IRS Provides Guidance on Refinancing Tribal Tax-Exempt Bonds


IRS Provides Guidance on Refinancing Tribal Tax-Exempt Bonds

May 22, 2019

On May 22, the Internal Revenue Service (IRS) at the U.S. Department of the Treasury provided updated guidance on refinancing tax-exempt tribal government bonds under the Tribal Economic Development Bonds (TEDBs) program. The IRS guidance clarifies that tribal governments can refinance existing economic development tax-exempt debt without it counting against the original $2 billion authorization.

Tribes have successfully utilized the TEDBs program to issue tax-exempt debt for a broad range of activities with lower borrowing costs, making it easier to engage in economic development projects. However, that volume cap is quickly running out and there were concerns that refinancing tax-exempt debt issued under the program would count twice - depleting the cap even faster. NAFOA has advocated for such guidance to ensure that tribes can refinance without duplicative allocation, similar to other tax-exempt debt programs. 

“Tribal economic development bonds are vital for tribes that seek funding for projects on their reservations, and we applaud this decision by the IRS to approve the refinancing of these bonds. This has become an urgent issue throughout Indian Country, and today’s ruling will benefit all tribes that have relied on TEDBs to prosper and strive toward economic self-sufficiency.”– Kenneth Kahn, Tribal Chairman for the Santa Ynez Band of Chumash Indians 

Tribal Government Tax-Exempt Bonds Refunding Criteria

Based on the IRS guidance, tribal governments have the assurances they need to refinance economic development tax-exempt debt under the TEDBs program without it counting against the current volume cap so long as specific criteria outlined in the guidance (and below) are met: 

  1. The original Qualified Bonds were issued with any required bond volume cap allocation and before any applicable time deadline for issuance of the original Qualified Bonds;
  2. Except as provided herein, the issue price (as defined in § 1.148-1(f)) of the current refunding issue is no greater than the outstanding stated principal amount of the refunded bonds of the prior issue (as defined in § 1.150-1(d)(5)) of Qualified Bonds (the refunded bonds). For refunded bonds originally issued with more than a de minimis amount of original issue discount or premium (as defined in § 1.148-1(b)), the present value of the refunded bonds (as determined under § 1.148-4(e)) must be used in lieu of the outstanding stated principal amount to determine the maximum issue price of the current refunding issue that may qualify as tax-exempt Qualified Bonds pursuant to this notice; and
  3. The current refunding issue meets all applicable requirements for the issuance of Qualified Bonds (excluding any bond volume cap or original issuance time deadline), including, without limitation, the requirements under § 149(g) that the original Qualified Bonds met the requirements applicable to hedge bonds, and, in the case of private activity bonds to which § 147(b) applies, the requirement under § 147(b) that the average bond maturity be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced with the net proceeds of such issue.