About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1 1 (March 20, 2019)

handle is hein.crs/govyjb0001 and id is 1 raw text is: Congressional a Research Service Advance Refunding Bonds and P.L. 115-97 March 20, 2019 This Insight briefly describes advance refunding bonds, summarizes changes made in the 2017 tax revision (P.L. 115-97; sometimes referred to as the Tax Cuts and Jobs Act, or TCJA), and discusses policy issues relevant for the 116th Congress. What Are Advance Refunding Bonds? Refunding bonds are bonds that are issued to replace existing (outstanding) bonds previously issued for a given purpose. Refunding bonds are used by the issuer (borrower) to take advantage of borrowing terms that are more favorable than those present at the time the existing bonds were issued, which may be realized through lower interest rates or more attractive agreements related to the project (known as covenants) funded by the bond. Current refunding describes cases where the existing bond is redeemed within 90 days of the refunding bond issue date. Advance refunding describes cases where the existing bond and refunding bond are both outstanding for a period of longer than 90 days. Advance refunding is typically used when the existing bond has a call protection, or safeguard against a bond being paid off earlier than its maturity date, that does not allow for immediate redemption of the existing bond. The Internal Revenue Code (26 U.S.C. § 149) stipulates that all bonds issued after 1985 must be redeemed at the earliest date possible if an advance refunding results in present value savings to the borrower. Federal Tax Law and Changes Made by P.L. 115-97 Generally, interest income earned from state and local bonds issued for a public (governmental) purpose is exempted from federal income taxation. The tax exemption serves to reduce interest rates and subsequent borrowing costs on such tax-exempt (municipal) bonds. Bonds that are not issued for a public purpose but which have been deemed by Congress to have substantive public benefits may also be exempted from federal income taxation if they are classified as qualified private activity bonds. Prior to the passage of P.L. 115-97, advance refunding bonds could generally be issued for public purpose bonds one time with interest income still exempt from federal income taxation-allowing for two federally tax-exempt bonds to be outstanding for a single project at the same time. Qualified private activity bonds were generally not eligible for advance refunding with a federal tax exemption, though Congressional Research Service https://crsreports.congress.gov IN11079 CRS INSIGHT Prepared for Members and Committees of Congress