Public/Private Partnerships (I.R.C. 141 and I.R.C. 145)

October 3, 2015


See ABA Section of Taxation, “Comments on Safe Harbors under Sections 141 and 145” published October 2, 2015 for a discussion of suggested safe harbors under section 141 and section 145 for public/private arrangements relating to the provision of capital improvements to be owned by qualified users.  (P3 arrangements)

Also see NABL, “REG-140379-02; REG-142599-02: Allocation of and Accounting for
Tax-Exempt Bond Proceeds for Purposes of the Private Activity Bond Restrictions” published September 17, 2014 for a discussion of partnership matters relating to allocation and accounting of bond proceeds.

Note that, on October 25, 2015, the Treasury Department published final regulations regarding allocation and accounting rules under Sections 141 and 145.  Click here to view the regulations and a discussion of any particular allocation and accounting matters.

Qualified 501(c)(3) Bonds (I.R.C. 145)

March 7, 2012

General Matters

For matters relating to I.R.C. § 145, see also the Tax Exempt Organizations posting for related matters.

Ownership Requirement.  Under Section 145(a)(1) of the Code, property provided by the net proceeds of the issue of qualified 501(c)(3) bonds must be owned by a 501(c)(3) organization or by a governmental unit.  Is this requirement satisfied if the property is held by a limited liability company that is treated as a partnership, the members of which are, e.g., two 501(c)(3) organizations and one public housing authority (which is a governmental unit)?

See Announcement 2015-02 regarding a closing program providing relief from violation of the qualified ownership (and use) requirements for qualified 501(c)(3) bonds.

Rule for Costs of Issuance.  Treas. Reg. 1.145-2(c)(2) states that Section 1.141-3(g)(6) does not apply to Section 145(a)(2) to the extent that it provides that costs of issuance are allocated ratably among the other purposes for which the proceeds are used.  For purposes of Section 145(a)(2), costs of issuance are treated as private business use, which means they take away from the 5% limit.

Governmental Entities with 501(c)(3) Status.  See PLR 9340034 (Jul. 7, 1993), quoting the Conference Report relating to the Tax Reform Act of 1986:

The conferees further are aware that certain State or local governmental universities and hospitals (including certain public benefit corporations) also have received determination letters regarding their tax-exempt status under Code section 501(c)(3).  The committee intends that, to the extent that such an entity is a governmental unit or an agency or instrumentality of a governmental unit (determined as under present law), bonds for the entity will be treated as governmental bonds rather than as qualified 501(c)(3) bonds.

Opinion Matters.  See Torielli, Gina M (2004) “Opining on the 501(c)(3) Tax-Free Bond Transaction: Avoiding Common Borrower’s Counsel Misconceptions,” William Mitchell Law Review: Vol. 31: Iss. 1, Article 4, available at: 

Student Housing

See this article from Eichner & Norris regarding background matters to tax-exempt student housing bonds issued as qualified 501(c)(3) bonds.  Some bond counsel believe that student housing is not residential rental housing, in part based on an older private letter ruling to this effect.  In addition, most student housing facilities do not include complete living units (frequently there are no kitchens), which means student dorms don’t meet the definition of residential rental housing.