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501(c)(3) Borrowers: U.S. House Tax Bill is Alarming – Proposes Eliminating Tax-Exempt Financings for All Non-profit Organizations

Yesterday in an unexpected development, the U.S. House of Representatives released the draft Tax Cuts and Jobs Act, which would eliminate tax-exempt financings for ALL 501(c)(3) organizations, including hospitals, retirement communities, colleges and other nonprofits.

If passed into law in current form, 501(c)(3) organizations will no longer have the ability to issue tax-exempt bonds after December 31, 2017 to finance new projects, refund outstanding bond issues or change the terms of existing tax-exempt bonds that would cause a “reissuance” (for example, extensions, conversions or amendments to bank direct placements).

The elimination of tax-exempt financing will force 501(c)(3) organizations to pay higher borrowing costs, which will be passed on to patients, students and other users of the facilities financed with tax-exempt bonds.  Based on historical differences between taxable and tax-exempt rates, the loss of tax-exempt financing is likely to cost borrowers approximately an additional $3 million over 30 years for every $10 million of bonds.

These proposals were unexpected by the municipal finance community and are inconsistent with assurances previously provided by congressional leadership.  The legislation is on an extremely accelerated time schedule, with a final vote scheduled to occur prior to Thanksgiving.  We urge you to immediately contact your representative to let them know your concerns.  A copy of a letter that can be used for this purpose is available: Healthcare letter, Education letter.

A summary of the key bond provisions and additional informational material can be found here: https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section_hr1.pdf.
Please do not hesitate to contact your Gilmore & Bell lawyer if you have any questions or would like to discuss the potential impact to your tax-exempt bonds.

Posted: Nov 3, 2017

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