TEFRA Hearing Requirements and Other Matters


Section 147(f)(2)(B)(i) requires an issue to be approved by any governmental unit if such issue is approved by the applicable elected representative of such governmental unit after a public hearing following reasonable public notice.


The statute is silent on what constitutes reasonable public notice. Section 5f.103-2(g)(3) of the Regulations provides guidance on this subject. Note that the IRS has proposed changes to this section of the Regulations to be implemented as Section 1.147(f)-1 “Public Approval of Private Activity Bonds” – these proposed changes have not been implemented yet.

According to Section 5f.103-2(g)(3) of the Regulations, Reasonable Public Notice means the following:

  1. Published notice which is reasonably designed to inform residents of the affected governmental units, including residents of the issuing unit and the governmental unit where a facility is to be located, of the proposed issue; and
  2. Notice must state the time and place for the hearing; and
  3. Notice must include the following: (a) general functional description of the type and use of the facility to be financed, (b) the maximum aggregate face amount of obligations to be issued with respect to the facility, (c) the initial owner, operator or manager of the facility, (d) the prospective location of the facility by its street address or, if none, by a general description designed to inform readers of its specific location; and
  4. Notice must be published no fewer than 14 days before the hearing; and
  5. Publication of notice presumed reasonable to inform residents of the approving governmental unit if given in the same manner and same locations as required of the approving governmental unit for any other purposes for which applicable state or local law specifies a notice of public hearing requirement.
  6. Publication of notice presumed reasonable to inform affected residents in the locality of the facility only if published in one or more newspapers of general circulation available to residents of that locality or if announced by radio or television broadcast to those residents.

Note that the current requirement is that the “maximum” aggregate face amount be included. Some bond counsel believe that the expected face amount may be increased by a healthy “buffer” amount (perhaps up to 20% of the expected amount) in order to cover unanticipated adjustments in the face amount prior to pricing but after publication of the TEFRA notice.  The Proposed Regulations would change this requirement, however, to provide that there may not be any “substantial” deviations in the “public approval information.”  Therefore, if, e.g., the difference between the maximum aggregate face amount and the actual aggregate face amount is greater than 5% of the net proceeds, there exists a “substantial” deviation.  The public approval requirement in this case is not met until certain special “curing” requirements are met.  In other words, while current regulations do not have a “substatial” deviation threshold, care must be taken under the Proposed Regulations to ensure that the difference between the stated maximum aggregate face amount is not greater than the 5% limit.


Section 147(f)(2)(D) of the Code states that:

No approval under section 147(f)(2)(A) [which requires the approval] is necessary with respect to any bond which is issued to refund (other than to advance refund) a bond approved under subparagraph (A) (or treated as approved under subparagraph (C)) unless the average maturity date of the issue of which the refunding bond is a part is later than the average maturity date of the bonds to be refunded by such issue.  For purposes of the preceding sentence, average maturity is determined in accordance with subsection (b)(2)(A).

Note that section 147(f)(2)(D) – the exception to TEFRA – applies only to current refundings.  It does not provide for deemed approval for advance refunding issues.

Under prior law, described in Treas. Reg. 5f.103-2(b)(1), the requirement merely stated that the refunding obligation have a maturity date which is “not later than the maturity date of the obligation to be refunded.”  There is no revised regulation that more fully describes the current rule in Section 147(f)(2)(D).

If under the rules of section 147(f)(2)(D) no approval is necessary because the average maturity date of the refunding bonds is not later than the average maturity date of the refunded bonds, write “No approval needed under section 147(f)(2)(D) of the Code” in line 37 of the April 2011 IRS Form 8038.

Section 147(f)(2)(D) refers to an “issue” of which the refunding bond is a part (see also Treas. Reg. 5f.103-2(b)(1)).  What analysis is needed if the issue of bonds consists of a new money portion and a current refunding portion?  Can the issue, for section 147(f)(2)(D) purposes, be treated as two issues?  The language in section 147(f)(2)(A) states that the entire issue must satisfy the approval requirement – not merely a portion of the issue.  The exception in section 147(f)(2)(D) further provides that the average maturity date of the entire issue – not merely a portion of such issue – must not be later than the average maturity date of the refunded bonds.  Thus, the express language does not appear to allow a multipurpose-style differentiation between a new money and a refunding portion of the bonds in order to satisfy the exception.  Nevertheless, a valid argument for separating the issue into two separate issues for purposes of section 147(f)(2)(D) may be available in the definition of “Issue” in Treas. Reg. 1.150-2(c).  Indeed, Treas. Reg. 1.150-1(c)(3) can be used to elect a separate issue, at least for purposes of section 147(f)(2)(D).  Remember, a separate IRS Form 8038 would need to be filed.


Public approval may be given once for a three-year plan of financing, which may contemplate several bond issues occurring within three years after the initial issue date of the first bonds issued pursuant to the approved plan.  This rule includes refunding bonds that refund private activity bonds issued pursuant to the approved plan which are issued within the three-year period.


Q: May a TEFRA notice identify alternative sites or alternative facilities to be financed? A: PLR 9851005. Alternate sites in TEFRA notice were okay. Bond proceeds used on site across the street from TEFRA identified site was okay.

Q: What is the limitation on use of bond proceeds on TEFRA identified site where the use may go beyond what was specifically identified? A: PLR 200821031. Use for maritime operations.

Q: How long is a TEFRA approval valid for? A: Under Section 147(f)(2)(C), if there has been public approval of the plan for financing a facility, such approval constitutes the approval for any additional bond issue (a) which is issued pursuant to that plan within 3 years after the date of the 1st bond issue that was issued pursuant to that approval, and (b) all or substantially all of the proceeds of such additional bond issue will be used to finance the facility or to refund previous financing under such plan.  So, if the project described in the TEFRA is still valid for the new issue, that TEFRA remains valid for three years after the first bond issue that is done under the TEFRA.

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