bond Invested In Federally Insured Deposits Or Accounts —
Clause (i) shall not apply to any bond which is federally guaranteed within the meaning of
paragraph (2)(B)(ii).
I.R.C. § 149(b)(3)(D) Loans To, Or Guarantees By, Financial Institutions —
Except as provided in paragraph (2)(B)(ii), a bond which is issued as part of an issue shall not be treated as federally guaranteed
merely by reason of the fact that the proceeds of such issue are used in making loans
to a financial institution or there is a guarantee by a financial institution unless
such guarantee constitutes a federally insured deposit or account.
I.R.C. § 149(b)(3)(E) Safety And Soundness Requirements For Federal Home Loan Banks —
Clause (iv) of subparagraph (A) shall not apply to any guarantee by a Federal home loan bank unless such bank meets
safety and soundness collateral requirements for such guarantees which are at least
as stringent as such requirements which apply under regulations applicable to such
guarantees by Federal home loan banks as in effect on April 9, 2008.
I.R.C. § 149(b)(4) Definitions —
For purposes of this subsection—
I.R.C. § 149(b)(4)(A) Treatment Of Certain Entities With Authority To Borrow From United States —
To the extent provided in regulations prescribed by the Secretary, any entity with
statutory authority to borrow from the United States shall be treated as an instrumentality
of the United States. Except in the case of an exempt facility bond, a qualified
small issue bond, and a qualified student loan bond, nothing in the preceding sentence
shall be construed as treating the District of Columbia or any possession of the
United States as an instrumentality of the United States.
I.R.C. § 149(b)(4)(B) Federally Insured Deposit Or Account —
The term “federally insured deposit or account” means any deposit or account in
a financial institution to the extent such deposit or account is insured under Federal
law by the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance
Corporation, the National Credit Union Administration, or any similar federally chartered
corporation.
I.R.C. § 149(c) Tax Exemption Must Be Derived From This Title
I.R.C. § 149(c)(1) General Rule —
Except as provided in paragraph (2), no interest on any bond shall be exempt from taxation under this title unless such
interest is exempt from tax under this title without regard to any provision of law
which is not contained in this title and which is not contained in a revenue Act.
I.R.C. § 149(c)(2) Certain Prior Exemptions
I.R.C. § 149(c)(2)(A) Prior Exemptions Continued —
For purposes of this title, notwithstanding any provision of this part, any bond
the interest on which is exempt from taxation under this title by reason of any provision
of law (other than a provision of this title) which is in effect on January 6, 1983,
shall be treated as a bond described in section 103(a).
I.R.C. § 149(c)(2)(B) Additional Requirements For Bonds Issued After 1983 —
Subparagraph (A) shall not apply to a bond (not described in subparagraph (C)) issued after 1983 if the appropriate requirements of this part (or the corresponding
provisions of prior law) are not met with respect to such bond.
I.R.C. § 149(c)(2)(C) Description Of Bond —
A bond is described in this subparagraph (and treated as described in subparagraph
(A))
if—
I.R.C. § 149(c)(2)(C)(i) —
such bond is issued pursuant to the Northwest Power Act (16 U.S.C. 839d), as in effect on July 18, 1984;
I.R.C. § 149(c)(2)(C)(ii) —
such bond is issued pursuant to section 608(a)(6)(A) of Public Law 97-468, as in effect on the date of the enactment of the Tax Reform Act of 1986; or
I.R.C. § 149(c)(2)(C)(iii) —
such bond is issued before June 19, 1984 under section 11(b) of the United States Housing Act of 1937.
I.R.C. § 149(d) Advance Refundings
I.R.C. § 149(d)(1) In General —
Nothing in section 103(a) or in any other provision of law shall be construed to provide an exemption from
Federal income tax for interest on any bond issued to advance refund another bond.
I.R.C. § 149(d)(2) Advance Refunding —
For purposes of this part, a bond shall be treated as issued to advance refund another
bond if it is issued more than 90 days before the redemption of the refunded bond.
I.R.C. § 149(d)(3) Regulations —
The Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out the purposes of this subsection.
I.R.C. § 149(e) Information Reporting
I.R.C. § 149(e)(1) In General —
Nothing in section 103(a) or any other provision of law shall be construed to provide an exemption from Federal
income tax for interest on any bond unless such bond satisfies the requirements of
paragraph (2).
I.R.C. § 149(e)(2) Information Reporting Requirements —
A bond satisfies the requirements of this paragraph if the issuer submits to the
Secretary, not later than the 15th day of the 2d calendar month after the close of
the calendar quarter in which the bond is issued (or such later time as the Secretary
may prescribe with respect to any portion of the statement), a statement concerning
the issue of which the bond is a part which contains—
I.R.C. § 149(e)(2)(A) —
the name and address of the issuer,
I.R.C. § 149(e)(2)(B) —
the date of issue, the amount of net proceeds of the issue, the stated interest
rate, term, and face amount of each bond which is part of the issue, the amount of
issuance costs of the issue, and the amount of reserves of the issue,
I.R.C. § 149(e)(2)(C) —
where required, the name of the applicable elected representative who approved the
issue, or a description of the voter referendum by which the issue was approved,
I.R.C. § 149(e)(2)(D) —
the name, address, and employer identification number of—
I.R.C. § 149(e)(2)(D)(i) —
each initial principal user of any facility provided with the proceeds of the issue,
I.R.C. § 149(e)(2)(D)(ii) —
the common parent of any affiliated group of corporations (within the meaning of
section 1504(a)) of which such initial principal user is a member, and
I.R.C. § 149(e)(2)(D)(iii) —
if the issue is treated as a separate issue under section 144(a)(6)(A), any person treated as a principal user under section 144(a)(6)(B),
I.R.C. § 149(e)(2)(E) —
a description of any property to be financed from the proceeds of the issue,
I.R.C. § 149(e)(2)(F) —
a certification by a State official designated by State law (or, where there is
no such official, the Governor) that the bond meets the requirements of section 146 (relating to cap on private activity bonds), if applicable, and
I.R.C. § 149(e)(2)(G) —
such other information as the Secretary may require.
Subparagraphs (C) and (D) shall not apply to any bond which is not a private activity bond. The Secretary
may provide that certain information specified in the 1st sentence need not be included
in the statement with respect to an issue where the inclusion of such information
is not necessary to carry out the purposes of this subsection.
I.R.C. § 149(e)(3) Extension Of Time —
The Secretary may grant an extension of time for the filing of any statement required
under paragraph (2) if the failure to file in a timely fashion is not due to willful neglect.
I.R.C. § 149(f) Treatment Of Certain Pooled Financing Bonds
I.R.C. § 149(f)(1) In General —
Section 103(a) shall not apply to any pooled financing bond unless, with respect to the issue of
which such bond is a part, the requirements of paragraphs
(2), (3), (4), and (5) are met.
I.R.C. § 149(f)(2) Reasonable Expectation Requirement
I.R.C. § 149(f)(2)(A) In General —
The requirements of this paragraph are met with respect to an issue if the issuer
reasonably expects that—
I.R.C. § 149(f)(2)(A)(i) —
as of the close of the 1-year period beginning on the date of issuance of the issue,
at least 30 percent of the net proceeds of the issue (as of the close of such period)
will have been used directly or indirectly to make or finance loans to ultimate borrowers,
and
I.R.C. § 149(f)(2)(A)(ii) —
as of the close of the 3-year period beginning on such date of issuance, at least
95 percent of the net proceeds of the issue (as of the close of such period) will
have been so used.
I.R.C. § 149(f)(2)(B) Certain Factors May Not Be Taken Into Account In Determining Expectations —
Expectations as to changes in interest rates or in the provisions of this title (or
in the regulations or rulings thereunder)
may not be taken into account in determining whether expectations are reasonable
for purposes of this paragraph.
I.R.C. § 149(f)(2)(C) Net Proceeds —
For purposes of subparagraph (A), the term “net proceeds"
has the meaning given such term by section 150 but shall not include proceeds used to finance issuance costs and shall not include
proceeds necessary to pay interest (during such period) on the bonds which are part
of the issue.
I.R.C. § 149(f)(2)(D) Refunding Bonds —
For purposes of subparagraph (A), in the case of a refunding bond, the date of issuance taken into account is the
date of issuance of the original bond.
I.R.C. § 149(f)(3) Cost Of Issuance Payment Requirements —
The requirements of this paragraph are met with respect to an issue if—
I.R.C. § 149(f)(3)(A) —
the payment of legal and underwriting costs associated with the issuance of the
issue is not contingent, and
I.R.C. § 149(f)(3)(B) —
at least 95 percent of the reasonably expected legal and underwriting costs associated
with the issuance of the issue are paid not later than the 180th day after the date
of the issuance of the issue.
I.R.C. § 149(f)(4) Written Loan Commitment Requirement
I.R.C. § 149(f)(4)(A) In General —
The requirement of this paragraph is met with respect to an issue if the issuer
receives prior to issuance written loan commitments identifying the ultimate potential
borrowers of at least 30 percent of the net proceeds of such issue.
I.R.C. § 149(f)(4)(B) Exception —
Subparagraph (A) shall not apply with respect to any issuer which—
I.R.C. § 149(f)(4)(B)(i) —
is a State (or an integral part of a State) issuing pooled financing bonds to make
or finance loans to subordinate governmental units of such State, or
I.R.C. § 149(f)(4)(B)(ii) —
is a State-created entity providing financing for water-infrastructure projects
through the federally-sponsored State revolving fund program.
I.R.C. § 149(f)(5) Redemption Requirement —
The requirement of this paragraph is met if to the extent that less than the percentage
of the proceeds of an issue required to be used under clause (i) or (ii) of paragraph (2)(A) is used by the close of the period identified in such clause, the issuer uses an
amount of proceeds equal to the excess of—
I.R.C. § 149(f)(5)(A) —
the amount required to be used under such clause, over
I.R.C. § 149(f)(5)(B) —
the amount actually used by the close of such period,
to redeem outstanding bonds within 90 days after the end of such period.
I.R.C. § 149(f)(6) Pooled Financing Bond —
For purposes of this subsection—
I.R.C. § 149(f)(6)(A) In General —
The term “pooled financing bond” means any bond issued as part of an issue more
than $5,000,000 of the proceeds of which are reasonably expected (at the time of
the issuance of the bonds)
to be used (or are intentionally used) directly or indirectly to make or finance
loans to 2 or more ultimate borrowers.
I.R.C. § 149(f)(6)(B) Exceptions —
Such term shall not include any bond if—
I.R.C. § 149(f)(6)(B)(i) —
section 146 applies to the issue of which such bond is a part (other than by reason of section
141(b)(5))
or would apply but for section 146(i), or
I.R.C. § 149(f)(6)(B)(ii) —
section 143(l)(3) applies to such issue.
I.R.C. § 149(f)(7) Definition Of Loan; Treatment Of Mixed Use Issues
I.R.C. § 149(f)(7)(A) Loan —
For purposes of this subsection, the term “loan” does not include—
I.R.C. § 149(f)(7)(A)(i) —
any loan which is a nonpurpose investment
(within the meaning of section 148(f)(6)(A), determined without regard to section 148(b)(3)), and
I.R.C. § 149(f)(7)(A)(ii) —
any use of proceeds by an agency of the issuer unless such agency is a political
subdivision or instrumentality of the issuer.
I.R.C. § 149(f)(7)(B) Portion Of Issue To Be Used For Loans Treated As Separate Issue —
If only a portion of the proceeds of an issue is reasonably expected (at the time
of issuance of the bond) to be used (or is intentionally used) as described in paragraph
(6)(A), such portion and the other portion of such issue shall be treated as separate issues
for purposes of determining whether such portion meets the requirements of this subsection.
I.R.C. § 149(g) Treatment Of Hedge Bonds
I.R.C. § 149(g)(1) In General —
Section 103(a) shall not apply to any hedge bond unless, with respect to the issue of which such
bond is a part—
I.R.C. § 149(g)(1)(A) —
the requirement of paragraph (2) is met, and
I.R.C. § 149(g)(1)(B) —
the requirement of subsection (f)(3) is met.
I.R.C. § 149(g)(2) Reasonable Expectations As To When Proceeds Will Be Spent —
An issue meets the requirement of this paragraph if the issuer reasonably expects
that—
I.R.C. § 149(g)(2)(A) —
10 percent of the spendable proceeds of the issue will be spent for the governmental
purposes of the issue within the 1-year period beginning on the date the bonds are
issued,
I.R.C. § 149(g)(2)(B) —
30 percent of the spendable proceeds of the issue will be spent for such purposes
within the 2-year period beginning on such date,
I.R.C. § 149(g)(2)(C) —
60 percent of the spendable proceeds of the issue will be spent for such purposes
within the 3-year period beginning on such date, and
I.R.C. § 149(g)(2)(D) —
85 percent of the spendable proceeds of the issue will be spent for such purposes
within the 5-year period beginning on such date.
I.R.C. § 149(g)(3) Hedge Bond
I.R.C. § 149(g)(3)(A) In General —
For purposes of this subsection, the term “hedge bond” means any bond issued as
part of an issue unless—
I.R.C. § 149(g)(3)(A)(i) —
the issuer reasonably expects that 85 percent of the spendable proceeds of the issue
will be used to carry out the governmental purposes of the issue within the 3-year
period beginning on the date the bonds are issued, and
I.R.C. § 149(g)(3)(A)(ii) —
not more than 50 percent of the proceeds of the issue are invested in nonpurpose
investments (as defined in section 148(f)(6)(A))
having a substantially guaranteed yield for 4 years or more.
I.R.C. § 149(g)(3)(B) Exception For Investment In Tax-Exempt Bonds Not Subject To Minimum Tax
I.R.C. § 149(g)(3)(B)(i) In General —
Such term shall not include any bond issued as part of an issue 95 percent of the
net proceeds of which are invested in bonds—
I.R.C. § 149(g)(3)(B)(i)(I) —
the interest on which is not includible in gross income under section 103, and
I.R.C. § 149(g)(3)(B)(i)(II) —
which are not specified private activity bonds (as defined in section 57(a)(5)(C)).
I.R.C. § 149(g)(3)(B)(ii) Amounts In Bona Fide Debt Service Fund —
Amounts in a bona fide debt service fund shall be treated as invested in bonds described
in clause (i).
I.R.C. § 149(g)(3)(B)(iii) Amounts Held Pending Reinvestment Or Redemption —
Amounts held for not more than 30 days pending reinvestment or bond redemption shall
be treated as invested in bonds described in clause (i).
I.R.C. § 149(g)(3)(C) Exception For Refunding Bonds
I.R.C. § 149(g)(3)(C)(i) In General —
A refunding bond shall be treated as meeting the requirements of this subsection
only if the original bond met such requirements.
I.R.C. § 149(g)(3)(C)(ii) General Rule For Refunding Of Pre-Effective Date Bonds —
A refunding bond shall be treated as meeting the requirements of this subsection
if—
I.R.C. § 149(g)(3)(C)(ii)(I) —
this subsection does not apply to the original bond,
I.R.C. § 149(g)(3)(C)(ii)(II) —
the average maturity date of the issue of which the refunding bond is a part is
not later than the average maturity date of the bonds to be refunded by such issue,
and
I.R.C. § 149(g)(3)(C)(ii)(III) —
the amount of the refunding bond does not exceed the outstanding amount of the refunded
bond.
I.R.C. § 149(g)(3)(C)(iii) Refunding Of Pre-Effective Date Bonds Entitled To 5-Year Temporary Period —
A refunding bond shall be treated as meeting the requirements of this subsection
if—
I.R.C. § 149(g)(3)(C)(iii)(I) —
this subsection does not apply to the original bond,
I.R.C. § 149(g)(3)(C)(iii)(II) —
the issuer reasonably expected that 85 percent of the spendable proceeds of the
issue of which the original bond is a part would be used to carry out the governmental
purposes of the issue within the 5-year period beginning on the date the original
bonds were issued but did not reasonably expect that 85 percent of such proceeds
would be so spent within the 3-year period beginning on such date, and
I.R.C. § 149(g)(3)(C)(iii)(III) —
at least 85 percent of the spendable proceeds of the original issue (and all other
prior original issues issued to finance the governmental purposes of such issue)
were spent before the date the refunding bonds are issued.
I.R.C. § 149(g)(4) Special Rules —
For purposes of this subsection—
I.R.C. § 149(g)(4)(A) Construction Period In Excess Of 5 Years —
The Secretary may, at the request of any issuer, provide that the requirement of
paragraph (2) shall be treated as met with respect to the portion of the spendable proceeds of
an issue which is to be used for any construction project having a construction period
in excess of 5 years if it is reasonably expected that such proceeds will be spent
over a reasonable construction schedule specified in such request.
I.R.C. § 149(g)(4)(B) Rules For Determining Expectations —
The rules of subsection (f)(2)(B) shall apply.
I.R.C. § 149(g)(5) Regulations —
The Secretary may prescribe regulations to prevent the avoidance of the rules of
this subsection, including through the aggregation of projects within a single issue.
(Added by Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100 Stat. 2646, and amended Pub. L. 100-647, title I, Sec. 1013(a)(20)-(22), title V, Sec. 5051(a), Nov. 10, 1988, 102 Stat. 3542, 3676; Pub. L. 101-239, title VII, Sec. 7651(a), Dec. 19, 1989, 103 Stat. 2383; Pub. L. 104-188, title I, Sec. 1704(b)(1), Aug. 20, 1996, 110 Stat. 1755; Pub. L. 105-34, title IX, Sec. 967, Aug. 5, 1997, 111 Stat 788; Pub. L. 109-222, title V, Sec. 508, May 17, 2006, 120 Stat. 345; Pub. L. 110-289, div. C, title I, Sec. 3023, July 30, 2008, 122 Stat. 2654; Pub. L. 111-147, Sec. 502(a)(2)(A), Mar. 18, 2010, 124 Stat. 147; Pub. L. 115-97, title I, Sec. 13532, Dec. 22, 2017, 131 Stat. 2054; Pub. L. 115-141, Div. U, title IV, Sec. 401(a)(2)(A), Mar. 23, 2018, 132 Stat. 348.)
BACKGROUND NOTES
AMENDMENTS
2018--Subsec.
(b)(3)(A)(i). Pub. L. 115-141, Div. U, Sec. 401(a)(2)(A), amended clause (i) by substituting ‘‘Department of Veterans Affairs’’ for ‘‘Veterans’
Administration”.
2017 - Subsec. (d)(1). Pub. L. 115-97, Sec. 13532(a), amended par. (1) by substituting “to advance refund another bond” for “as part of
an issue described in paragraph
(2), (3), or (4)”.
Subsec. (d)(2)-(7). Pub. L. 115-97, Sec. 13532(b)(1), amended subsec. (d) by striking pars. (2), (3), (4), and (6) and by redesignating
pars. (5) and (7) as pars. (2) and (3), respectively. Before being struck, pars. (2),
(3), (4), and (6) read as follows:
“(2) Certain Private Activity Bonds.—An issue is described in this paragraph if any
bond (issued as part of such issue) is issued to advance refund a private activity
bond (other than a qualified 501(c)(3) bond).”
“(3) Other Bonds
“(A) In General.—An issue is described in this paragraph if any bond (issued as part
of such issue), hereinafter in this paragraph referred to as the “refunding bond”,
is issued to advance refund a bond unless—
“(i) the refunding bond is only—
“(I) the 1st advance refunding of the original bond if the original bond is issued
after 1985, or
“(II) the 1st or 2nd advance refunding of the original bond if the original bond
was issued before 1986,
“(ii) in the case of refunded bonds issued before 1986, the refunded bond is redeemed
not later than the earliest date on which such bond may be redeemed at par or at a
premium of 3 percent or less,
“(iii) in the case of refunded bonds issued after 1985, the refunded bond is redeemed
not later than the earliest date on which such bond may be redeemed,
“(iv) the initial temporary period under section 148(c) ends—
“(I) with respect to the proceeds of the refunding bond not later than 30 days after
the date of issue of such bond, and
“(II) with respect to the proceeds of the refunded bond on the date of issue of
the refunding bond, and
“(v) in the case of refunded bonds to which section 148(e) did not apply, on
and after the date of issue of the refunding bond, the amount of proceeds of the refunded
bond invested in higher yielding investments (as defined in section 148(b))
which are nonpurpose investments (as defined in section 148(f)(6)(A))
does not exceed—
“(I) the amount so invested as part of a reasonably required reserve or replacement
fund or during an allowable temporary period, and
“(II) the amount which is equal to the lesser of 5 percent of the proceeds of the
issue of which the refunded bond is a part or $100,000 (to the extent such amount
is allocable to the refunded bond).
“(B) Special Rules For Redemptions
“(i) Issuer Must Redeem Only If Debt Service Savings.—Clause (ii) and (iii) of subparagraph
(A) shall apply only if the issuer may realize present value debt service savings
(determined without regard to administrative expenses) in connection with the issue
of which the refunding bond is a part.
“(ii) Redemptions Not Required Before 90th Day.—For purposes of clauses (ii) and (iii)
of subparagraph
(A), the earliest date referred to in such clauses shall not be earlier than the 90th
day after the date of issuance of the refunding bond.”
“(4) Abusive Transactions Prohibited.—An issue is described in this paragraph if any
bond (issued as part of such issue) is issued to advance refund another bond and a
device is employed in connection with the issuance of such issue to obtain a material
financial advantage (based on arbitrage) apart from savings attributable to lower
interest rates.”
“(6) Special Rules For Purposes Of Paragraph
(3).—For purposes of paragraph (3), bonds issued before the date of the enactment
of this subsection shall be taken into account under subparagraph (A)(i) thereof except—
“(A) a refunding which occurred before 1986 shall be treated as an advance refunding
only if the refunding bond was issued more than 180 days before the redemption of
the refunded bond, and
“(B) a bond issued before 1986, shall be treated as advance refunded no more than
once before March 15, 1986.”
2010 - Subsec. (a)(2). Pub. L. 111-147, Sec. 502(a)(2)(A), amended subsec. (a) by inserting “or” at the end of subpar.
(A), by substituting “, or” for the period at the end of subpar. (B), and by striking
subpar. (C). Before being struck, subpar. (C) read as follows:
“(C) is described in section 163(f)(2)(B).”
2008 - Subsec. (b)(3)(A). Pub. L. 110-289, Sec. 3023(a), amended subpar. (A) by striking “or” at the end of clause
(ii); by substituting “, or” for the period at the end of clause (iii); and by adding
new clause (iv).
Subsec. (b)(3)(E). Pub. L. 110-289, Sec. 3023(b), amended par. (3) by adding subpar. (E).
2006 - Subsec. (f)(1). Pub. L. 109-222, sec. 508(d)(1), amended par. (1) by substituting “paragraphs (2), (3), (4), and (5)"
for “paragraphs (2) and (3)”.
Subsec. (f)(2)(A). Pub. L. 109-222, sec. 508(a), amended subpar. (A). Before amendment it read as follows:
“(A) In general.—"The requirements of this paragraph are met with respect to an issue
if the issuer reasonably expects that as of the close of the 3-year period beginning
on the date of issuance of the issue, at least 95 percent of the net proceeds of the
issue (as of the close of such period) will have been used directly or indirectly
to make or finance loans to ultimate borrowers.”
Subsec. (f)(4)-(7). Pub. L. 109-222, sec. 508(b), redesignated par. (4) and (5) as par. (6) and (7), respectively, and added par.
(4) and (5).
Subsec. (f)(7)(B). Pub. L. 109-222, sec. 508(d)(2), amended subpar. (B) by substituting “paragraph (6)(A)” for “paragraph
(4)(A)”.
1996 - Subsec. (g)(3)(B). Pub. L. 104-188, sec. 1704(b)(1) amended clause (iii) generally, which prior to amendment read as follows:
“(iii) INVESTMENT EARNINGS HELD PENDING REINVESTMENT. — Investment earnings held for
not more than 30 days pending reinvestment shall be treated as invested in bonds described
in clause (i).”
1989 - Subsec. (g). Pub. L. 101-239 added subsec. (g).
1988 - Subsec. (b)(3)(A)(iii). Pub. L. 100-647, Sec. 1013(a)(20), struck out ‘with respect to any bond issued before July 1, 1989’ after
‘1984’.
Subsec. (b)(4)(A). Pub. L. 100-647, Sec. 1013(a)(21), substituted ‘and a qualified student loan bond’ for ‘a qualified student loan bond,
and a qualified redevelopment bond’.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1013(a)(22), substituted ‘the failure to file in a timely fashion is not due to willful neglect’
for ‘there is reasonable cause for the failure to file such statement in a timely
fashion’.
Subsec. (f). Pub. L. 100-647, Sec. 5051(a), added subsec. (f).
EFFECTIVE DATE OF 2018 AMENDMENTS
Amendment by Pub. L. 115-141, Div. U, Sec. 401(a)(2)(A), effective March 23, 2018.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by Section 13532(b)(1) of Pub. L. 115-97 effective for advance refunding bonds issued after December 31, 2017.
EFFECTIVE DATE OF 2010 AMENDMENTS
Amendments by Section 502(a)(2)(A)
of Pub. L. 111-147 effective for obligations issued after the date which is 2 years after the date of
the enactment of this Act [Enacted: Mar. 18, 2010].
EFFECTIVE DATE OF 2008 AMENDMENTS
Section 3023(c) of Pub. L. 110-289 provided that: “the amendments made by this section shall apply to guarantees made
after the date of the enactment of this Act [Enacted: July 30, 2008].
EFFECTIVE DATE OF 2006 AMENDMENTS
Section 508(e) of Pub. L. 109-222 provided that: “the amendments made by this section shall apply to bonds issued after
the date of the enactment of this Act [Enacted: May 17, 2006].
EFFECTIVE DATE OF 1996 AMENDMENTS
Section 1704(b)(2) of Pub. L. 104-188 provided that: “the amendment made by paragraph (1) shall take effect as if included
in the amendments made by section 7651 of the Omnibus Budget Reconciliation Act of
1989.”
EFFECTIVE DATE OF 1989 AMENDMENTS
Section 7651(b) of Pub. L. 101-239 provided that:
‘(1) In general. - Except as otherwise provided in this subsection, the amendment
made by subsection (a) (amending this section) shall apply to bonds issued after September
14, 1989.
‘(2) Bonds sold before september 15, 1989. - The amendment made by subsection (a)
shall not apply to any bond sold before September 15, 1989, and issued before October
15, 1989.
‘(3) Bonds with respect to which preliminary offering materials mailed. - The amendment
made by subsection (a) shall not apply to any issue issued after the date of the enactment
of this Act (Dec. 19, 1989) if the preliminary offering materials with respect to
such issue were mailed (or otherwise delivered) to members of the underwriting syndicate
before September 15, 1989.
‘(4) Certain other bonds. - In the case of a bond issued before January 1, 1991, with
respect to which official action was taken (or a series of official actions were taken),
or other comparable preliminary approval was given, before November 18, 1989, demonstrating
an intent to issue such bonds in a maximum specified amount for such issue or with
a maximum specified amount of net proceeds of such issue, the issuer may elect to
apply section 149(g)(2) of the Internal Revenue Code of 1986 (as added by this section) by substituting ‘15 percent’ for ‘10 percent’ in
subparagraph (A) and ‘50 percent’ for ‘60 percent’ in subparagraph
(C).
‘(5) Bonds issued to finance self-insurance funds.
- The amendment made by subsection (a) shall not apply to any bonds issued before
July 1, 1990, to finance a self-insurance fund if official action was taken (or a
series of official actions were taken), or other comparable preliminary approval was
given, before September 15, 1989, demonstrating an intent to issue such bonds in a
maximum specified amount for such issue or with a maximum specified amount of net
proceeds of such issue.’
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by section 1013(a)(20)-(22) of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
Section 5051(b) of Pub. L. 100-647 provided that:
‘(1) In general. - The amendment made by subsection
(a) (amending this section) shall apply to bonds issued after October 21, 1988.
‘(2) Special rule for refunding bonds. - In the case of a bond issued to refund a
bond issued before October 22, 1988
-
‘(A) if the 3-year period described in section 149(f)(2)(A) of the 1986 Code would
(but for this paragraph)
expire on or before October 22, 1989, such period shall expire on October 21, 1990,
and
‘(B) if such period expires after October 22, 1989, the portion of the proceeds of
the issue of which the refunded bond is a part which is available (on the date of
issuance of the refunding issue) to provide loans shall be treated as proceeds of
a separate issue (issued after October 21, 1988) for purposes of applying section
149(f) of the 1986 Code.’
EFFECTIVE DATE
Subsec. (e) applicable to bonds issued after Dec. 31, 1986, see section 1311(d) of
Pub. L. 99-514, as amended, set out as an Effective Date;
Transitional Rules note under section 141 of this title.
ADDITIONAL ADVANCE REFUNDING OF CERTAIN VIRGIN ISLAND BONDS
Section 967 of Pub. L. 105-34 provided that “Subclause (I) of section 149(d)(3)(A)(i) of the Internal Revenue Code of 1986 shall not apply to the second advance refunding of any issue of the Virgin
Islands which was first advance refunded before June 9, 1997, if the debt provisions
of the refunding bonds are changed to repeal the priority first lien requirement of
the refunded bonds.
TRANSFER OF FUNCTIONS
Federal Savings and Loan Insurance Corporation abolished and its functions transferred,
see sections 401 to 406 of Pub. L. 101-73 set out as a note under section 1437 of Title 12, Banks and Banking.
CHANGE OF NAME
Reference to Veterans' Administration deemed to refer to Department of Veterans Affairs
pursuant to section 10 of Pub. L. 100-527, set out as a Department of Veterans Affairs Act note under section 201 of Title
38, Veterans' Benefits.
