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June 12, 2008
After Yankees snag, will IRS regulations slow tax-exempt bonds for Nets arena?
Atlantic Yards Report
Like us, we're pretty sure you've grumbled when writing a check to the IRS, or when looking at your pay stub and seeing how much federal tax is being withheld. But little did we Atlantic Yards critics know that the IRS may be our friend.
Without a waiver, Internal Revenue Service restrictions on tax-exempt bond deals may hamper the construction of Yankee Stadium and, without further waivers or changes in Washington, could snag plans for construction of the Nets arena in Brooklyn and other sports facilities in the city.
...While the Federal Tax Reform Act of 1986 repealed the use of tax-exempt private activity bonds for sports facilities, Congress did not repeal the tax exemption for bonds that are paid off with tax dollars, thus apparently intending to preserve tax-sheltered financing for multi-use, publicly owned arenas, according to GJNY. The bonds, exempt from city, state, and federal taxes, have an interest rate about 25 percent below taxable bonds.
However, city lawyers asked the IRS for a special ruling allowing payments-in-lieu-of taxes (PILOTs) to be considered the legal equivalent of taxes for the purpose of servicing the bond debt. The IRS said yes, “despite language in its own regulations that seemed to contradict the ruling,” according to GJNY.
So now you know why the Atlantic Yards arena would be paid off by PILOTs--it’s the same deal. And now we know that not only pending lawsuits may hinder such tax-exempt bonds, but so might the IRS.
Bettina Damiani of GJNY warned to Metro that the Nets and Mets would likely similarly request such bonding from the city. “This is coming from the mayor who said he’d end corporate welfare as we know it,” she said. “It’s almost comical.”
Posted by eric at June 12, 2008 7:51 AM