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IRS Amends PAB Public Notice Requirements; Sets Special Standards for MRBs

Published on December 31, 2018 by Greg Zagorski
IRS Amends PAB Public Notice Requirements; Sets Special Standards for MRBs

Earlier today, the Internal Revenue Service (IRS) published a final rule simplifying the public approval requirements that apply to tax-exempt Housing Bonds and other private activity bonds (PABs). The rule includes an NCSHA-supported special exemption from certain public approval requirements for single-family mortgage revenue bonds (MRBs). The new requirements are effective immediately.

New Notice Requirements for Public Hearings

Under current IRS regulations, issuers of Housing Bonds and other PABs are required to hold a public hearing on a potential PAB issuance before the issuance can be approved. The issuer is required to notify the community impacted by the PAB issuance of the public meeting via either newspaper, television, or radio at least 14 days before the public meeting is to take place.

The new rule amends this requirement to allow HFAs and other issuers to meet the public notice requirement through electronic sources, as long as such methods comply with a state’s open meeting requirements. NCSHA expressed support for this proposal in its comments on IRS’ initial proposed rule, published in 2017, arguing that it “would save HFAs and other issuers considerable time and money and align federal rules with current technology and state laws.”

The final rule also reduces the time required between the reasonable public notice and public hearing from 14 days to seven business days. NCSHA requested that IRS make such a change, which will allow HFAs to more efficiently structure their offerings to fit the state of the bond market while still giving the public ample time to comment.

Exemption for MRBs

The rule also exempts MRB issuances from certain public approval requirements. Specifically, MRB issuances would be exempt from the requirement that PABs be approved both by the governmental entity issuing the bond (issuer approval) and a governmental entity with jurisdiction over the location of the facility being financed (host approval). Securing host approval for MRBs is often infeasible because MRBs are used to finance loans for homebuyers in multiple communities, and when an MRB is issued, it is generally unknown which homeowners it will assist.

Similarly, the IRS also adopts special rules for MRB issuances that would allow for less specific information to be included for public approval. Currently, PAB issuers are required to submit information pertaining to the type and use of the facility to be financed; the maximum aggregate face amount of the bonds to be issued for the facility; the initial owner, operator, or manager of the facility; and the location of the facility by street address. Some of this information is usually unavailable when an MRB is first issued. Under the new rule, HFAs and other MRB issuers will only be required to provide the maximum stated principal amount of qualified mortgage bonds to be issued and a general description of the geographic jurisdiction in which the financed residences will be located.

Both of the special exemptions for MRBs will also apply to qualified veterans’ mortgage bonds, qualified student loan bonds, and qualified 501(c)3 bonds.

The IRS first proposed these revisions in a 2008 proposed rule. NCSHA has strongly supported such changes, and has urged IRS to finalize the 2008 proposal in its comments to the agency on its 2015-2016 Priority Guidance Plan. The IRS chose to propose a new rule in 2017 because of technical concerns that the 2008 proposal, as written, would effectively create two overlapping and inconsistent sets of regulations.