Tax Exempt Bond Compliance
|History:||Issued -- June 17, 2009|
|Revised -- November 30, 2010|
|Responsible Official:||Vice President for Finance and Treasurer, tel. (202) 319-5606|
Use of tax exempt bond proceeds must comply with Federal tax rules pertaining to the expenditure of proceeds, use of bond financed property, investment of proceeds in compliance with arbitrage rules, and retention of records. Failure to follow these rules can result in loss of the tax-exempt status of the bonds, significant penalties and other consequences. The specific compliance guidelines for The Catholic University of America are set forth in this policy.
A. Arbitrage: The practice of taking advantage of a price differential between two or more markets; striking a combination of matching deals that capitalize upon the imbalance; the profit being the difference between the markets price.
B. Tax-Exempt Bond Financed Facilities ("Facilities"): The Finance office maintains the most up to date listing of tax exempt bond funded buildings on campus.
C. Nonexempt Use: Use by business users and use by CUA in an unrelated trade or business subject to unrelated business income tax.
III. Expenditure of Proceeds
Expenditure of bond proceeds will be prepared by the Controller’s Office and reviewed by the Vice President for Finance and Treasurer. They should be documented in the following format:
• The Office of the Vice President for Finance and Treasurer will establish forms and procedures for preparation and review of requisitions of bond proceeds.
• Requisition must identify the financed property, in conformity with the Tax Equity and Fiscal Responsibility Act (“TEFRA”) public approval for the bonds and the tax certificates executed by the university at closing, including certifications as to the description, planned uses and average economic life of the bond financed property. Costs of issuance must be specifically identified.
Documentation of proceeds and earnings applied to current and advanced refunding, including redemption of prior bonds and expenditures of bond proceeds must conform to the following restrictions:
• Requisitions for costs that were paid prior to the issuance of the bonds are, in general, limited to costs paid subsequent to, or not more than 60 days prior to, the date a declaration of intent to reimburse the cost was approved by the Board of Trustees.
• Requisitions will be summarized in a “final allocation” of proceeds to uses not later than 18 months after the placed in service date of the financed property (and in any event not later than 5 years and 60 days after issuance of the bonds.) The format of this allocation will conform to the use of the proceeds reports on Schedule K of Form 990 with further detail to identify amounts spent on different properties.
• Expenditures of proceeds should be measured against the tax certificate expectation to spend or commit 5% of net sale proceeds within 6 months, to spend 85% within three years and proceed with due diligence to complete the project and fully spend net sale proceeds.
IV. Use of Bond-Financed Property
Based on records received for each bond-financed property, the Controller’s Office will determine and disclose annually the nonexempt use in each category included on the IRS Form 990 Schedule K as a percentage of total use of proceeds of the issue.
Agreements with business users for lease, management, sponsored research, or any other potential nonexempt use of bond-financed property will be reviewed by the Vice President for Finance and Treasurer prior to execution for compliance with the 5% limit.
• Unrelated trade or business will be reviewed annually for compliance with the 5% limit and reporting on Schedule K.
No item of bond-financed property will be sold or transferred to a nonexempt party without advance arrangement of a "remedial action" under the applicable Treasury regulations. Any sale or transfer of property to any party will be handled by the Vice President for Finance and Treasurer.
V. Documentation Requirements for Use of Bond-Financed Property
Use of bond-financed property when completed and placed in service will be reviewed by the Vice President for Finance and Treasurer.
For each bond financed property, an employee will be named as responsible for tracking the uses of the building and regularly reporting this information to Finance. The employee must have knowledge of all activities of the building and must maintain records in perpetuity or until notified by Finance that such records no longer need to be maintained:
• Records as to when property financed with bond proceeds is placed in service.
• Records showing the use of all areas of the building. These records should be updated on a quarterly basis. The designated employee should obtain approval from the Office of General Counsel regarding whether the planned uses of the building are exempt or nonexempt use of the bond-financed property. Before the bond-financed property is used for any new types of uses, the designated employee should obtain an opinion from the Office of General Counsel as to whether that use will be exempt or nonexempt.
• Calculation showing that the average nonexempt use of bond-financed property over the life of the issue does not exceed 5% of the proceeds, which is the limit for tax exempt bond financing. Proceeds do not include amounts deposited in a reasonably required reserve fund. The Controller’s Office will provide the designated employee with the amount of the 5% limit at the time the bonds are issued.
• The designated employee is responsible for maintaining copies of the agreements with outside users and the evidence that the agreement was approved by the Vice President for Finance and Treasurer as either exempt or nonexempt use. The Controller’s Office is responsible for reporting this information on the Form 990 Schedule K.
Investment of bond proceeds in compliance with the arbitrage bond rules and rebate of arbitrage will be supervised by the Vice President for Finance and Treasurer and is subject to the following guidelines:
• Guaranteed investment contracts (“GIC”) will be purchased only using the three-bid “safe harbor” of applicable Treasury regulations, in compliance with fee limitations on GIC brokers in the regulations.
• Other investments will be purchased only in market transactions.
• Calculations of rebate liability will be performed annually by outside consultants.
• Rebate payments will be made with Form 8038-T no later than 60 days after (a) each fifth anniversary of the date of issuance and (b) the final retirement of the issue. Compliance with rebate requirements will be reported to the bond trustee and the issuer.
• The Vice President for Finance and Treasurer will identify the date for the first rebate payment at the time of issuance and enter this date into the records for the issue.
Management and retention of records related to tax exempt bond issues will be supervised by the Vice President for Finance and Treasurer as follows:
• Records will be retained by the Vice President for Finance and Treasurer for the life of the bonds plus any refunding bonds plus three years. Records may be in the form of documents or electronic copies of documents, appropriately indexed to specific bond issues and compliance functions.
• Records pertaining to the bond issuance, including the transcript of documents executed in connection with the issuance of the bonds and any amendments will be retained by the Office of the Vice President for Finance and Treasurer.
• Records pertaining to the rebate calculations and records of rebate payments, including Forms 8038-T, will be retained by the Controller’s Office.
• Retainable records pertaining to expenditures of bond proceeds, including requisitions, trustee statements and final allocation of proceeds (including allocations of equity for mixed-use projects), will be retained by the Controller’s Office.
• Retainable records pertaining to use of property, including all agreements reviewed for nonexempt use and any reviewed documents relating to unrelated business activity, will be kept primarily by the designated employee for each bond-financed property with copies of annual usage information and approved outside user agreements in the Office of the Vice President for Finance and Treasurer.
• Retainable records pertaining to investments, including GIC documents under the Treasury regulations, records of purchase and sale of other investments, and records of investment activity(such as trustee statements) sufficient to permit calculation of arbitrage rebate or demonstration that no rebate is due will be retained by the Office of the Vice President for Finance and Treasurer or the Controller’s Office.
• Retainable records pertaining to any credit enhancement of the bonds during the entire term of the bonds, including bond insurance contracts, letters of credit and standby purchase agreements will be retained by the Office of the Vice President for Finance and Treasurer.
• Retainable records pertaining to interest rate swaps, interest rate caps and other hedging contracts, including any ISDA agreements, fairness opinions, termination agreements and records of termination payments will be retained by the Office of the Vice President for Finance and Treasurer.
VIII. Overall Responsibility
Overall administration and coordination of this policy is the responsibility of the Vice President for Finance and Treasurer.
Links checked and updated 12/14/10 TOL. Formatting adjusted 1/11/13 VAL.