Matters under Section 150

Section Outline:

(a) General rules;

(b) Change in use of facilities financed with tax-exempt private activity bonds;

(1) Mortgage revenue bonds;

(2) Qualified residential rental projects;

(3) Qualified 501(c)(3) bonds;

(4) Certain exempt facility bonds and small issue bonds;

(5) Facilities required to be owned by governmental units or 501(c)(3) organizations;

(6) Small issue bonds which exceed capital expenditure limitation;

(c) Exception and special rules for purposes of subsection (b);

(d) Qualified scholarship funding bond; and

(e) Bonds of certain volunteer fire departments.

Impact for 501(c)(3) Bonds:

UTOB:  If a qualified 501(c)(3) bond financed facility is owned by a 501(c)(3) organization but is used in a trade or business of an entity that is not a 501(c)(3) organization or a governmental unit, then the 501(c)(3) organization is treated as being engaged in an unrelated trade or business (as defined in I.R.C. 513).

Denial of Deduction:  No deduction is allowed for interest on any financing of such facility which accrues while the facility is so used.  (Would deduction otherwise be attempted for the portion of the interest allocable to the UBTI?)

If a bond-financed facility is required to be owned by a governmental unit or a 501(c)(3) organization as a condition to maintaining tax-exemption of interest on the bonds, and the facility is not so owned, then no deduction is allowed for interest paid on the bonds.

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