Recovery Zone Bonds (RZEDBs and RZFBs)

July 8, 2009

Allocation of Volume Cap Limitation:  Volume cap allocated to counties and municipalities (or waived to states) must be used before January 1, 2011 under Sections 1400U-2 and 1400U-3, for RZEDBs and RZFBs, respectively. The allocation made by the IRS in Notice 2009-50 is a one-time allocation and is not an allocation only for 2009.

Purchase of Real Property:  Real property may not be financed with RZFBs but may be financed with RZEDBs (such acquisition will be a capital expenditure for economic development purposes).

For a general description of RZEDBs and RZFBs, see IRS Notice 2009-50.

Financing of Office Space:  Some bond counsel have concluded that office space may be financed with Recovery Zone Facility Bonds even though I.R.C. 142(b)(2) generally prohibits financing office space unless the requirements of the paragraph are satisfied.  This conclusion is not supported directly within I.R.C. 1400U-3.  Instead, based on how I.R.C. 1400U-3 integrated RZFBs as “exempt facility bonds,” it appears reasonable to say that paragraph (b) does not apply.  Paragraph (b) applies only if the exempt facility bond is described in a paragraph of subsection (a).  RZFBs are not, in fact, described in a paragraph of subsection (a) – they are described in I.R.C. 1400U-3!  In either case, the broad authorization to finance recovery zone property provides sufficient cover to permit the use of proceeds for office space, even if the office space does not expressly satisfy the I.R.C. 142(d) limitations.