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New IRS Regulations for Mixed-Use Projects Financed With Tax-Exempt Bonds Have Particular Importance for Nonprofit Health Care Organizations

The U.S. Treasury Department and Internal Revenue Service published final regulations on October 27, 2015 concerning the treatment of “mixed-use” projects financed with tax-exempt bonds. These new regulations have particular importance for tax planning and tax compliance of 501(c)(3) health care organizations that are borrowers of tax-exempt bonds.

Although this post focuses on nonprofit health care organizations, the new regulations apply to tax-exempt bonds issued for the benefit of health care facilities owned by state or local governments in a similar manner.

A copy of the new final regulations can be obtained here. See 80 FR 65637.

The new regulations most importantly facilitate the use of projects financed with tax-exempt bonds for “mixed-use” purposes (that is, uses that are treated as furthering exempt purposes of a section 501(c)(3) organization and “private use” purposes not generally permitted for projects financed with tax-exempt bonds). The “private uses” which are generally not permitted for property financed with qualified bonds include any unrelated trade or business use of a 501(c)(3) organization and certain uses pursuant to contracts with entities other than 501(c)(3) organizations and state or local governments. The new regulations have particular importance for nonprofit health care organizations because those organizations commonly have extensive contractual arrangements with private entities, and commonly have complex operations which include some amount of unrelated trade or business activity.

A more detailed description of the new rule regulations on health care facilities can be found here.

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About this Author

Michael G. Bailey, Foley Lardner, Tax Advantage Lawyer, State Income matters Attorney

Michael G. Bailey is a partner and business lawyer with Foley & Lardner LLP. Mr. Bailey’s practice focuses on tax-advantaged financing, including tax-exempt financing and tax credit transactions. He also focuses on development of tax compliance policies and procedures, energy tax issues, exempt organization tax issues and other federal and state income tax matters. His tax controversy practice focuses on tax-advantaged financing transactions and exempt organization matters. Mr. Bailey is chair of the firm’s Health Care Finance Practice and a member of the firm’s...

David Y. Bannard, Foley, Boston, Regulatory Compliance Lawyer

David Y. Bannard is a partner and business lawyer with Foley & Lardner LLP. He focuses his practice on representing airports in a wide variety of matters, including regulatory compliance, leasing, rate-setting and concessions agreements, and public finance matters. Mr. Bannard is an experienced bond lawyer, having served as bond counsel to airports and other issuers, and counsel to borrowers and underwriters, as well as in-house issuer’s counsel, in many transactions. He is a member of the firm’s Finance & Financial Institutions, Public Finance, Health Care Finance and Real Estate Practices. Mr. Bannard is the leader of the firm’s Airport Services Practice and also a leader of the firm’s Public/Private Partnership Practice and a member of the Health Care Industry Team.

Chauncey W. Lever, Jr., Foley Lardner, Disclosures Lawyer, Credit Enhancers Attorney, Florida,

Chauncey W. Lever, Jr. is a partner with Foley & Lardner LLP. He practices in the area of public finance, serving as bond counsel, special tax counsel, disclosure counsel, and counsel to underwriters, purchasers, credit enhancers, issuers, trustees, and other parties in connection with governmental purpose and private activity financings. He has extensive experience with financings for governmental capital improvements and infrastructure, utilities, hospitals and other health care facilities, housing, senior living facilities, educational facilities, solid waste...

Mark T. Schieble, Foley Lardner, Public Finance Lawyer, Tax Exempt Organizations Attorney, San Francisco,

Mark T. Schieble is a partner at Foley & Lardner LLP. He is a member of the firm’s Taxation and Public Finance Practices and its Health Care Industry Team. His practice encompasses both nonprofit and for-profit tax law. Representative matters include qualification and ongoing activities of tax-exempt organizations, tax-exempt finance, joint ventures, business reorganizations, employee benefit and deferred compensation arrangements, and real estate transactions.

In addition to federal income tax matters, Mr. Schieble also routinely counsels...