26 U.S.C. § 149 - Bonds must be registered to be tax exempt; other requirements

26 USC 149 - Bonds must be registered to be tax exempt; other requirements

(a) Bonds must be registered to be tax exempt 

(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.
(2) Registration-required bond 
For purposes of paragraph (1), the term registration-required bond means any bond other than a bond which
(A) is not of a type offered to the public,
(B) has a maturity (at issue) of not more than 1 year, or
(C) is described in section 163 (f)(2)(B).
(3) Special rules 

(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.
(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.
(b) Federally guaranteed bond is not tax exempt 

(1) In general 
Section 103 (a) shall not apply to any State or local bond if such bond is federally guaranteed.
(2) Federally guaranteed defined 
For purposes of paragraph (1), a bond is federally guaranteed if
(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),
(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) 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
(ii) invested (directly or indirectly) in federally insured deposits or accounts, or
(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).
(3) Exceptions 

(A) Certain insurance programs 
A bond shall not be treated as federally guaranteed by reason of
(i) any guarantee by the Federal Housing Administration, the Veterans Administration, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association,
(ii) any guarantee of student loans and any guarantee by the Student Loan Marketing Association to finance student loans, or
(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.
(B) Debt service, etc. 
Paragraph (1) shall not apply to
(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,
(ii) investments of a bona fide debt service fund,
(iii) investments of a reserve which meet the requirements of section 148 (d),
(iv) investments in bonds issued by the United States Treasury, or
(v) other investments permitted under regulations.
(C) Exception for housing programs 

(i) In general Except as provided in clause (ii), paragraph (1) shall not apply to
(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,
(II) a qualified mortgage bond, or
(III) a qualified veterans mortgage bond.
(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).
(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.
(4) Definitions 
For purposes of this subsection
(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.
(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.
(c) Tax exemption must be derived from this title 

(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.
(2) Certain prior exemptions 

(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).
(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.
(C) Description of bond 
A bond is described in this subparagraph (and treated as described in subparagraph (A)) if
(i) such bond is issued pursuant to the Northwest Power Act (16 U.S.C. 839d), as in effect on July 18, 1984;
(ii) such bond is issued pursuant to section 608(a)(6)(A) of Public Law 97468, as in effect on the date of the enactment of the Tax Reform Act of 1986; or
(iii) such bond is issued before June 19, 1984 under section 11(b) of the United States Housing Act of 1937.
(d) Advance refundings 

(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 as part of an issue described in paragraph (2), (3), or (4).
(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.
(5) 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.
(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.
(7) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(e) Information reporting 

(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).
(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
(A) the name and address of the issuer,
(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,
(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,
(D) the name, address, and employer identification number of
(i) each initial principal user of any facility provided with the proceeds of the issue,
(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
(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),
(E) a description of any property to be financed from the proceeds of the issue,
(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
(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.

(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.
(f) Treatment of certain pooled financing bonds 

(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.
(2) Reasonable expectation requirement 

(A) In general 
The requirements of this paragraph are met with respect to an issue if the issuer reasonably expects that
(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
(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.
(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.
(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.
(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.
(3) Cost of issuance payment requirements 
The requirements of this paragraph are met with respect to an issue if
(A) the payment of legal and underwriting costs associated with the issuance of the issue is not contingent, and
(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.
(4) Written loan commitment requirement 

(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.
(B) Exception 
Subparagraph (A) shall not apply with respect to any issuer which
(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
(ii) is a State-created entity providing financing for water-infrastructure projects through the federally-sponsored State revolving fund program.
(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
(A) the amount required to be used under such clause, over
(B) the amount actually used by the close of such period,

to redeem outstanding bonds within 90 days after the end of such period.

(6) Pooled financing bond 
For purposes of this subsection
(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.
(B) Exceptions 
Such term shall not include any bond if
(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
(ii) section 143 (l)(3) applies to such issue.
(7) Definition of loan; treatment of mixed use issues 

(A) Loan 
For purposes of this subsection, the term loan does not include
(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
(ii) any use of proceeds by an agency of the issuer unless such agency is a political subdivision or instrumentality of the issuer.
(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.
(g) Treatment of hedge bonds 

(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
(A) the requirement of paragraph (2) is met, and
(B) the requirement of subsection (f)(3) is met.
(2) Reasonable expectations as to when proceeds will be spent 
An issue meets the requirement of this paragraph if the issuer reasonably expects that
(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,
(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,
(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
(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.
(3) Hedge bond 

(A) In general 
For purposes of this subsection, the term hedge bond means any bond issued as part of an issue unless
(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
(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.
(B) Exception for investment in tax-exempt bonds not subject to minimum tax 

(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) the interest on which is not includible in gross income under section 103, and
(II) which are not specified private activity bonds (as defined in section 57 (a)(5)(C)).
(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).
(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).
(C) Exception for refunding bonds 

(i) In general A refunding bond shall be treated as meeting the requirements of this subsection only if the original bond met such requirements.
(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) this subsection does not apply to the original bond,
(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
(III) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
(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) this subsection does not apply to the original bond,
(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
(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.
(4) Special rules 
For purposes of this subsection
(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.
(B) Rules for determining expectations 
The rules of subsection (f)(2)(B) shall apply.
(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.

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