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November 5, 2009

So, could the IRS deadline for tax-exempt bonds be extended? Unclear

Atlantic Yards Report

The Empire State Development Corporation and Forest City Ratner has been feeding the financial press the line that the triple-tax-free arena bonds could be parked in escrow waiting for the litigation over the project to clear. But that scenario is easier said than done and details on how the heck the bond issuers and insurers might swing this one are not forthcoming (remember these are "tax free bonds").

But what if the IRS just extended the end-of-the-year deadline?

Perhaps the deadline is firm, but the Atlantic Yards saga is always full of twists.

The relevant document is IRS Bulletin: 2008-47, Treatment of Payments in Lieu of Taxes Under Section 141, excerpted below.

(3) Transitional rule for certain projects substantially in progress. Paragraph (k)(1) of this section does not apply to bonds issued for projects for which all of the following requirements are met:

(i) A governmental person (as defined in ยง1.141-1) took official action evidencing its preliminary approval of the project before October 19, 2006, and the plan of finance for the project in place at that time contemplated financing the project with tax-exempt bonds to be paid or secured by PILOTs.
(ii) Before October 19, 2006, significant expenditures were paid or incurred with respect to the project or a contract was entered into to pay or incur significant expenditures with respect to the project.
(iii) The bonds for the project (excluding refunding bonds) are issued on or before December 31, 2009.

As noted in the bold text, the transitional rule requires that bonds for the project be issued on or before December 31.

That seems pretty firm, but I asked the IRS if legal challenges persist, can that deadline be extended? (While I assume that no one has yet tested that deadline in an administrative proceeding, I suspect that IRS has some general rules about whether similar deadlines can be extended because of litigation or other circumstances.)

IRS spokesman Kevin McKeon replied: "We're unable to comment due to our Disclosure Rules."

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Posted by lumi at November 5, 2009 6:29 AM