The Latest on 501(c)(3) Bonds: How Tax Reform Could Impact Health Care Organizations, Institutions of Higher Education and other 501(c)(3) Organizations

The competing tax reform acts proposed by the U.S. House of Representatives and U.S. Senate both include important changes to tax provisions related to tax-exempt bonds. Those changes would impact financing options available to tax-exempt 501(c)(3) organizations. The House version of the Tax Costs and Jobs Act has already passed and a vote on the Senate’s version of the bill is looming.

Proposed revisions to the relevant tax rules include:

  • The House Bill would eliminate private activity bonds, including 501(c)(3) bonds. In other words, the House Bill would eliminate all tax-exempt financing for 501(c)(3) organizations. The proposed Senate Bill would not eliminate private activity bonds.
  • Both the House Bill and the proposed Senate Bill would eliminate advance refunding of outstanding bonds. This means that, if enacted into law, neither version of the bill would allow borrowers to refund outstanding bonds by using government securities to defease the outstanding bonds in advance of their becoming callable in accordance with their terms.
  • Both bills provide that relevant provisions would have an effective date of January 1, 2018. Even if legislation is enacted after January 1, 2018, the provisions could be retroactive to January 1, 2018.

What’s Next?

The Senate Budget Committee has now cleared the way for a full vote on the proposed Senate’s version of the bill, and a push is being made for that vote to occur by December 1. The result of the Senate vote remains uncertain but many are now speculating that some form of the Senate bill will pass following floor debate.

Assuming the Senate bill passes, the House and the Senate will need to reconcile the differences between their respective bills. It remains unclear whether private activity bonds would survive that reconciliation.

We will continue to follow these provisions in the tax reform acts and post updates as more information is known.

For information on tax-exempt bonds, contact Tyler Adams at tadams@nilanjohnson.com.