§ 150. Definitions and special rules
(a)
General rule
For purposes of this part—
(2)
Governmental unit not to include Federal Government
The term “governmental unit” does not include the United States or any agency or instrumentality thereof.
(3)
Net proceeds
The term “net proceeds” means, with respect to any issue, the proceeds of such issue reduced by amounts in a reasonably required reserve or replacement fund.
(b)
Change in use of facilities financed with tax-exempt private activity bonds
(1)
Mortgage revenue bonds
(A)
In general
In the case of any residence with respect to which financing is provided from the proceeds of a tax-exempt qualified mortgage bond or qualified veterans’ mortgage bond, if there is a continuous period of at least 1 year during which such residence is not the principal residence of at least 1 of the mortgagors who received such financing, then no deduction shall be allowed under this chapter for interest on such financing which accrues on or after the date such period began and before the date such residence is again the principal residence of at least 1 of the mortgagors who received such financing.
(2)
Qualified residential rental projects
In the case of any project for residential rental property—
(A)
with respect to which financing is provided from the proceeds of any private activity bond which, when issued, purported to be a tax-exempt bond described in paragraph (7) of section
142
(a), and
no deduction shall be allowed under this chapter for interest on such financing which accrues during the period beginning on the 1st day of the taxable year in which such project fails to meet such requirements and ending on the date such project meets such requirements. If the provisions of prior law corresponding to section
142
(d) apply to a refunded bond, such provisions shall apply (in lieu of section
142
(d)) to the refunding bond.
(3)
Qualified 501(c)(3) bonds
(A)
In general
In the case of any facility with respect to which financing is provided from the proceeds of any private activity bond which, when issued, purported to be a tax-exempt qualified 501(c)(3) bond, if any portion of such facility—
(i)
is used in a trade or business of any person other than a 501(c)(3) organization or a governmental unit, but
then the owner of such portion shall be treated for purposes of this title as engaged in an unrelated trade or business (as defined in section
513) with respect to such portion. The amount of gross income attributable to such portion for any period shall not be less than the fair rental value of such portion for such period.
(B)
Denial of deduction for interest
No deduction shall be allowed under this chapter for interest on financing described in subparagraph (A) which accrues during the period beginning on the date such facility is used as described in subparagraph (A)(i) and ending on the date such facility is not so used.
(4)
Certain exempt facility bonds and small issue bonds
(A)
In general
In the case of any facility with respect to which financing is provided from the proceeds of any private activity bond to which this paragraph applies, if such facility is not used for a purpose for which a tax-exempt bond could be issued on the date of such issue, no deduction shall be allowed under this chapter for interest on such financing which accrues during the period beginning on the date such facility is not so used and ending on the date such facility is so used.
(5)
Facilities required to be owned by governmental units or 501(c)(3) organizations
If—
(A)
financing is provided with respect to any facility from the proceeds of any private activity bond which, when issued, purported to be a tax-exempt bond,
(B)
such facility is required to be owned by a governmental unit or a 501(c)(3) organization as a condition of such tax exemption, and
then no deduction shall be allowed under this chapter for interest on such financing which accrues during the period beginning on the date such facility is not so owned and ending on the date such facility is so owned.
(6)
Small issue bonds which exceed capital expenditure limitation
In the case of any financing provided from the proceeds of any bond which, when issued, purported to be a qualified small issue bond, no deduction shall be allowed under this chapter for interest on such financing which accrues during the period such bond is not a qualified small issue bond.
(c)
Exception and special rules for purposes of subsection (b)
For purposes of subsection (b)—
(1)
Exception
Any use with respect to facilities financed with proceeds of an issue which are not required to be used for the exempt purpose of such issue shall not be taken into account.
(2)
Treatment of amounts other than interest
If the amounts payable for the use of a facility are not interest, subsection (b) shall apply to such amounts as if they were interest but only to the extent such amounts for any period do not exceed the amount of interest accrued on the bond financing for such period.
(3)
Use of portion of facility
In the case of any person which uses only a portion of the facility, only the interest accruing on the financing allocable to such portion shall be taken into account by such person.
(d)
Qualified scholarship funding bond
For purposes of this part and section
103—
(1)
Treatment as State or local bond
A qualified scholarship funding bond shall be treated as a State or local bond.
(2)
Qualified scholarship funding bond defined
The term “qualified scholarship funding bond” means a bond issued by a corporation which—
(A)
is a corporation not for profit established and operated exclusively for the purpose of acquiring student loan notes incurred under the Higher Education Act of 1965, and
(B)
is organized at the request of the State or 1 or more political subdivisions thereof or is requested to exercise such power by 1 or more political subdivisions and required by its corporate charter and bylaws, or required by State law, to devote any income (after payment of expenses, debt service, and the creation of reserves for the same) to the purchase of additional student loan notes or to pay over any income to the United States.
(3)
Election to cease status as qualified scholarship funding corporation
(A)
In general
Any qualified scholarship funding bond, and qualified student loan bond, outstanding on the date of the issuer’s election under this paragraph (and any bond (or series of bonds) issued to refund such a bond) shall not fail to be a tax-exempt bond solely because the issuer ceases to be described in subparagraphs (A) and (B) of paragraph (2) if the issuer meets the requirements of subparagraphs (B) and (C) of this paragraph.
(B)
Assets and liabilities of issuer transferred to taxable subsidiary
The requirements of this subparagraph are met by an issuer if—
(i)
all of the student loan notes of the issuer and other assets pledged to secure the repayment of qualified scholarship funding bond indebtedness of the issuer are transferred to another corporation within a reasonable period after the election is made under this paragraph;
(ii)
such transferee corporation assumes or otherwise provides for the payment of all of the qualified scholarship funding bond indebtedness of the issuer within a reasonable period after the election is made under this paragraph;
(iii)
to the extent permitted by law, such transferee corporation assumes all of the responsibilities, and succeeds to all of the rights, of the issuer under the issuer’s agreements with the Secretary of Education in respect of student loans;
(C)
Issuer to operate as independent organization described in section
501
(c)(3)
The requirements of this subparagraph are met by an issuer if, within a reasonable period after the transfer referred to in subparagraph (B)—
(D)
Senior stock
For purposes of this paragraph, the term “senior stock” means stock—
(i)
which participates pro rata and fully in the equity value of the corporation with all other common stock of the corporation but which has the right to payment of liquidation proceeds prior to payment of liquidation proceeds in respect of other common stock of the corporation;
(ii)
which has a fixed right upon liquidation and upon redemption to an amount equal to the greater of—
(E)
Independent member
The term “independent member” means a member of the board of directors of the issuer who (except for services as a member of such board) receives no compensation directly or indirectly—
(ii)
for services as a member of the board of directors or as an officer of such transferee corporation.
For purposes of clause (ii), the term “officer” includes any individual having powers or responsibilities similar to those of officers.
(F)
Coordination with certain private foundation taxes
For purposes of sections
4942 (relating to the excise tax on a failure to distribute income) and 4943 (relating to the excise tax on excess business holdings), the transferee corporation referred to in subparagraph (B) shall be treated as a functionally related business (within the meaning of section
4942
(j)(4)) with respect to the issuer during the period commencing with the date on which an election is made under this paragraph and ending on the date that is the earlier of—
(i)
the last day of the last taxable year for which more than 50 percent of the gross income of such transferee corporation is derived from, or more than 50 percent of the assets (by value) of such transferee corporation consists of, student loan notes incurred under the Higher Education Act of 1965; or
(e)
Bonds of certain volunteer fire departments
For purposes of this part and section
103—
(1)
In general
A bond of a volunteer fire department shall be treated as a bond of a political subdivision of a State if—
(A)
such department is a qualified volunteer fire department with respect to an area within the jurisdiction of such political subdivision, and
(B)
such bond is issued as part of an issue 95 percent or more of the net proceeds of which are to be used for the acquisition, construction, reconstruction, or improvement of a firehouse (including land which is functionally related and subordinate thereto) or firetruck used or to be used by such department.
(2)
Qualified volunteer fire department
For purposes of this subsection, the term “qualified volunteer fire department” means, with respect to a political subdivision of a State, any organization—
(A)
which is organized and operated to provide firefighting or emergency medical services for persons in an area (within the jurisdiction of such political subdivision) which is not provided with any other firefighting services, and
(B)
which is required (by written agreement) by the political subdivision to furnish firefighting services in such area.
For purposes of subparagraph (A), other firefighting services provided in an area shall be disregarded in determining whether an organization is a qualified volunteer fire department if such other firefighting services are provided by a qualified volunteer fire department (determined with the application of this sentence) and such organization and the provider of such other services have been continuously providing firefighting services to such area since January 1, 1981.