Internal Revenue Code – Section 150

Sec. 150. Definitions and special rules

-STATUTE-

(a) General rule

For purposes of this part -

(1) Bond

The term "bond" includes any obligation.

(2) Governmental unit not to include Federal Government

The term "governmental unit" does not include the United States

or any agency or instrumentality thereof.

(3) Net proceeds

The term "net proceeds" means, with respect to any issue, the

proceeds of such issue reduced by amounts in a reasonably

required reserve or replacement fund.

(4) 501(c)(3) organization

The term "501(c)(3) organization" means any organization

described in section 501(c)(3) and exempt from tax under section

501(a).

(5) Ownership of property

Property shall be treated as owned by a governmental unit if it

is owned on behalf of such unit.

(6) Tax-exempt bond

The term "tax-exempt" means, with respect to any bond (or

issue), that the interest on such bond (or on the bonds issued as

part of such issue) is excluded from gross income.

(b) Change in use of facilities financed with tax-exempt private

activity bonds

(1) Mortgage revenue bonds

(A) In general

In the case of any residence with respect to which financing

is provided from the proceeds of a tax-exempt qualified

mortgage bond or qualified veterans' mortgage bond, if there is

a continuous period of at least 1 year during which such

residence is not the principal residence of at least 1 of the

mortgagors who received such financing, then no deduction shall

be allowed under this chapter for interest on such financing

which accrues on or after the date such period began and before

the date such residence is again the principal residence of at

least 1 of the mortgagors who received such financing.

(B) Exception

Subparagraph (A) shall not apply to the extent the Secretary

determines that its application would result in undue hardship

and that the failure to meet the requirements of subparagraph

(A) resulted from circumstances beyond the mortgagor's control.

(2) Qualified residential rental projects

In the case of any project for residential rental property -

(A) with respect to which financing is provided from the

proceeds of any private activity bond which, when issued,

purported to be a tax-exempt bond described in paragraph (7) of

section 142(a), and

(B) which does not meet the requirements of section 142(d),

 

no deduction shall be allowed under this chapter for interest on

such financing which accrues during the period beginning on the

1st day of the taxable year in which such project fails to meet

such requirements and ending on the date such project meets such

requirements. If the provisions of prior law corresponding to

section 142(d) apply to a refunded bond, such provisions shall

apply (in lieu of section 142(d)) to the refunding bond.

(3) Qualified 501(c)(3) bonds

(A) In general

In the case of any facility with respect to which financing

is provided from the proceeds of any private activity bond

which, when issued, purported to be a tax-exempt qualified

501(c)(3) bond, if any portion of such facility -

(i) is used in a trade or business of any person other than

a 501(c)(3) organization or a governmental unit, but

(ii) continues to be owned by a 501(c)(3) organization,

 

then the owner of such portion shall be treated for purposes of

this title as engaged in an unrelated trade or business (as

defined in section 513) with respect to such portion. The

amount of gross income attributable to such portion for any

period shall not be less than the fair rental value of such

portion for such period.

(B) Denial of deduction for interest

No deduction shall be allowed under this chapter for interest

on financing described in subparagraph (A) which accrues during

the period beginning on the date such facility is used as

described in subparagraph (A)(i) and ending on the date such

facility is not so used.

(4) Certain exempt facility bonds and small issue bonds

(A) In general

In the case of any facility with respect to which financing

is provided from the proceeds of any private activity bond to

which this paragraph applies, if such facility is not used for

a purpose for which a tax-exempt bond could be issued on the

date of such issue, no deduction shall be allowed under this

chapter for interest on such financing which accrues during the

period beginning on the date such facility is not so used and

ending on the date such facility is so used.

(B) Bonds to which paragraph applies

This paragraph applies to any private activity bond which,

when issued, purported to be a tax-exempt exempt facility bond

described in a paragraph (other than paragraph (7)) of section

142(a) or a qualified small issue bond.

(5) Facilities required to be owned by governmental units or

501(c)(3) organizations

If -

(A) financing is provided with respect to any facility from

the proceeds of any private activity bond which, when issued,

purported to be a tax-exempt bond,

(B) such facility is required to be owned by a governmental

unit or a 501(c)(3) organization as a condition of such tax

exemption, and

(C) such facility is not so owned,

 

then no deduction shall be allowed under this chapter for

interest on such financing which accrues during the period

beginning on the date such facility is not so owned and ending on

the date such facility is so owned.

(6) Small issue bonds which exceed capital expenditure limitation

In the case of any financing provided from the proceeds of any

bond which, when issued, purported to be a qualified small issue

bond, no deduction shall be allowed under this chapter for

interest on such financing which accrues during the period such

bond is not a qualified small issue bond.

(c) Exception and special rules for purposes of subsection (b)

For purposes of subsection (b) -

(1) Exception

Any use with respect to facilities financed with proceeds of an

issue which are not required to be used for the exempt purpose of

such issue shall not be taken into account.

(2) Treatment of amounts other than interest

If the amounts payable for the use of a facility are not

interest, subsection (b) shall apply to such amounts as if they

were interest but only to the extent such amounts for any period

do not exceed the amount of interest accrued on the bond

financing for such period.

(3) Use of portion of facility

In the case of any person which uses only a portion of the

facility, only the interest accruing on the financing allocable

to such portion shall be taken into account by such person.

(4) Cessation with respect to portion of facility

In the case of any facility where part but not all of the

facility is not used for an exempt purpose, only the interest

accruing on the financing allocable to such part shall be taken

into account.

(5) Regulations

The Secretary shall prescribe such regulations as may be

necessary or appropriate to carry out the purposes of this

subsection and subsection (b).

(d) Qualified scholarship funding bond

For purposes of this part and section 103 -

(1) Treatment as State or local bond

A qualified scholarship funding bond shall be treated as a

State or local bond.

(2) Qualified scholarship funding bond defined

The term "qualified scholarship funding bond" means a bond

issued by a corporation which -

(A) is a corporation not for profit established and operated

exclusively for the purpose of acquiring student loan notes

incurred under the Higher Education Act of 1965, and

(B) is organized at the request of the State or 1 or more

political subdivisions thereof or is requested to exercise such

power by 1 or more political subdivisions and required by its

corporate charter and bylaws, or required by State law, to

devote any income (after payment of expenses, debt service, and

the creation of reserves for the same) to the purchase of

additional student loan notes or to pay over any income to the

United States.

(3) Election to cease status as qualified scholarship funding

corporation

(A) In general

Any qualified scholarship funding bond, and qualified student

loan bond, outstanding on the date of the issuer's election

under this paragraph (and any bond (or series of bonds) issued

to refund such a bond) shall not fail to be a tax-exempt bond

solely because the issuer ceases to be described in

subparagraphs (A) and (B) of paragraph (2) if the issuer meets

the requirements of subparagraphs (B) and (C) of this

paragraph.

(B) Assets and liabilities of issuer transferred to taxable

subsidiary

The requirements of this subparagraph are met by an issuer if

-

(i) all of the student loan notes of the issuer and other

assets pledged to secure the repayment of qualified

scholarship funding bond indebtedness of the issuer are

transferred to another corporation within a reasonable period

after the election is made under this paragraph;

(ii) such transferee corporation assumes or otherwise

provides for the payment of all of the qualified scholarship

funding bond indebtedness of the issuer within a reasonable

period after the election is made under this paragraph;

(iii) to the extent permitted by law, such transferee

corporation assumes all of the responsibilities, and succeeds

to all of the rights, of the issuer under the issuer's

agreements with the Secretary of Education in respect of

student loans;

(iv) immediately after such transfer, the issuer, together

with any other issuer which has made an election under this

paragraph in respect of such transferee, hold all of the

senior stock in such transferee corporation; and

(v) such transferee corporation is not exempt from tax

under this chapter.

(C) Issuer to operate as independent organization described in

section 501(c)(3)

The requirements of this subparagraph are met by an issuer

if, within a reasonable period after the transfer referred to

in subparagraph (B) -

(i) the issuer is described in section 501(c)(3) and exempt

from tax under section 501(a);

(ii) the issuer no longer is described in subparagraphs (A)

and (B) of paragraph (2); and

(iii) at least 80 percent of the members of the board of

directors of the issuer are independent members.

(D) Senior stock

For purposes of this paragraph, the term "senior stock" means

stock -

(i) which participates pro rata and fully in the equity

value of the corporation with all other common stock of the

corporation but which has the right to payment of liquidation

proceeds prior to payment of liquidation proceeds in respect

of other common stock of the corporation;

(ii) which has a fixed right upon liquidation and upon

redemption to an amount equal to the greater of -

(I) the fair market value of such stock on the date of

liquidation or redemption (whichever is applicable); or

(II) the fair market value of all assets transferred in

exchange for such stock and reduced by the amount of all

liabilities of the corporation which has made an election

under this paragraph assumed by the transferee corporation

in such transfer;

 

(iii) the holder of which has the right to require the

transferee corporation to redeem on a date that is not later

than 10 years after the date on which an election under this

paragraph was made and pursuant to such election such stock

was issued; and

(iv) in respect of which, during the time such stock is

outstanding, there is not outstanding any equity interest in

the corporation having any liquidation, redemption or

dividend rights in the corporation which are superior to

those of such stock.

(E) Independent member

The term "independent member" means a member of the board of

directors of the issuer who (except for services as a member of

such board) receives no compensation directly or indirectly -

(i) for services performed in connection with such

transferee corporation, or

(ii) for services as a member of the board of directors or

as an officer of such transferee corporation.

 

For purposes of clause (ii), the term "officer" includes any

individual having powers or responsibilities similar to those

of officers.

(F) Coordination with certain private foundation taxes

For purposes of sections 4942 (relating to the excise tax on

a failure to distribute income) and 4943 (relating to the

excise tax on excess business holdings), the transferee

corporation referred to in subparagraph (B) shall be treated as

a functionally related business (within the meaning of section

4942(j)(4)) with respect to the issuer during the period

commencing with the date on which an election is made under

this paragraph and ending on the date that is the earlier of -

(i) the last day of the last taxable year for which more

than 50 percent of the gross income of such transferee

corporation is derived from, or more than 50 percent of the

assets (by value) of such transferee corporation consists of,

student loan notes incurred under the Higher Education Act of

1965; or

(ii) the last day of the taxable year of the issuer during

which occurs the date which is 10 years after the date on

which the election under this paragraph is made.

(G) Election

An election under this paragraph may be revoked only with the

consent of the Secretary.

(e) Bonds of certain volunteer fire departments

For purposes of this part and section 103 -

(1) In general

A bond of a volunteer fire department shall be treated as a

bond of a political subdivision of a State if -

(A) such department is a qualified volunteer fire department

with respect to an area within the jurisdiction of such

political subdivision, and

(B) such bond is issued as part of an issue 95 percent or

more of the net proceeds of which are to be used for the

acquisition, construction, reconstruction, or improvement of a

firehouse (including land which is functionally related and

subordinate thereto) or firetruck used or to be used by such

department.

(2) Qualified volunteer fire department

For purposes of this subsection, the term "qualified volunteer

fire department" means, with respect to a political subdivision

of a State, any organization -

(A) which is organized and operated to provide firefighting

or emergency medical services for persons in an area (within

the jurisdiction of such political subdivision) which is not

provided with any other firefighting services, and

(B) which is required (by written agreement) by the political

subdivision to furnish firefighting services in such area.

 

For purposes of subparagraph (A), other firefighting services

provided in an area shall be disregarded in determining whether

an organization is a qualified volunteer fire department if such

other firefighting services are provided by a qualified volunteer

fire department (determined with the application of this

sentence) and such organization and the provider of such other

services have been continuously providing firefighting services

to such area since January 1, 1981.

(3) Treatment as private activity bonds only for certain purposes

Bonds which are part of an issue which meets the requirements

of paragraph (1) shall not be treated as private activity bonds

except for purposes of sections 147(f) and 149(d).

 

-SOURCE-

(Added Pub. L. 99-514, title XIII, Sec. 1301(b), Oct. 22, 1986, 100

Stat. 2651; amended Pub. L. 100-647, title I, Sec. 1013(a)(23),

(24)(A), (30)-(33), title VI, Sec. 6182(a), (b), Nov. 10, 1988, 102

Stat. 3542, 3543, 3729; Pub. L. 104-188, title I, Sec. 1614(a),

Aug. 20, 1996, 110 Stat. 1851.)

 

-REFTEXT-

REFERENCES IN TEXT

The Higher Education Act of 1965, referred to in subsec.

(d)(2)(A), (3)(F)(i), is Pub. L. 89-329, Nov. 8, 1965, 79 Stat.

1219, which is classified generally to chapter 28 (Sec. 1001 et

seq.) of Title 20, Education, and part C (Sec. 2751 et seq.) of

subchapter I of chapter 34 of Title 42, The Public Health and

Welfare. For complete classification of this Act to the Code, see

Short Title note set out under section 1001 of Title 20 and Tables.

 

 

-MISC1-

AMENDMENTS

1996 - Subsec. (d)(3). Pub. L. 104-188 added par. (3).

1988 - Subsec. (b)(1)(A). Pub. L. 100-647, Sec. 1013(a)(23)(C),

inserted "tax-exempt" before "qualified mortgage bond".

Pub. L. 100-647, Sec. 1013(a)(30), inserted before period at end

"and before the date such residence is again the principal

residence of at least 1 of the mortgagors who received such

financing".

Subsec. (b)(2). Pub. L. 100-647, Sec. 1013(a)(32), inserted at

end "If the provisions of prior law corresponding to section 142(d)

apply to a refunded bond, such provisions shall apply (in lieu of

section 142(d)) to the refunding bond."

Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1013(a)(31), substituted

"described in paragraph" for "described paragraph".

Subsec. (b)(4). Pub. L. 100-647, Sec. 1013(a)(23)(A), (B),

inserted "and small issue bonds" after "bonds" in heading, and "or

a qualified small issue bond" before period at end of subpar. (B).

Subsec. (b)(6). Pub. L. 100-647, Sec. 1013(a)(33), added par.

(6).

Subsec. (e)(1)(B). Pub. L. 100-647, Sec. 6182(b), inserted

"(including land which is functionally related and subordinate

thereto)" after "a firehouse".

Subsec. (e)(2). Pub. L. 100-647, Sec. 6182(a), inserted at end

"For purposes of subparagraph (A), other firefighting services

provided in an area shall be disregarded in determining whether an

organization is a qualified volunteer fire department if such other

firefighting services are provided by a qualified volunteer fire

department (determined with the application of this sentence) and

such organization and the provider of such other services have been

continuously providing firefighting services to such area since

January 1, 1981."

Subsec. (e)(3). Pub. L. 100-647, Sec. 1013(a)(24)(A), added par.

(3).

 

EFFECTIVE DATE OF 1996 AMENDMENT

Section 1614(b) of Pub. L. 104-188 provided that: "The amendment

made by this section [amending this section] shall take effect on

the date of the enactment of this Act [Aug. 20, 1996]."

 

EFFECTIVE DATE OF 1988 AMENDMENT

Section 1013(a)(24)(B) of Pub. L. 100-647 provided that: "The

amendment made by subparagraph (A) [amending this section] shall

apply to bonds issued after October 21, 1988."

Amendment by section 1013(a)(23), (30)-(33) 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 6182(c) of Pub. L. 100-647 provided that: "The amendments

made by this section [amending this section] shall apply to bonds

issued after the date of the enactment of this Act [Nov. 10,

1988]."

 

EFFECTIVE DATE

Section applicable to bonds issued after Aug. 15, 1986, except as

otherwise provided, with subsec. (b) applicable to changes in use

(and ownership) after Aug. 15, 1986, but only with respect to

financing (including refinancings) provided after such date, and

with subsec. (d) applicable to payments made after Aug. 15, 1986,

see sections 1311 to 1318 of Pub. L. 99-514, as amended, set out as

an Effective Date; Transitional Rules note under section 141 of

this title.

 

-End-