Rules Relating to the $150 Million Volume Limitation:
The general rule is that, while “qualified 501(c)(3) bonds” are not subject to state volume cap rules of Section 146 of the Internal Revenue Code of 1986, as amended (the “Code”), an organization described under Section 501(c)(3) of the Code may not be the “beneficiary” of more than $150 million of outstanding bonds that not “qualified hospital bonds.” This is called the “$150 million limitation.”
Whether an organization is a “beneficiary” within the meaning of the general rule is determined using the test-period beneficiary concept borrowed from the qualified small issue bond provisions. Under these rules, an organization generally is a test-period beneficiary if it is an owner or principal user of bond-financed facilities during a three-year period beginning on the later of the date such facilities are placed-in-service or the date the bonds are issued. Organizations under common management and control are treated as one organization and are subject to only the one $150 million limit. See PLR 9326027. There are special approaches that attempt to describe when 501(c)(3) organizations are related to one another.
“Qualified hospital bonds” are bonds at least 95% of the net proceeds of which are used with respect to a “hospital.” A “hospital” generally consists of an institution that is accredited by the Joint Commission (the JCAH) or another program of a qualified governmental unit in which such institution is located, is primarily used to provide to inpatients certain medical services, has a requirement that every patient be under the care and supervision of a physician and provides 24-hour nursing services. A “hospital” expressly does not include rest or nursing homes, daycare centers, medical school facilities, research laboratories or ambulatory care facilities. See also House Committee report section d regarding Section 1301 of the 1986 Act (p. 1469 in CCH Reports) (See HR Rep No 426, 99th Cong, 1st Session, December 7, 1985, pages 540 and 541 AND HR Rep No 841, 99th Cong., 2d Session., September 18, 1986, pages 725 and 726.)
The 1997 Act (P.L. 105-34) repealed the $150 million limitation for bonds that are issued after August 5, 1997, if at least 95% of the net proceeds of such bonds are used to finance capital expenditures. The repeal does not apply to refunding bonds, to new money bonds issued to finance capital expenditures incurred on or before August 5, 1997 or to new money bonds more than 5% of the net proceeds of which are used to finance working capital expenditures.
See also Chapter XII of Fundamentals of Municipal Bond Law 2007 from which portions of the above summaries were taken.