Tax and Securities Core Concepts

• Author: Alysse Hollis - Richard M. Froehlich
• Pages: 21-29

In this chapter, we will delve into the real meat of any tax-exempt

bond transaction—the tax analysis. We will also explore the key

securities laws that govern the sale of tax-exempt bonds for afford-

able housing.

I. Internal Revenue Code Requirements

A. Good Costs/Bad Costs

Recall that the Qualied Exempt Facility Bonds previously dis-

cussed are governed by Section 142(a) and (d) of the Code which

require that 95% or more of the proceeds of the bond issue must

be used to provide the applicable facility. Specically, bonds will be

exempt from federal income taxation if 95% or more of the “net

proceeds” of the bonds is used to provide exempt facilities and

facilities to be used by an exempt person, including property func

-

tionally related and subordinate thereto.

1

“Net proceeds” means the

proceeds of the sale of the bonds (net of any discount but including

premium) plus any investment earnings thereon, minus any pro-

ceeds deposited into a reasonably required reserve or replacement

1. I.R.C. §142(a), (d) and Treas. Reg. §1.103-8(b).

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Tax and Securities

Core Concepts 3

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