In a Notice of Proposed Rule Making published September 28, 2017, the IRS announced new proposed regulations on the public approval requirement of section 147(f) of the Internal Revenue Code, 26 U.S.C. §147(f). A copy of the Notice can be accessed here. The announcement should not come as a surprise – IRS representatives announced earlier this year at the annual Tax and Securities Law Institute sponsored by the National Association of Bond Lawyers that the finalization of regulations interpreting section 147(f) was a regulatory priority for the agency.

The public approval requirement in section 147(f) is better known as the “TEFRA” requirement (for the Tax Equity and Fiscal Responsibility Act of 1982, from which it sprang). The TEFRA requirement applies to all private activity bonds, and in most instances, is satisfied through the holding of a public hearing after the giving of “reasonable public notice”, followed by the obtaining of approval of the governmental unit that issues the bonds, or on whose behalf the bonds are issued (the issuer approval), and the approval of the governmental unit that acts as host to the facility or facilities financed by the bonds (the host approval).

The TEFRA Requirement in section 147(f) was previously the subject of proposed regulations, published by the IRS in 2008. As part of the new proposed regulations, the IRS is withdrawing the prior proposals, but keeping intact in the new proposed regulations the majority of the guidance that was published in 2008. The new proposed regulations would also do away with the currently applicable regulations on the topic, at section 5f.103-2, 26 C.F.R. §5f.103-2, which regulations predate the 1986 Code and its expansion of the TEFRA requirement to all private activity bonds.

This post does not attempt to provide a complete overview of the provisions of the new proposed Regulations. Some of the key points in the Notice are as follows:

• The new proposed regulations maintain the current 14 days for a public notice to be presumed “reasonable” (the 2008 Regulations would have shortened it to 7 business days).
• The new proposed regulations would add special rules for certain types of private activity bonds (mortgage revenue bonds, student loan bonds, and certain 501(c)(3) bonds). Most notably, certain of these bonds would be exempt from the “host approval” requirement.
• The new proposed regulations expand the permitted methods of giving notice (newspaper publication or television or radio broadcast) to also include postings on a governmental unit’s public web site, or alternative methods permitted under a general state law.
• The new proposed regulations would make some practical-minded changes to the information requirements for the public notice in an effort to make it easier for issuers to provide the public with meaningful information about the project.
• And finally, the new proposed regulations would afford issuers a second bite at the apple: an opportunity to cure violations of the TEFRA requirement – but only for instances involving insubstantial deviations from the publicized and approved use of the proceeds of the private activity bond issue.

The IRS will accept public comments on the new proposed regulations through December 27, 2017. A public hearing also may be scheduled.