September 28, 2017
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The Internal Revenue Service (IRS) earlier today published in the Federal Register a proposed rule that would simplify the public approval requirements that apply to tax-exempt Housing Bonds and other private activity bonds (PABs). The proposal also includes an NCSHA-supported special exemption from certain public approval requirements for single-family mortgage revenue bonds (MRBs).

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 proposed rule would amend 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.

The proposed rule would also exempt MRB issuances from certain public approval requirements. Currently, PAB issuances must 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 it is generally unknown when an MRB is issued what homeowners it will assist. The proposed rule would exempt MRB issuances from the host approval requirement.

Similarly, IRS also proposes to adopt 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 proposed rule, HFAs and other MRB issuers would 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 the special exemptions for MRBs would 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 urged IRS to finalize the 2008 proposal in its comments to IRS on its 2015-2016 Priority Guidance Plan. The IRS has chosen to propose a new rule because of technical concerns that the 2008 proposal, as written, would effectively create two overlapping and inconsistent sets of regulations. The 2008 proposed rule has been officially withdrawn.

IRS will accept public comments on the proposal until December 27, 2017. NCSHA plans to submit comments on behalf of all HFAs. If you have any input you would like NCSHA to consider when drafting comments, please email Greg Zagorski by Friday, December 8.