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FEDERAL TAX ISSUES
John R. McQueen, Esq.
Tax-Exempt Bonds as a Financing Toolfor Construction of New College and University Facilities
June 28, 2007
MAJOR ISSUES
• Reimbursement Resolutions
• Capital Campaigns
• Limitations on Physician Agreements and Management Contracts
• Corporate-Sponsored Research
• Financial Covenants
• Tax Enforcement
Reimbursement Resolutions
• Types of Costs Covered
• Timing Requirements
• Content of Reimbursement Resolution
Types of Costs Covered
• Preliminary Expenditures Up to 20% Not Subject
• Capital Expenditures
• Land Acquisitions and Site Preparation
Timing Requirements
• 60-day Period Prior Covered
• Reimbursement of Hard Costs Within 18 Months of Placed-in-Service Date
• Reimbursement Within 3 Years of Original Expenditure
Content of Reimbursement Resolution
• General Project Description
• Maximum Principal Amount of Bonds
• Not Applicable to Prior Financing
Capital Campaigns
• “Sufficiently Direct Nexus”
• Replacement Proceeds Concept
• Potential Nexus Situations
Capital Campaigns
• Donor-Restricted Gifts
• Capital Campaign Purposes
• Preliminary Earmarking Not Fatal
Capital Campaigns
• Wording of Campaign Materials Crucial
• Include Broad Number of Purposes
• Campaign for Debt Service
• Campaign for Operating Expenses
Physician Agreements and Management Contracts
• Types of Private Business Use
• Leases
• Corporate-Sponsored Research
• Management Contracts
• Special Legal Entitlements
Management Contracts
• Term of Agreement
• Type of Compensation
• No Net Profit-Sharing
Management Contracts
• 15-Year Safe Harbor
• 10-Year Safe Harbor
• 5-Year Safe Harbor
• 3-Year Per-Unit Contracts
• 2-Year Revenue Contracts
Measurement of Private Business Use
• 5% Limit
• Square Footage Approach
• Fair Rental Value Approach
Corporate-Sponsored Research
• Basic Research
• Competitive Price
• No Pre-Set Royalties
Cooperative Research
• Basic Research – Multiple Sponsors
• 501(c)(3) Controls
• Patent Owned by 501(c)(3)
• Non-Exclusive Royalty-Free License
Financial Covenants
• Potential Arbitrage Issues
• Liquidity Covenants
Liquidity Covenant Safe Harbor
• Semi-Annual Testing
• Amount
• Reasonable Needs
• Provide Senior Lien
Tax Enforcement
• Phase I – 501(c)(3) Audit Program
• Issues
• Large Survey of Record Retention
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