Provisions Set to Expire December 31 Unless Congress Takes Action
On June 30, 2010, the latest of several attempts to move toward a vote on the
American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213) was
unsuccessful. The bill, if enacted, would extend several of the tax-exempt and
tax credit bond provisions enacted under the
American Recovery and Reinvestment Act of 2009 (Stimulus Act) that are
currently set to expire on Dec. 31, 2010.
With this latest setback, however, concern is mounting that several of the
Stimulus Act's successful and popular programs credited with buoying the
municipal bond market will be unavailable after Dec. 31, 2010. Such programs
include, among others, the Build America Bond program, the Recovery Zone Bond
program, the exemption from the alternative minimum tax (AMT) for interest
earned on certain private activity bonds, and the liberalization of the
"bank-qualified" bond rules.
In addition, without action by Congress, the bill's other favorable bond
provisions, including the extension of federal home loan bank guarantees to
tax-exempt bonds, and a new initiative under which water and sewer
exempt-facility bonds would be excluded from state volume caps, will fail to
1. Build America Bonds
Under current law, issuers of Build America Bonds (BABs) receive a direct
subsidy from the federal government equal to 35% of the interest paid on such
bonds, and BABs must be issued by no later than Dec. 31, 2010. Under the
bill, the Build America Bond program would be extended for two years, through
the end of 2012. The subsidy would be reduced from 35% to 32% in 2011, and 30%
2. Recovery Zone Bonds
Currently, Recovery Zone Bonds (RZBs), which include Recovery Zone Economic
Development Bonds (RZEDBs) and Recovery Zone Facility Bonds (RZFBs), must be
issued by no later than Dec. 31, 2010. Under the Stimulus Act, each state
received an allocation of RZEDBs and RZFBs (which were then sub-allocated to
certain political subdivisions within each state) based on the state's job
losses as a percentage of national job losses in 2008. The bill, however, would
extend the authorization for issuing RZBs through 2011. In addition, the bill
would make further allocations of RZBs, based on a new formula that would ensure
that each political subdivision receiving an allocation receives a minimum
allocation based on its share of national unemployment in 2009.
3. AMT Exemption for Private Activity Bonds
The Stimulus Act changed the tax law to exempt from the AMT the interest
earned on private activity bonds issued in 2009 and 2010 (i) to finance "new
money" projects, or (ii) to currently refund private activity bonds issued after
2003. Interest on private activity bonds issued in 2011 for such purposes also
would be exempt from the AMT under the bill.
4. "Bank-Qualified" Bonds
The Stimulus Act liberalized the rules governing bank-qualified tax-exempt
bonds for bonds issued in 2009 and 2010, permitting (i) issuers to issue up to
$30 million of bank-qualified bonds each calendar year, (ii) each 501(c)(3)
borrower to be treated as an issuer for purposes of the $30 million limit, and
(iii) "pooled" financings to be bank-qualified, regardless of the aggregate
amount of the pooled financing, provided each loan to be made from the financing
did not exceed $30 million. The bill would extend these liberalized rules
5. Federal Home Loan Bank Guarantees for Tax-Exempt Bonds
The Housing and Economic Recovery Act of 2008 permits
tax-exempt bonds issued before 2011 to be guaranteed by a federal home loan
bank. The bill would extend this option to tax-exempt bonds issued before 2012.
6. Water and Sewer Exempt Facility Bonds
Currently, exempt facility bonds issued to finance water and sewer facilities
are subject to state volume caps. The bill would permanently exclude such bonds
from state volume caps.
In the coming months, we will continue to monitor the status of the bill, as
well as other proposed legislation that may extend the Stimulus Act's bond
programs. If you have any questions regarding the bill or any of the particular
provisions described above, please contact the authors or visit McGuireWoods'
practice. You can also refer to prior legal updates in our
news archive and the
Stimulus Package section for more updates on the Stimulus Act.
Small Business and Infrastructure Jobs Tax Act of 2010 (H.R. 4849), which
includes similar extensions and was briefly described in a footnote in our
update, has been stalled in the Senate's Finance Committee since March.
2. This legal update focuses on Build America
Bonds (Direct Payment) only, although the Bill would affect both Build America
Bonds (Direct Payment) and Build America Bonds (Tax Credit). For more
information on Build America Bonds, see our
3. For more information on RZEDBs and RZFBs,
see our prior update.