Section 501(c)(3) nonprofit organizations that expect to use tax-exempt bonds to finance or refinance future projects should be alert to the Investing in American Jobs and Closing Tax Loopholes Act, HR 5893, a Congressional bill that proposes to extend several favorable bond provisions currently set to expire at the end of the year. In 2009, the American Recovery and Reinvestment Act of 2009 (the "Recovery Act") extended favorable “bank qualification” for tax-exempt bonds. Specifically, the Recovery Act modified federal tax law to allow banks and other financial institutions to take substantial cost deductions when they purchase tax-exempt bonds in an annual amount not to exceed $30 million per 501(c)(3) borrower, rather than the former limit of $10 million per issuer. Now, HR 5893 seeks to make permanent these liberalized “bank qualification” provisions.
HR 5893's proposal to make the $30 million “bank qualification” threshold permanent is important to hospitals, nursing homes, educational institutions and other 501(c)(3) organizations. By permitting banks and other financial institutions to purchase bonds with an effective tax-exempt interest rate, the market for tax-exempt bonds specifically geared to benefit 501(c)(3) organizations is greatly expanded.
HR 5893 has garnered support from the National Association of Bond Lawyers, as well as a coalition of 20 municipal organizations. Both these groups have issued letters of support for HR 5893 urging members of Congress to enact the new legislation. Likewise, we encourage you to contact your local Congressional representative to support HR 5893.