Qualified Energy Conservation Bonds (I.R.C. 54D)

April 26, 2015

The federal government will not reimburse issuers for original issue discount or pre-issuance accrued interest.  See U.S. Department of Energy publication available online at http://www1.eere.energy.gov/wip/pdfs/qecb_creb_primer.pdf.  See also Notice 2010-35.

For purposes of determining refundable credit payments under § 6431(b), as modified by § 6431(f), on a Direct Pay Tax Credit Bond or a Build America Bond, original issue discount (OID) (whether paid upon accrual, bond redemption, at maturity, or otherwise) is not treated as a payment of interest. OID is the excess of a bond’s stated redemption price at maturity over the bond’s issue price. See ARRA Conf. Rep. at 593, n. 146.

Notice 2009-29:  Qualified energy conservation bond allocations for 2009.

Notice 2012-44:  Guidance concerning qualified conservation purposes, including green community programs.

Facilities for the Local Furnishing of Electric Energy or Gas (I.R.C. 142(f))

April 13, 2015

General Overview

As described in section 142(e), the local furnishing of electric energy or gas from a facility includes only furnishing within the area consisting of either (1) a city and one contiguous county, or (2) two contiguous counties.  There are special rules for treatment of electric energy that is transmitted outside of a local area, when required pursuant to an order of the FERC.

Local furnishing bonds may no longer be issued unless:

  1. the facility will (a) be used by a person who is engaged in the local furnishing of that energy source on January 1, 1997 and (b) be used to provide service within the area served by that person on January 1, 1997 (or within a county or city any portion of which is within such area); or
  2. the facility will be used by a successor in interest to such person for the same use and within the same service area as described in 1 above.


PLR 9635010 (May 22, 1996): Holds that the “two-county rule” of Internal Revenue Code section 142(f)(1) is not violated by reason of a gas company’s emergency transfers of gas outside of the permitted city and contiguous county service area or by reason of gas brokerage arrangements outside of the service area.  The ruling notes that no tax-exempt bond proceeds have been spent for distribution or storage facilities relating to gas supplied outside of the service area.

PLR 20034007 (June 27, 2003):  Ruling that a reorganized company is the successor in interest to an historic local furnisher of electricity under I.R.C. 142(f)(3)(B) and that its facilities would serve or be available on a regular basis for general public use.

PLR 200942002 (dated July 7, 2009, released October 16, 2009): Describes facts and special accommodations and rules for a utility that generates more than it needs for its two serviced counties.

Voluntary Closing Agreement Program (VCAP)

April 8, 2015

Scope of the VCAP Program

Under TEB VCAP, an issuer may request a closing agreement with respect to its bonds to resolve violations of sections 103, 54, 1397E, 1400N and related provisions of the Code. TEB VCAP is not available when:

  1. Absent extraordinary circumstances, the violation can be remediated under existing remedial action provisions or tax-exempt bond closing agreement programs contained in regulations or other published guidance.
  2. The bond issue is under examination. A bond issue is generally treated as under examination on the date a letter opening an examination on the bond issue is sent.
  3. The tax-exempt status of the bonds or qualified status of tax credit bonds is at issue in any court proceeding or is being considered by the IRS Office of Appeals.
  4. The Service determines that the violation was due to willful neglect.


Notice 2008-31 provides general information about the TEB VCAP.

I.R.M. 7.2.3 provides administrative information concerning the requirements for submitting the VCAP request.

Form 14429 is the form that is to be submitted as a cover letter to the VCAP request.