56072 Federal Register / Vol. 71, No. 186 / Tuesday, September 26, 2006 / Proposed Rules 

Comments Due Date 

(a) The FAA must receive comments on 

this AD action by October 26, 2006. 

Affected ADs 

(b) This AD supersedes AD 99–08–04. 

Applicability 

(c) This AD applies to Bombardier Model 

DHC–8–100, –200 and –300 series airplanes, 

certificated in any category; equipped with a 

flight compartment door installation having 

part number (P/N) 82510074–(*), 82510294–

(*), 82510310–001, 8Z4597–001, H85250010–

(*), 82510700–(*), or 82510704–(*); except P/ 

Ns 82510704–502 and 82510704–503. 

Note 1: (*) denotes all dash numbers. 

Unsafe Condition 

(d) This AD results from a determination 

that certain cockpit doors are no longer 

subject to the existing requirements. We are 

issuing this AD to prevent failure of the 

alternate release mechanism of the flight 

compartment door, which could delay or 

impede the evacuation of the flightcrew 

during an emergency. This failure also could 

result in the flightcrew not being able to 

assist passengers in the event of an 

emergency. 

Compliance 

(e) You are responsible for having the 

actions required by this AD performed within 

the compliance times specified, unless the 

actions have already been done. 

Modification 

(f) Except as required by paragraph (g) of 

this AD: Within 90 days after May 12, 1999 

(the effective date of AD 99–08–04), modify 

the lower hinge assembly and main door 

latch (Modification 8/2337) of the flight 

compartment door, in accordance with 

Bombardier Service Bulletin S.B. 8–52–39, 

Revision ‘‘D,’’ dated February 27, 1998; or 

Revision ‘‘H,’’ dated September 9, 2004. After 

the effective date of this AD, only Revision 

‘‘H’’ may be used for accomplishing the 

modification. 

(g) For airplanes on which the modification 

required by paragraph (f) of this AD was done 

before the effective date of this AD in 

accordance with Bombardier Service Bulletin 

S.B. 8–52–39, dated August 30, 1996; or 

Revision ‘‘A,’’ dated October 31, 1996: 

Within 90 days after the effective date of this 

AD, do the modification required by 

paragraph (f) of this AD in accordance with 

Bombardier Service Bulletin 8–52–39, 

Revision ‘‘H,’’ dated September 9, 2004. 

Inspection 

(h) Within 800 flight hours after doing the 

modification required by paragraph (g) of this 

AD: Inspect the hinge areas around the hinge 

pin holes of the flight compartment door for 

wear in accordance with Bombardier Service 

Bulletin S.B. 8–52–39, Revision ‘‘D,’’ dated 

February 27, 1998; or Revision ‘‘H,’’ dated 

September 9, 2004. After the effective date of 

this AD, only Revision ‘‘H’’ may be used for 

accomplishing the inspection. 

(1) If no wear is detected, or if the wear is 

less than or equal to 0.020 inch in depth, 

repeat the inspection thereafter at intervals 

not to exceed 800 flight hours. 

(2) If any wear is detected and its 

dimension around the hinge pin holes is less 

than 0.050 inch and greater than 0.020 inch 

in depth, prior to further flight, perform the 

applicable corrective actions specified in the 

service bulletin. Repeat the inspection 

thereafter at intervals not to exceed 800 flight 

hours. 

(3) If any wear is detected and its 

dimension around the hinge pin holes is 

greater than or equal to 0.050 inch in depth, 

prior to further flight, replace the worn 

hinges with new hinges in accordance with 

the service bulletin. Repeat the inspection 

thereafter at intervals not to exceed 800 flight 

hours. 

Credit for Actions Accomplished Previously 

(i) Modifications and inspections done 

before the effective date of this AD in 

accordance with Bombardier Service Bulletin 

S.B. 8–52–39, Revision ‘‘B,’’ dated July 4, 

1997; Revision ‘‘C,’’ dated September 1, 1997; 

Revision ‘‘E,’’ dated May 10, 1999; Revision 

‘‘F,’’ dated February 4, 2000; or Revision G, 

dated May 17, 2001; are considered 

acceptable for compliance with the 

modification and inspections required by this 

AD. 

Alternative Methods of Compliance 

(AMOCs) 

(j)(1) The Manager, New York Aircraft 

Certification Office, FAA, has the authority to 

approve AMOCs for this AD, if requested in 

accordance with the procedures found in 14 

CFR 39.19. 

(2) AMOCs approved previously in 

accordance with AD 99–08–04 are approved 

as AMOCs for the corresponding provisions 

of paragraphs (f), (g), (h), and (i) of this AD. 

(3) Before using any AMOC approved in 

accordance with § 39.19 on any airplane to 

which the AMOC applies, notify the 

appropriate principal inspector in the FAA 

Flight Standards Certificate Holding District 

Office. 

Related Information 

(k) Canadian airworthiness directive CF–

1996–20R4, dated August 10, 2005, also 

addresses the subject of this AD. 

Issued in Renton, Washington, on 

September 15, 2006. 

Kalene C. Yanamura, 

Acting Manager, Transport Airplane 

Directorate, Aircraft Certification Service. 

[FR Doc. 06–8233 Filed 9–25–06; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–140379–02; REG–142599–02] 

RIN 1545–BC07; 1545–BB23 

General Allocation and Accounting 

Regulations Under Section 141 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations on the allocation 

of, and accounting for, tax-exempt bond 

proceeds for purposes of the private 

activity bond restrictions that apply 

under section 141 of the Internal 

Revenue Code (Code) and that apply in 

modified form to qualified 501(c)(3) 

bonds under section 145 of the Code. 

The proposed regulations provide State 

and local governmental issuers of taxexempt bonds with guidance for 

applying the private activity bond 

restrictions. This document also 

provides notice of a public hearing on 

these proposed regulations. 

DATES: Written or electronic comments 

must be received by December 26, 2006. 

Requests to speak with outlines of 

topics to be discussed at the public 

hearing scheduled for January 11, 2007, 

must be received by December 26, 2006. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–140379–02; REG–

142599–02), room 5203, Internal 

Revenue Service, PO Box 7604, Ben 

Franklin Station, Washington, DC 

20044. Submissions may be hand 

delivered Monday through Friday 

between the hours of 8 a.m. to 4:30 p.m. 

to CC:PA:LPD:PR (REG–140379–02; 

REG–142599–02), Internal Revenue 

Service, Crystal Mall 4, 1941 Jefferson 

Davis Hwy., 1901 S. Bell St., room 108, 

Arlington, Virginia 22202. Alternatively, 

submissions may be made electronically 

to the IRS Internet Site at www.irs.gov/ 

regs or via the Federal eRulemaking 

Portal at www.regulations.gov (IRS–

REG–140379–02). The public hearing 

will be held in the auditorium of the 

New Carrollton Federal Building, 5000 

Ellin Rd., Lanham, Maryland 20706. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Johanna Som de Cerff (202) 622–3980; 

concerning submissions and the 

hearing, Kelly D. Banks, (202) 622–7180 

(not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 


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Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget for 

review in accordance with the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3507(d)). Comments on the 

collection of information should be sent 

to the Office of Management and 

Budget, Attn: Desk Officer for the 

Department of the Treasury, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, with copies to 

the Internal Revenue Service, Attn: IRS 

Reports Clearance Officer, 

SE:CAR:MP:T:T:SP, Washington, DC 

20224. Comments on the collection of 

information should be received by 

December 26, 2006. Comments are 

specifically requested concerning: 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Internal Revenue Service, including 

whether the information will have 

practical utility; 

The accuracy of the estimated burden 

associated with the proposed collection 

of information; 

How the quality, utility, and clarity of 

the information to be collected may be 

enhanced; 

How the burden of complying with 

the proposed collections of information 

may be minimized, including through 

the application of automated collection 

techniques or other forms of information 

technology; and 

Estimates of capital or start-up costs 

and costs of operation, maintenance, 

and purchase of service to provide 

information. 

The recordkeeping requirement in 

this proposed regulation is in § 1.141–

6(a)(4). The recordkeeping requirement 

will apply only to State and local 

governmental issuers of tax-exempt 

bonds used to finance a facility that will 

be used for both governmental use and 

more than a de minimis amount of 

private business use. The recordkeeping 

is voluntary to obtain a benefit. The 

records will enable the Service to 

examine compliance by State and local 

governmental issuers of tax-exempt 

bonds used to finance a facility that will 

be used for both governmental use and 

more than a de minimis amount of 

private business use. 

Estimated total annual recordkeeping 

burden: 3000 hours. 

Estimated average annual burden 

hours per recordkeeper: 3 hours. 

Estimated number of recordkeepers: 

1000. 

Estimated annual frequency of 

responses: the frequency of responses 

will depend on how often the 

recordkeeper issues tax-exempt bonds 

used to finance a facility that will be 

used for both governmental use and 

more an a de minimis amount of private 

business use, which will vary from 

rarely to a few times a year. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number assigned by the Office of 

Management and Budget. 

Books or records relating to a 

collection of information must be 

retained as long as their contents may 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

Background 

This document contains proposed 

amendments to 26 CFR part 1. Final 

regulations (TD 8712) under section 141 

of the Internal Revenue Code (Code) 

were published in the Federal Register 

on January 16, 1997 (62 FR 2275) (the 

1997 Final Regulations) to provide 

comprehensive guidance on most 

aspects of the private activity bond 

restrictions. The 1997 Final Regulations, 

however, reserved most of the general 

allocation and accounting rules for 

purposes of section 141. An advance 

notice of proposed rulemaking was 

published in the Federal Register on 

September 23, 2002 (REG–142599–02) 

(67 FR 59767) (the 2002 Advance 

Notice) regarding allocation and 

accounting rules for tax-exempt bond 

proceeds used to finance mixed-use 

output facilities. 

This document amends the Income 

Tax Regulations under section 141 by 

proposing rules for the allocation of, 

and accounting for, tax-exempt bond 

proceeds. Special rules for allocating 

proceeds used to finance mixed-use 

facilities and rules regarding the 

treatment of partnerships as owners or 

users of facilities for purposes of section 

141 are also included. This document 

also amends regulations under section 

145 by proposing rules on certain 

related matters that apply to qualified 

501(c)(3) bonds. These regulations are 

published as proposed regulations (the 

Proposed Regulations) to provide an 

opportunity for public review and 

comment. 

Explanation of Provisions 

I. Introduction 

In general, the interest on State and 

local governmental bonds is excludable 

from gross income under section 103 of 

the Code upon satisfaction of certain 

requirements. Interest on a private 

activity bond, other than a qualified 

private activity bond within the 

meaning of section 141, is not 

excludable under section 103. Section 

141 provides certain tests used to 

determine whether a State or local bond 

is a private activity bond. These tests 

look to whether the proceeds of taxexempt bonds comply with certain 

restrictions, including private business 

use restrictions, private payment 

restrictions, and private loan 

restrictions. Similar restrictions apply in 

modified form to qualified 501(c)(3) 

bonds under section 145. 

In general, these private activity bond 

restrictions permit certain de minimis 

amounts of private business use for 

proceeds of tax-exempt governmental 

bonds without causing such bonds to be 

classified as private activity bonds 

under section 141 (de minimis 

permitted private business use). De 

minimis permitted private business use 

generally means private business use of 

not more than 10% of the proceeds. 

Section 141(b)(3) further limits this de 

minimis permitted private business use 

to a 5% amount for certain unrelated or 

disproportionate use. Sections 141(b)(4) 

and 141(b)(5) further limit this de 

minimis permitted private business use 

to a prescribed $15 million nonqualified 

amount for certain output facility issues 

generally and for certain larger issues 

absent volume cap allocations for 

private business use in excess of the $15 

million nonqualified amount. 

The Proposed Regulations provide 

guidance regarding general allocation 

and accounting rules for purposes of the 

private activity bond restrictions under 

section 141. The Proposed Regulations 

provide guidance regarding allocations 

of proceeds of an issue of tax-exempt 

bonds (proceeds) and other funds to 

expenditures (as contrasted with 

investments), to property, and to uses 

(that is, governmental use or private 

business use). 

The Proposed Regulations include 

certain special accounting rules for 

projects which have both governmental 

use and private business use (mixed-use 

projects), as described further herein. 

One purpose of these special accounting 

rules is to provide flexibility to allow 

issuers to use tax-exempt governmental 

bonds to finance the portion of a mixeduse project to be used for governmental 

use where private business use of the 

entire project may exceed the amount of 

de minimis permitted private business 

use. 

The Proposed Regulations provide 

several general allocation rules. First, 

proceeds and other sources of funds 


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generally may be allocated to 

expenditures using any reasonable, 

consistently applied accounting method 

that is consistent with how proceeds are 

allocated for purposes of the arbitrage 

investment restrictions of section 148. 

Second, under a general pro rata 

allocation method (which also applies 

to mixed-use projects absent an election 

to use one of two elective special 

allocation rules), proceeds and other 

sources allocated to capital 

expenditures for a capital project 

generally are treated as allocated ratably 

throughout the project in proportion to 

the relative amounts of proceeds and 

other funds spent on that project 

(general pro rata allocation method). 

Third, allocations of sources of funds to 

uses, for example, governmental use and 

private business use, generally are made 

in a manner that reasonably corresponds 

to the relative amounts of the sources of 

funding spent on the property. 

The Proposed Regulations provide 

special elective allocation rules for 

mixed-use projects. In general, the 

intent of these special allocation rules is 

to provide reasonable flexibility to allow 

issuers to finance portions of projects 

that are reasonably expected to be used 

for governmental use with tax-exempt 

governmental bonds, provided that the 

portions can be reasonably determined 

and measured in administrable ways. In 

particular, the Proposed Regulations 

provide two special elective allocation 

methods, the discrete physical portion 

allocation method and the undivided 

portion allocation method. These two 

special elective allocation methods 

permit proceeds to be allocated to a 

portion of a mixed-use project using 

certain prescribed reasonable, consistent 

allocation methods that properly reflect 

the proportionate benefit to be derived 

by the various users of the mixed-use 

project. These two special allocation 

methods for dividing mixed-use projects 

for financing purposes are based on 

principles similar to those used for 

measuring ongoing use under § 1.141–

3(g) and are closely coordinated with 

those measurement rules. These 

methods may be elected for mixed-use 

projects only if they meet certain 

eligibility criteria. Absent a proper 

election to use one of these two special 

elective allocation methods, the general 

pro rata allocation method applies to a 

mixed-use project. The special 

allocation rules for mixed-use projects 

are described further herein. 

In addition to general allocation and 

accounting rules and special allocation 

rules for mixed-use projects, the 

Proposed Regulations also provide 

guidance on certain related topics. 

II. General Allocation Rules for 

Proceeds: General Pro Rata Allocation 

Method 

The Proposed Regulations provide a 

general pro rata allocation method 

under which proceeds and other funds, 

if any, allocated under section 148 and 

§ 1.141–6(a)(1) to capital expenditures 

for a project are treated as being 

allocated ratably throughout the project 

in proportion to the relative amounts of 

proceeds and other funds spent on the 

project. Generally, the project is the 

bond-financed property for purposes of 

section 141. Except where the issuer has 

elected to use one of the special 

allocation methods permitted for certain 

mixed-use projects, the Proposed 

Regulations provide that a general pro 

rata allocation method applies to mixeduse projects. Except as otherwise 

provided in the Proposed Regulations, if 

financed property is financed with two 

or more sources of funding (including 

two or more tax-exempt governmental 

bond issues), those sources of funding 

must be allocated to multiple uses (that 

is, governmental use and private 

business use) of that financed property 

in proportion to the relative amounts of 

those sources of funding expended on 

that financed property. 

The Proposed Regulations prescribe 

the manner and timing of elections to 

use the special allocation rules for 

mixed-use projects and rules regarding 

final allocations of sources of funding to 

a project generally. 

III. Mixed-Use Projects 

(A) In General 

The Proposed Regulations provide 

two special allocation methods that 

issuers may elect to use for certain 

mixed-use projects. Here, a mixed-use 

project refers to a project (as defined in 

the Proposed Regulations) that, absent 

the application of the special proposed 

rules, is reasonably expected to have 

both governmental use and private 

business use, and where the private 

business use is expected to be in excess 

of the amount of de minimis permitted 

private business use under section 141 

for a project financed with an issue of 

tax-exempt governmental bonds. 

The Proposed Regulations treat 

property as part of the same defined 

project if the property consists of capital 

projects that have reasonable nexus 

characteristics based upon functional 

and physical proximity, time of 

placement in service, and a common 

plan of financing for proceeds and other 

sources of funds expended on the 

capital projects. 

The Proposed Regulations provide 

two special elective methods of 

allocating proceeds of tax-exempt 

governmental bonds and other funds, 

that is, proceeds of taxable bonds and 

funds that are not derived from 

proceeds of a borrowing (qualified 

equity), to capital expenditures within 

mixed-use projects: The discrete 

physical portion allocation method and 

the undivided portion allocation 

method. Absent eligibility and a proper 

election by an issuer to use one of these 

special elective allocation methods for 

mixed-use projects, the general pro rata 

allocation method applies. 

(B) Discrete Physical Portion Allocation 

Method 

In general, the discrete physical 

portion allocation method allows 

allocations for a mixed-use project 

based on dividing the project into 

physically discrete portions. Under the 

discrete physical portion allocation 

method, the percentage of capital 

expenditures that is allocable to a 

particular discrete portion of a mixeduse project is determined using a 

reasonable, consistently applied method 

that reflects the proportionate benefit to 

be derived by the various users of the 

mixed-use project. The Proposed 

Regulations provide several objective 

proportionate benchmarks (for example, 

cost, space, or fair market value) to 

determine the measure of a discrete 

portion. 

An anti-abuse rule requires use of 

relative fair market values to measure 

the discrete portions when an allocation 

to a discrete portion expected to be used 

by a private business is significantly 

greater using relative fair market values 

than such allocation would be under the 

otherwise-chosen measure. This antiabuse rule is comparable to a similar 

existing anti-abuse rule regarding the 

ongoing measurement of private 

business use under § 1.141–3(g)(4)(v). 

The Treasury Department and the IRS 

solicit public comment on this antiabuse rule and whether quantifying the 

significantly greater than under fair 

market value standard (for example, an 

allocation under the fair market value 

standard is significantly greater if it 

exceeds an allocation made under 

another measure by more than X 

percent) would assist taxpayers in 

making effective use of the discrete 

physical portion allocation method. 

In order to allow for targeting of taxexempt bond proceeds to governmental 

use, an issuer generally may determine 

which source or sources of funds spent 

on a mixed-use project are allocated to 

a particular discrete portion. For 

example, an issuer may allocate taxexempt bond proceeds to one discrete 

portion of a mixed-use courthouse 


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Federal Register / Vol. 71, No. 186 / Tuesday, September 26, 2006 / Proposed Rules 56075 

project which will be used in public 

court proceedings for governmental use 

and the issuer may allocate qualified 

equity to another discrete portion of the 

courthouse which will be used in 

private retail business operations as a 

restaurant for private business use. 

Further, while final allocations 

generally may not be changed, an issuer 

may reallocate funds from one discrete 

portion to another if the discrete 

portions are comparable under certain 

criteria. For administrability reasons, 

the Proposed Regulations limit such 

reallocations to a frequency of not more 

than once every five years. 

(C) Undivided Portion Allocation 

Method 

In general, the undivided portion 

allocation method permits separating a 

mixed-use project into a governmental 

use portion and a private business use 

portion, each of which represents a 

fixed percentage of the use of the entire 

mixed-use project (for example, a fixed 

percentage of unreserved parking spaces 

in a parking garage). Unlike the discrete 

physical portion method, the undivided 

portion allocation method involves the 

allocation of a mixed-use project 

between portions that are not physically 

distinct but that can be notionally 

represented by percentages based on 

objective proportionate measures. 

Certain eligibility conditions apply to 

the undivided portion allocation 

method. This method may be used only 

for mixed-use projects where private 

business use and governmental use may 

be measured under § 1.141–3(g) because 

that use occurs: (1) At the same time 

and on the same basis (within the 

meaning of § 1.141–3(g)(4)(iii)); or (2) at 

different times (within the meaning of 

§ 1.141–3(g)(4)(ii)). The issuer must 

reasonably expect as of the issue date 

that the undivided portion of the mixeduse project to be financed with proceeds 

of tax-exempt governmental bonds will 

not have private business use in excess 

of the amount of de minimis permitted 

private business use. The total capital 

expenditures for the mixed-use project 

are allocated between two undivided 

portions based on measures of the 

proportionate benefit to be derived by 

the various users. The Proposed 

Regulations list some reasonable 

allocation methods for determining the 

relative size of the portions. The 

undivided portion allocation method 

has an anti-abuse rule similar to that 

described previously with respect to the 

discrete physical portion allocation 

method which requires use of relative 

fair market values to measure the 

portions in certain circumstances. 

Proceeds are allocated only to the 

undivided portion that is reasonably 

expected to be used for governmental 

use (and any de minimis permitted 

private business use). Qualified equity 

is allocated to the other undivided 

portion. 

A number of special rules apply to the 

undivided portion allocation method for 

purposes of allocating sources to uses. 

In general, the entire mixed-use project 

is treated as the bond-financed property 

whose use must be measured. Also, in 

measuring ongoing use of a mixed-use 

project under the undivided portion 

allocation method, the measurement 

rules in § 1.141–3(g) (or § 1.141–7 in the 

case of a mixed-use output facility) 

apply. The issuer must use the same 

method for measuring use that it used 

for determining the allocation of funds 

to the undivided portions of the mixeduse project. After use of the entire 

mixed-use project is measured, 

however, the governmental use and 

private business use are generally 

allocated to the undivided portions 

financed with proceeds and qualified 

equity, respectively. Generally, in any 

year, the percentage of governmental 

use and private business use that is 

specially allocated to an undivided 

portion is limited. That percentage of 

use cannot exceed the percentage of 

capital expenditures for the mixed-use 

project that makes up that undivided 

portion. For example, the percentage of 

private business use that is specially 

allocated to the undivided portion 

financed with qualified equity cannot 

exceed the percentage of capital 

expenditures for the mixed-use project 

that makes up that undivided portion. 

In determining whether the private 

business use test is met, only use of the 

undivided portion to which proceeds 

are allocated is taken into account. 

(D) Operating Rules for Mixed-Use 

Projects 

The Proposed Regulations provide 

certain general operating rules for 

mixed-use project allocations. An issuer 

may elect to apply the discrete physical 

portion allocation method or the 

undivided portion allocation method 

only if the mixed-use project is whollyowned by governmental persons. An 

exception to this rule applies to certain 

mixed-use output facilities. (See 

paragraph E. Special rules for mixed-use 

output facilities.) Consistent with 

§ 1.141–1(b), common areas cannot be 

treated as discrete portions of the 

project. Proceeds and other sources of 

funds spent on common areas are 

allocated to the discrete portions in the 

same proportion as funds spent for the 

discrete portions are allocated. 

Under the Proposed Regulations, the 

funds that may be allocated under the 

discrete physical portion allocation 

method or the undivided portion 

allocation method to a particular mixeduse project include proceeds of one or 

more issues of tax-exempt governmental 

bonds and qualified equity. If a project 

is financed with more than one issue of 

governmental bonds, proceeds of those 

issues are allocated ratably to a discrete 

portion or undivided portion to which 

any proceeds are allocated in proportion 

to the amounts of proceeds from each 

issue used for the project. 

(E) Special Rules for Mixed-Use Output 

Facilities 

The Proposed Regulations provide 

special rules for the application of the 

undivided portion allocation method to 

mixed-use projects that are output 

facilities. An issuer may apply the 

undivided portion allocation method to 

a mixed-use project that is an output 

facility if the facility is wholly-owned 

by governmental persons or if 

undivided ownership interests in the 

facility are owned by governmental 

persons or private businesses, provided 

that all owners of the undivided 

ownership interests share the 

ownership, output, and operating 

expenses in proportion to their 

contributions to the costs of the facility. 

The relative measures of the undivided 

portions of a mixed-use output facility 

are determined using the proportionate 

benefit to be derived by the users of the 

mixed-use project. For an output facility 

in which private business use arises 

from a private business owning an 

undivided ownership interest in the 

facility (with a governmental person 

owning the other undivided portion of 

the facility), the undivided portions are 

based on the ownership percentages. 

This rule implements the principles 

illustrated by § 1.141–7(i), Example 1. 

When private business use of a facility 

solely owned by a governmental person 

or of an undivided ownership interest of 

a facility owned by a governmental 

person arises from an output contract 

that meets the benefits and burdens tests 

under § 1.141–7, the undivided portions 

of that facility or ownership interest are 

determined by the proportionate shares 

of the available output of that project to 

be used for governmental use (and any 

de minimis permitted private business 

use) and for private business use. 

Section 1.141–7(h) controls allocation of 

output contracts to output facilities. 


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IV. Redemption of Bonds in 

Anticipation of Nonqualified Private 

Business Use 

The Proposed Regulations provide a 

new special rule which permits certain 

proceeds of taxable bonds and certain 

funds that are not derived from 

proceeds of a borrowing that are used to 

retire tax-exempt governmental bonds 

(anticipatory redemption bonds) to be 

treated as qualified equity. In prescribed 

circumstances, this new special rule 

allows targeting of funds other than taxexempt bond proceeds to redeem 

outstanding tax-exempt bonds and 

thereby to finance portions of projects 

which are expected to be used for 

nonqualified private business use in the 

future. This special rule has certain 

eligibility requirements. In general, the 

intent of this proposed rule is to 

encourage retirement of tax-exempt 

bonds before the occurrence of 

unqualified use to reduce the burden on 

the tax-exempt market. The eligibility 

requirements for this special rule 

address when the anticipatory 

redemption bond must be retired, the 

issuer’s reasonable expectations 

regarding use of the project and actual 

use of the project prior to the 

redemption, and the length of the term 

of the issue of which the anticipatory 

redemption bond is a part. 

Amounts that are treated as qualified 

equity under this special rule may be 

allocated to a discrete portion or 

undivided portion of the project in a 

manner provided in the discrete 

physical portion allocation method or 

undivided portion allocation method if 

such allocation would have satisfied the 

applicable allocation method had that 

portion been identified for purposes of 

financing it in a new issue at the time 

of the retirement of the anticipatory 

redemption bond. 

V. Allocations of Private Payments, 

Common Costs, and Bonds 

The Proposed Regulations provide 

that private payments generally are 

allocated in accordance with § 1.141–4, 

subject to certain special rules for 

allocating payments under output 

contracts. Private payments from output 

contracts that meet the benefits and 

burdens test under § 1.141–7 are 

allocated to the undivided portion 

financed with qualified equity 

(notwithstanding § 1.141–4(c)(3)(v)) in 

the same manner as is the private 

business use from such contracts. Thus, 

private business use and private 

payments arising under such an output 

contract are both allocated to the 

undivided portion financed with 

qualified equity (to the extent all such 

contracts do not exceed the percentage 

of such portion) without regard to 

whether the qualified equity consists of 

proceeds of taxable bonds or funds that 

are not derived from proceeds of a 

borrowing. 

The Proposed Regulations provide 

ratable allocation rules for common 

costs (for example, issuance costs). 

The Proposed Regulations provide 

that proceeds generally are allocated to 

bonds in accordance with the rules for 

allocations of proceeds to bonds in 

multipurpose issues under § 1.141–

13(d). In the case of an issue that is not 

a multipurpose issue, proceeds are 

allocated to bonds ratably in a manner 

similar to the allocation of proceeds to 

projects under the general pro rata 

allocation method. 

VI. Partnerships 

The Proposed Regulations generally 

treat a partnership as a separate entity 

that is a nongovernmental person for 

purposes of section 141. For purposes of 

section 141, a limited exception 

disregards a partnership as a separate 

entity if each of the partners is a 

governmental person and treats such a 

partnership as an aggregate of its 

partners (that is, as governmental 

persons) for these purposes. In applying 

the private business tests for purposes of 

qualified 501(c)(3) bonds, the Proposed 

Regulations generally treat a partnership 

as an aggregate if each of the partners is 

either a governmental person or a 

section 501(c)(3) organization. The 

Proposed Regulations, however, do not 

apply such aggregate treatment for 

purposes of the ownership test under 

section 145(a)(1). 

In general, the proposed treatment of 

partnerships reflects certain 

administrability concerns with 

partnerships which have both 

governmental persons and private 

businesses as partners and the 

associated potential for shifting 

allocations of various partnership items. 

The Treasury Department and the IRS 

understand that governmental persons 

or section 501(c)(3) organizations may 

be partners in partnerships that include 

private businesses. Permitting taxexempt bonds used to finance facilities 

owned by such partnerships to qualify 

as governmental bonds rather than 

private activity bonds would raise 

administrability issues, including but 

not limited to, questions of how to 

measure use by an owner and questions 

regarding common profit or cost 

reduction motives and allocation of 

partnership items. Permitting such 

ownership by partnerships without 

administrable rules for tracking these 

items has the potential to allow the 

benefits of tax-exempt financing to inure 

to private business users. 

One limited circumstance in which 

the Treasury Department and the IRS 

are considering favorable aggregate 

treatment for partnerships (that is, 

disregarding eligible partnerships as 

separate private business entities) and 

are soliciting specific comment is that of 

a partnership of governmental persons 

(or section 501(c)(3) organizations for 

501(c)(3) bonds) and private businesses 

in which the respective partners 

receives the same distributive share of 

each partnership item for Federal tax 

purposes (including income, gain, 

deduction, loss, credit and basis) as 

their respective interests in the 

partnership and this share remains the 

same for the entire measurement period 

for the bonds or the entire period that 

the person is a partner. The Treasury 

Department and the IRS solicit specific 

public comment regarding whether it 

would be useful to treat such a 

partnership as an aggregate in this 

limited circumstance involving straightup allocations of all partnership items 

in accordance with constant percentage 

interests in the partnership. 

The contemplated limited 

circumstance in which the Treasury 

Department and the IRS are considering 

aggregate treatment for partnerships for 

private activity bond purposes involves 

partnership allocations similar to those 

treated as qualified allocations to taxexempt entities for purposes of the taxexempt use property provisions under 

section 168(h)(6). 

VII. Multipurpose Issue Allocations 

In general, § 1.141–13(d) provides 

guidance on multipurpose issue 

allocations for purposes of section 141. 

That guidance was included as part of 

the final regulations (TD 9234) under 

section 141 that were published in the 

Federal Register on December 19, 2005 

(70 FR 242) (the 2005 Final Refunding 

Regulations) and that mainly provided 

rules for refunding bonds. 

The Proposed Regulations also make 

a clarifying change to § 1.141–13(d). In 

response to the 2005 Final Refunding 

Regulations, the Treasury Department 

and the IRS have received comments 

seeking clarification of how those 

multipurpose rules work under section 

141 in relation to an existing general 

multipurpose issue allocation rule 

under § 1.150–1(c)(3). The Proposed 

Regulations provide certain clarifying 

guidance on the multipurpose issue 

allocation rule under § 1.141–13(d) and 

provide an expanded example to 

illustrate how those rules operate in 

various circumstances. 


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In particular, the Proposed 

Regulations modify § 1.141–13(d) 

regarding multipurpose issue 

allocations to clarify how that provision 

applies when an issuer wants to elect 

the multi-purpose issue rule for an issue 

that would consist of qualified private 

activity bonds in part and governmental 

bonds in part with an appropriate 

allocation. The Proposed Regulations 

amend § 1.141–13(d) to eliminate a 

requirement that a multipurpose issue 

must consist of tax-exempt bonds prior 

to being allocated into separate issues. 

The Proposed Regulations retain the 

requirement that, after the multipurpose 

issue allocation, each of the separate 

issues must consist of tax-exempt 

bonds. This proposed amendment 

clarifies that an issuer may issue bonds 

intended to be qualified private activity 

bonds in part and governmental bonds 

in part as one issue (within the meaning 

of § 1.150–1(c)(1)) and make allocations 

under the section 141 multipurpose 

issue allocation rule in § 1.141–13(d) in 

conjunction with the general 

multipurpose issue allocation rule in 

§ 1.150–1(c)(3), to treat the qualified 

private activity bonds and governmental 

bonds as separate issues, respectively. 

VIII. Proposed Effective Dates 

The Proposed Regulations are 

proposed to apply to bonds (1) that are 

sold on or after the date that is 60 days 

after the date of publication in the 

Federal Register of final regulations 

under § 1.141–6 and (2) that are subject 

to the 1997 Final Regulations. Issuers 

may apply §§ 1.141–13(d) and 1.141–

13(g) Example 5 of the Proposed 

Regulations to bonds sold before the 

date of publication of final regulations 

in the Federal Register to which 

§ 1.141–13 applies. Except as otherwise 

provided in the preceding sentence, 

issuers may not apply or rely upon the 

rules contained in these Proposed 

Regulations until these rules are 

adopted as final regulations and made 

effective pursuant to a Treasury 

decision published in the Federal 

Register. 

IX. Continued Reliance on Mixed-Use 

Output Notice 

Pursuant to the 2002 Advance Notice, 

the Treasury Department and the IRS 

provided previous limited guidance 

regarding certain allocation and 

accounting rules for mixed-use output 

facilities. Issuers may continue to rely 

on the rules in the 2002 Advance Notice 

for bonds sold before the date of 

publication in the Federal Register of 

final regulations under § 1.141–6 (or 

such later effective date as may be 

specified in those final regulations or in 

future proposed regulations). 

Special Analyses 

It has been determined that this notice 

of proposed rulemaking is not a 

significant regulatory action as defined 

in EO 12866. Therefore, a regulatory 

assessment is not required. It has also 

been determined that 5 U.S.C. 553(b) 

does not apply to this notice of 

proposed rulemaking. It is hereby 

certified that the collection of 

information (recordkeeping 

requirement) in this notice of proposed 

rulemaking will not have a significant 

economic impact on a substantial 

number of small governmental 

jurisdictions. This certification is based 

upon the fact few small governmental 

jurisdictions issue tax-exempt bonds to 

finance facilities that will be used for 

both governmental use and more than 

the amount of de minimis permitted 

private business use. Also, the amount 

of time required to meet the 

recordkeeping requirement is not 

significant. Therefore, a Regulatory 

Flexibility Analysis under the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) is not required. Pursuant to 

section 7805(f) of the Code, this notice 

of proposed rulemaking will be 

submitted to the Small Business 

Administration for comment on its 

impact on small governmental 

jurisdictions. 

Comments and Public Hearing 

Before these Proposed Regulations are 

adopted as final regulations, 

consideration will be given to any 

written (a signed original and eight (8) 

copies) or electronic comments that are 

submitted timely to the IRS. The 

Treasury Department and IRS 

specifically request comments on the 

clarity of the proposed rules and how 

they may be made easier to understand. 

All comments will be available for 

public inspection and copying. 

A public hearing has been scheduled 

for January 11, 2007 at 10 a.m., in the 

auditorium of the New Carrollton 

Federal Building, 5000 Ellin Rd., 

Lanham, MD 20706. Due to building 

security procedures, visitors must enter 

at the main entrance. In addition, all 

visitors must present photo 

identification to enter the building. 

Because of access restrictions, visitors 

will not be admitted beyond the 

immediate entrance area more than 30 

minutes before the hearing starts. For 

information about having your name 

placed on the building access list to 

attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this 

preamble. 

The rules of 26 CFR 601.601(a)(3) 

apply to the hearing. Persons who wish 

to present oral comments at the hearing 

must submit written or electronic 

comments by December 26, 2006 and 

submit an outline of the topics to be 

discussed and the amount of time to be 

devoted to each topic (a signed original 

and eight (8) copies) by December 26, 

2006. A period of 10 minutes will be 

allotted to each person for making 

comments. 

An agenda showing the scheduling of 

the speakers will be prepared after the 

deadline for receiving outlines has 

passed. Copies of the agenda will be 

available free of charge at the hearing. 

Drafting Information 

The principal authors of these 

regulations are Rebecca L. Harrigal, 

Johanna Som de Cerff, and Michael P. 

Brewer, Office of Division Counsel/ 

Associate Chief Counsel (Tax Exempt 

and Government Entities), IRS. 

However, other personnel from the IRS 

and Treasury Department participated 

in their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be amended as follows: 

PART 1—INCOME TAXES 

Paragraph 1. The authority citation 

for part 1 continues to read, in part, as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

Par. 2. Section 1.141–0 is amended by 

adding an entry for § 1.141–1(e), 

revising entries for § 1.141–6, and 

adding an entry for § 1.141–15(k) and (l) 

as follows: 

§ 1.141–0 Table of Contents 

* * * * * 

§ 1.141–1 Definitions and rules of general 

application 

* * * * * 

(e) Partnerships. 

(1) In general. 

(2) Governmental partnerships. 

* * * * * 

§ 1.141–6 Allocation and accounting rules 

(a) Allocation of proceeds to expenditures, 

property, and uses in general. 

(1) Allocations to expenditures. 

(2) Allocations within property; general 

pro rata allocation method. 

(3) Allocations of sources of funds to 

ultimate uses of financed property. 


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(4) Manner and time for electing to apply 

special allocation methods for mixed-use 

projects; final allocations generally. 

(b) Special rules on reasonable proportionate 

allocation methods for mixed-use 

projects. 

(1) In general. 

(2) Definition of a mixed-use project. 

(c) The discrete physical portion allocation 

method. 

(1) In general. 

(2) The measure of a discrete portion. 

(3) Allocations to expenditures for discrete 

portions. 

(4) Allocations of uses to discrete portions. 

(5) Certain reallocations among discrete 

portions. 

(d) The undivided portion allocation method. 

(1) In general. 

(2) The measure of an undivided portion. 

(3) Allocations to expenditures for 

undivided portions. 

(4) Allocations of uses to undivided 

portions. 

(e) Certain general operating rules for mixeduse project allocations. 

(1) In general. 

(2) Governmental ownership requirement 

for undivided portion and discrete 

portion allocations. 

(3) Sources of funds for mixed-use project 

allocations. 

(4) Common areas. 

(5) Allocations regarding multiple issues. 

(f) Special rules for bond redemptions in 

anticipation of unqualified use. 

(g) Special rules for applying the undivided 

portion allocation method to mixed-use 

output facilities. 

(1) In general. 

(2) Governmental ownership requirement 

for mixed-use output facilities. 

(3) The measure of an undivided portion of 

a mixed-use output facility. 

(h) Allocations of private payments. 

(i) Allocations of proceeds to common costs 

of the issue. 

(j) Allocations of proceeds to bonds. 

(k) Examples. 

§ 1.141–7 Special Rules for Output 

Facilities 

* * * * * 

§ 1.141–15 Effective dates 

* * * * * 

(k) Effective date for certain regulations 

related to allocation and 

accounting. 

(l) Permissive retroactive application of 

certain regulations. 

* * * * * 

Par. 3. Section 1.141–1 is amended by 

adding additional definitions under 

paragraph (b) and by adding a new 

paragraph (e) as follows: 

§ 1.141–1 Definitions and rules of general 

application 

* * * * * 

(b) Certain general definitions. 

* * * * * 

De minimis permitted private 

business use means the amount of 

private business use permitted for 

proceeds of tax-exempt bonds without 

causing such bonds to be classified as 

private activity bonds under section 

141. 

* * * * * 

Financed property means, except as 

otherwise provided, any project (as 

defined in § 1.141–6(b)(2)(ii)) to which 

proceeds of an issue of tax-exempt 

bonds are allocated under § 1.141–6. 

* * * * * 

Governmental use or government use 

means any use that is not private 

business use under § 1.141–3. 

* * * * * 

Private business use means use by a 

person other than a governmental 

person in a trade or business, as more 

particularly defined in § 1.141–3. 

* * * * * 

(e) Partnerships—(1) In general. 

Except as provided in paragraph (e)(2) 

of this section, a partnership (as defined 

under section 7701(a)(2)) is treated as a 

separate entity that is a 

nongovernmental person for purposes of 

section 141. 

(2) Governmental partnerships. For 

purposes of section 141, in the case of 

a partnership (as defined in section 

7701(a)(2)) in which each of the partners 

is a governmental person (as defined in 

§ 1.141–1(b)), the partnership is 

disregarded as a separate entity and is 

treated as an aggregate of its partners. 

Par. 4. Section 1.141–6 is revised to 

read as follows: 

§ 1.141–6 Allocation and accounting rules 

(a) Allocations of proceeds to 

expenditures, property, and uses in 

general—(1) Allocations to 

expenditures. Except as otherwise 

provided in this section, for purposes of 

§§ 1.141–1 through 1.141–15, the 

provisions of § 1.148–6(d) apply for 

purposes of allocating proceeds and 

other sources of funds to expenditures 

(as contrasted with investments). Except 

as otherwise provided in this section, 

allocations of proceeds and other 

sources of funds to expenditures 

generally may be made using any 

reasonable, consistently applied 

accounting method. Allocations of 

proceeds to expenditures under section 

141 and section 148 must be consistent 

with each other. For purposes of the 

consistency requirements in this 

paragraph (a), it is permissible to 

employ an allocation method under 

paragraph (a)(2), (c), or (d) of this 

section (for example, the general pro 

rata allocation method under paragraph 

(a)(2) of this section) to allocate sources 

of funds within a particular project for 

purposes of section 141 in conjunction 

with an accounting method allowed 

under § 1.148–6(d) (for example, the 

first-in, first out method) to determine 

the allocation of proceeds or other 

sources of funds to expenditures for that 

project. 

(2) Allocations within property; the 

general pro rata allocation method. 

Except as otherwise provided in this 

section, proceeds and other sources of 

funds allocated to capital expenditures 

for a project (as defined in paragraph 

(b)(2)(ii) of this section) under section 

148 and paragraph (a)(1) of this section 

are treated as allocated ratably 

throughout that project in proportion to 

the relative amounts of proceeds and 

other funds spent on that project (the 

general pro rata allocation method). For 

example, if a building is financed with 

proceeds and other funds and the issuer 

allocates the proceeds and other funds 

to the capital expenditures of the 

building using a gross proceeds spent 

first allocation method under section 

148 and paragraph (a)(1) of this section, 

the proceeds and other sources of funds 

so allocated to the building are treated 

as being allocated ratably throughout 

the building under this paragraph (a)(2). 

(3) Allocations of sources of funds to 

ultimate uses of financed property. 

Except as otherwise provided in this 

section, if financed property is financed 

with two or more sources of funding 

(including two or more tax-exempt 

governmental bond issues), those 

sources of funding must be allocated to 

multiple uses (that is, governmental use 

and private business use) of that 

financed property in proportion to the 

relative amounts of those sources of 

funding expended on that financed 

property. 

(4) Manner and time for electing to 

apply special allocation methods for 

mixed-use projects; final allocations 

generally. If an issuer is making an 

election under paragraph (c) or (d) of 

this section to use one of the special 

allocation methods for mixed-use 

projects, the issuer must make this 

election in writing by noting in its 

records the method of allocation chosen 

and the preliminary amounts and 

sources of funds it expects to allocate to 

specific discrete or undivided portions 

within the mixed-use project. The time 

for making this election is on or before 

the start of the measurement period. An 

issuer must make final allocations of 

proceeds and other funds under this 

section by noting in its records the final 

amounts of such allocations. The time 

for making these final allocations is set 

forth in the timing rules under § 1.148–

6(d)(1)(iii). Except as otherwise 

provided in this section, once the time 

for making final allocations under 


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§ 1.148–6(d)(1)(iii) has passed, 

allocations cannot be changed. 

(5) References to proceeds. For 

purposes of this section, except where 

the context clearly requires otherwise 

(for example, in references to 

‘‘proceeds’’ of taxable bonds) and 

regardless of whether expressly 

specified, references to proceeds 

generally are intended to refer to 

proceeds of tax-exempt governmental 

bonds. 

(b) Special rules on reasonable 

proportionate allocation methods for 

mixed-use projects—(1) In general. Once 

proceeds and other sources of funds are 

allocated to a mixed-use project (as 

defined in paragraph (b)(2) of this 

section) under section 148 and 

paragraph(a)(1) of this section, there are 

three methods for allocating those 

proceeds and other sources of funds to 

capital expenditures (as defined in 

§ 1.150–1(b)) within the mixed-use 

project. These methods are the general 

pro rata allocation method in paragraph 

(a)(2) of this section, the discrete 

physical portion allocation method, and 

the undivided portion allocation 

method. Allocations will be made under 

the general pro rata allocation method 

unless the issuer elects to use either the 

discrete portion method or the 

undivided portion method and meets 

the requirements for making such 

election under paragraph (a)(4) of this 

section and using such a method. The 

discrete portion and undivided portion 

allocation methods are elective and 

permit, to the extent provided, proceeds 

to be allocated to a portion of a mixeduse project based on a consistent 

application of a permitted reasonable 

allocation method that properly reflects 

the proportionate benefit to be derived 

by the various users of those portions of 

the mixed-use project. Paragraph (c) of 

this section sets forth the rules for the 

discrete physical portion allocation 

method and paragraph (d) of this section 

sets forth the rules for the undivided 

portion allocation method. Paragraph (e) 

of this section sets forth certain general 

operating rules for all mixed-use project 

allocations. Paragraph (g) of this section 

provides special rules for applying the 

undivided portion allocation method to 

output facilities. 

(2) Definition of a mixed-use project—

(i) In general. For purposes of this 

section, the term mixed-use project 

means a project (as defined in paragraph 

(b)(2)(ii) of this section) that, absent the 

application of the special elective 

allocation methods for mixed-use 

projects under paragraphs (c) and (d) of 

this section, is reasonably expected as of 

the issue date to have private business 

use in excess of de minimis permitted 

private business use. 

(ii) Definition of project—(A) In 

general. For purposes of this section, the 

term project means one or more 

facilities or capital projects, including 

land, buildings, equipment, or other 

property, that meets each of the 

following requirements: 

(1) The facilities or capital projects are 

functionally related or integrated and 

are located on the same site or on 

reasonably proximate adjacent sites; 

(2) The facilities or capital projects are 

reasonably expected to be placed in 

service within the same 12-month 

period; and 

(3) The proceeds and other sources of 

funds that are expended on the facilities 

or capital projects are expended 

pursuant to the same plan of financing. 

(B) Subsequent improvements or 

replacements. Subsequent 

improvements and replacements of 

portions of a project that are within the 

size, function, and usable space of the 

original design of the project are treated 

as part of that same project even if 

placed in service beyond the 12-month 

period in paragraph (b)(2)(ii)(A)(2) of 

this section. Thus, for example, 

improvements and replacements of 

damaged walls or worn-out fixtures 

within an original building that do not 

expand the scope or function of usable 

space are part of the original project. 

(c) Discrete physical portion 

allocation method—(1) In general. An 

issuer may elect the discrete physical 

portion allocation method when a 

mixed-use project can be separated into 

discrete portions (as defined in § 1.141–

1(b)). With a proper election, an issuer 

may use the discrete physical portion 

allocation method to allocate proceeds 

and qualified equity to capital 

expenditures for a discrete portion 

within a mixed-use project and to 

allocate those sources of funds to uses. 

The issuer must use a reasonable, 

consistently applied allocation method 

that reflects the proportionate benefits 

to be derived by the various users of the 

discrete portions to determine the 

aggregate amount of proceeds and 

qualified equity allocable to a particular 

discrete portion in a mixed-use project. 

(2) The measure of a discrete portion. 

An issuer is treated as using a 

reasonable allocation method that 

reflects the proportionate benefits if the 

issuer determines the amount of 

proceeds and qualified equity to be 

allocated to the discrete portions based 

on reasonable discrete portion 

benchmarks. These benchmarks 

generally include expected actual costs 

of the discrete portions, a percentage of 

total space of the mixed-use project to 

be used in the discrete portion, a 

percentage of the total fair market value 

of the mixed-use project that will be 

associated with the discrete portion, or 

another objective measure that is 

reasonable based on all the facts and 

circumstances. A discrete portion 

benchmark other than relative fair 

market value may not be used to make 

an allocation to a discrete portion that 

is reasonably expected to be used for 

private business use if an allocation to 

that same discrete portion using relative 

fair market value, determined as of the 

start of the measurement period, would 

result in a significantly greater 

percentage of the total capital 

expenditures of the project being 

allocated to such discrete portion. 

(3) Allocations to expenditures for 

discrete portions. Except as otherwise 

provided in this section, an issuer may 

determine how each source of funds (for 

example, proceeds or qualified equity) 

spent on a mixed-use project is 

allocated among discrete portions of 

that project. For example, proceeds may 

be specially allocated to capital 

expenditures for costs of a discrete 

portion that is reasonably expected to be 

used for governmental use (or for de 

minimis permitted private business 

use), and qualified equity may be 

specially allocated to capital 

expenditures for costs of a discrete 

portion that is reasonably expected to be 

used for private business use. 

(4) Allocations of uses to discrete 

portions. In applying the measurement 

rules under § 1.141–3(g) to measure 

ongoing use of a discrete portion of a 

mixed-use project, the measurement 

rules under § 1.141–3(g) generally apply 

to the same extent and in the same 

manner that they otherwise would. If an 

issuer properly elects to apply the 

discrete physical portion allocation 

method, the financed property is limited 

to the discrete portion to which any 

proceeds are allocated under paragraph 

(c)(3) of this section, and under § 1.141–

3(g)(4)(iv), the only use of the mixed-use 

project that is taken into account is the 

use of the discrete portions to which 

proceeds are specially allocated. 

(5) Certain reallocations among 

discrete portions. An issuer may 

reallocate in whole, but not in part, 

proceeds and qualified equity that it 

allocated to capital expenditures for one 

discrete portion of a mixed-use project 

under paragraph (c)(3) of this section to 

another discrete portion of the same 

mixed-use project if the proportionate 

benefits to be derived by the users of the 

two discrete portions are reasonably 

comparable both at the time of the 

original allocation and at the time of the 

reallocation. For purposes of this 


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paragraph (c)(5), the proportionate 

benefits are reasonably comparable only 

if the measures of the discrete portion 

benchmarks are within five percent of 

each other. In determining whether the 

proportionate benefits of the discrete 

portions are reasonably comparable at 

the time of the reallocation, the same 

discrete portion benchmark used 

originally to determine the discrete 

portions and the fair market value of the 

discrete portions as of the time of the 

reallocation must be used. Reallocations 

under this paragraph (c)(5) may be made 

only once every five years. 

(d) The undivided portion allocation 

method—(1) In general. An issuer may 

elect the undivided portion allocation 

method to make allocations with respect 

to a mixed-use project, provided that the 

undivided portions to which the 

allocations are made generally represent 

fixed percentages of the use of the entire 

mixed-use project (for example, a fixed 

percentage of unreserved parking spaces 

in a parking garage). The measures of 

the undivided portions may be based on 

physical or nonphysical characteristics 

of the project. In addition, the 

undivided portion allocation method 

may be applied separately to a discrete 

portion within a mixed-use project for 

which the issuer has elected to apply 

the discrete physical portion allocation 

method in which event the references in 

this paragraph (d) to mixed-use project 

generally shall be deemed to mean that 

discrete portion within which the 

undivided portion allocation method is 

applied separately. Upon a proper 

election, an issuer may, to the extent 

provided, use the undivided portion 

allocation method both to allocate 

proceeds or qualified equity to capital 

expenditures for the undivided portions 

and to allocate those sources of funds to 

uses of the mixed-use project. The 

issuer must use a reasonable 

consistently applied allocation method 

that properly reflects the proportionate 

benefit to be derived by the various 

users of the mixed-use project to 

determine the amount of proceeds or 

qualified equity allocable to a particular 

undivided portion of a mixed use 

project. See paragraph (g) of this section 

for special rules for output facilities. To 

apply the undivided portion allocation 

method, the following conditions must 

be met: 

(A) The issuer must reasonably expect 

as of the start of the measurement 

period that private business use and 

governmental use of the mixed-use 

project will occur simultaneously and 

be on the same basis (within the 

meaning of § 1.141–3(g)(4)(iii)) or will 

occur at different times (within the 

meaning of § 1.141–3(g)(4)(ii)); and 

(B) The issuer must reasonably expect 

as of the start of the measurement 

period that private business use 

allocated to the proceeds under 

paragraph (d)(4) of this section will not 

exceed de minimis permitted private 

business use. 

(2) The measure of an undivided 

portion. An issuer is treated as using a 

reasonable allocation method that 

reflects the proportionate benefits if the 

issuer determines the amount of 

proceeds and qualified equity to be 

allocated to the undivided portions 

based on reasonable undivided portion 

benchmarks. Such benchmarks 

generally include a measure of how 

many units produced from the facility 

will be used by the various users, a 

percentage of the space in the mixed-use 

project to be used by the various users 

(for example, a percentage of the 

number of parking spaces or a 

percentage of square feet of usable 

leased office space), a percentage of the 

fair market value of the mixed-use 

project that will be used by the various 

users (for example, a dollar amount per 

parking space for a percentage of a total 

number of parking spaces or a dollar 

amount per square foot for a percentage 

of usable leased office space), a 

percentage of time that the project will 

be used by the various users 

(determined in a manner consistent 

with § 1.141–3(g)(4)(ii)), or another 

objective measure, which may include 

the present value of reasonably expected 

revenues associated with each user’s use 

in circumstances in which no other 

measure is reasonably workable (for 

example, expected revenues from space 

in a research facility in which the 

qualified and nonqualified research is 

operationally fungible), that is 

reasonable based on all the facts and 

circumstances. An undivided portion 

benchmark other than relative fair 

market value may not be used to make 

an allocation to an undivided portion 

that is reasonably expected to be used 

for private business use if an allocation 

to that same undivided portion using 

relative fair market values, determined 

as of the start of the measurement 

period, would result in a significantly 

greater percentage of the total capital 

expenditures of the project being 

allocated to such undivided portion. For 

example, if a private business and a 

governmental person use a financed 

facility each for 50 percent of the time, 

but the relative fair market value of the 

private business use is significantly 

greater than 50 percent because the 

private business uses the facility during 

prime hours, the relative fair market 

values of the undivided portions must 

be used as the undivided portion 

benchmark. 

(3) Allocations to expenditures for 

undivided portions. Except as otherwise 

provided in this section, proceeds are 

specially allocated to capital 

expenditures for costs of an undivided 

portion that is reasonably expected to be 

used for governmental use (or for de 

minimis permitted private business 

use). Qualified equity is specially 

allocated to capital expenditures for 

costs of an undivided portion of a 

mixed-use project that is reasonably 

expected to be used for private business 

use. 

(4) Allocations of uses to undivided 

portions—(i) General rule. If an issuer 

elects to apply the undivided portion 

allocation method, then for purposes of 

section 141, the financed property is the 

mixed-use project. In measuring 

ongoing use of a mixed-use project, the 

measurement rules under § 1.141–3(g) 

(or § 1.141–7 in the case of an undivided 

portion of a mixed-use project that is an 

output facility) apply to the same extent 

and in the same manner that they 

otherwise would to the mixed-use 

project. However, under the undivided 

portion allocation method, after 

measuring private business use of the 

mixed-use project, subject to the limits 

in this paragraph (d)(4)(ii) of this 

section, private business use of the 

mixed-use project is specially allocated 

to the undivided portion of that project 

financed with qualified equity (as 

contrasted with the entire mixed-use 

project) for purposes of determining 

whether the issue meets the private 

business use test. Corresponding 

allocation rules apply to the undivided 

portion of a mixed-use project that is 

financed with proceeds and that is 

reasonably expected to be used for 

governmental use (or for de minimis 

permitted private business use). Thus, 

subject to the limitations in paragraph 

(d)(4)(ii) of this section, governmental 

use is specially allocated to the 

undivided portion that is financed with 

proceeds. Private business use of the 

mixed-use project that is properly 

allocated under this paragraph to an 

undivided portion financed with 

qualified equity is not private business 

use of proceeds. To determine whether 

the undivided portion to which 

proceeds are allocated is used for 

private business use, the measurement 

rules under § 1.141–3(g) (or § 1.141–7 

for output facilities) apply, taking into 

account the special allocation rules for 

the undivided portion allocation 

method under this section. 

(ii) Limit on amount targeted. In any 

year, the percentage of private business 

use of the mixed-use project, as 


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determined under the measurement 

rules for any one-year period under 

§ 1.141–3(g)(4), that is specially 

allocated to an undivided portion 

financed with qualified equity cannot 

exceed the percentage of capital 

expenditures of the mixed-use project 

used to determine that undivided 

portion and allocated to that undivided 

portion. The percentage of governmental 

use (and de minimis permitted private 

business use), as determined in the 

same manner, that is specially allocated 

to an undivided portion financed with 

proceeds cannot exceed the percentage 

of capital expenditures of the mixed-use 

project used to determine that 

undivided portion and allocated to that 

undivided portion. Similarly, for output 

facilities, the percentage of private 

business use of the mixed-use project, as 

determined under § 1.141–7, that may 

be targeted to an undivided portion 

cannot exceed the percentage of capital 

expenditures of the mixed-use project 

allocated to that undivided portion. 

(iii) Consistency requirement. In 

applying the measurement rules under 

§ 1.141–3(g) to a mixed-use project for 

which an issuer has employed the 

undivided portion allocation method, 

the issuer must use the same 

measurement method (for example, 

costs, quantity, or fair market value) that 

it used as its benchmark measure to 

make the allocations to the undivided 

portions of the mixed-use project under 

this section. For example, if the issuer 

made an allocation to an undivided 

portion using a time-based allocation, 

the issuer must measure private 

business use using a time-based 

allocation. 

(e) Certain general operating rules for 

mixed-use project allocations—(1) In 

general. This paragraph (e) provides 

certain general operating rules for 

allocations regarding mixed-use projects 

under this section. 

(2) Governmental ownership 

requirement for discrete physical 

portion and undivided portion 

allocation methods. Except in the case 

of an output facility, an issuer may 

make an election to apply the discrete 

physical portion or the undivided 

portion allocation method only if the 

mixed-use project is wholly-owned by 

governmental persons. An issuer may 

elect to apply the undivided portion 

method to a mixed-use project that is an 

output facility in which nongovernmental persons own undivided 

ownership interests if those interests 

meet the requirements of paragraph 

(g)(2) of this section. 

(3) Sources of funds for mixed-use 

project allocations—(i) In general. For 

purposes of applying the permitted 

allocation methods for mixed-use 

projects under paragraphs (c) and (d) of 

this section, the only sources of funds 

that may be allocated to the mixed-use 

project are proceeds and qualified 

equity (as defined in paragraph (e)(3)(ii) 

of this section). 

(ii) Definition of qualified equity. 

Except as otherwise provided in special 

rules for anticipatory redemption bonds 

in paragraph (f) of this section, for 

purposes of this section, the term 

qualified equity means only proceeds of 

taxable bonds and funds that are not 

derived from proceeds of a borrowing 

that are spent on the same mixed-use 

project as the proceeds of the applicable 

tax-exempt governmental bonds. By 

contrast, for example, qualified equity 

does not include equity interests in real 

property or tangible personal property. 

Further, qualified equity does not 

include any funds spent on subsequent 

improvements and replacements 

(including any subsequent 

improvements or replacements 

described in paragraph (b)(2)(ii)(B) of 

this section). 

(4) Common areas. Common areas 

may not be treated as separate discrete 

portions of mixed-use projects. Proceeds 

or qualified equity used to finance 

capital expenditures for common areas 

are allocated ratably to the discrete 

portions of the mixed-use project in the 

same manner that funds for other capital 

expenditures of the mixed-use project 

are allocated. 

(5) Allocations regarding multiple 

issues. If proceeds of more than one 

issue are allocated under section 148 

and paragraph (a)(1) of this section to 

capital expenditures of a mixed-use 

project, and the issuer elects to apply 

the discrete portion or undivided 

portion allocation method to such 

mixed-use project, then proceeds of 

those issues are allocated ratably to 

capital expenditures for a discrete 

portion or undivided portion to which 

any proceeds are allocated in proportion 

to their relative shares of the total 

proceeds of such issues in the aggregate 

used for such mixed-use project. 

(f) Special rules for bond redemptions 

in anticipation of unqualified use—(1) 

In general. Amounts other than 

proceeds of tax-exempt bonds that are 

used to retire a tax-exempt 

governmental bond (anticipatory 

redemption bond) are treated as 

qualified equity if the following 

requirements are met: 

(i) Allocations to anticipatory 

redemption bonds are made in a manner 

similar to § 1.141–12(j)(2), and the 

anticipatory redemption bonds are 

retired within the time prescribed below 

in anticipation of a deliberate action 

that otherwise would cause the project 

to have private business use in excess of 

de minimis permitted private business 

use. An anticipatory redemption bond is 

redeemed in anticipation of the 

deliberate act when it is retired at least 

five years before its otherwisescheduled maturity date or mandatory 

sinking fund redemption date and it is 

retired within a period that starts one 

year before the deliberate act occurs and 

ends 91 days before the deliberate act 

occurs; 

(ii) The issuer must not reasonably 

expect at the start of the measurement 

period that the project would be a 

mixed-use project, and for the first five 

years of the measurement period, the 

project must not be used in a manner 

that would cause private business use of 

the project to exceed de minimis 

permitted private business use; and 

(iii) The term of the issue of which the 

anticipatory redemption bond is a part 

must be no longer than is reasonably 

necessary for the governmental purpose 

of the issue (within the meaning of 

§ 1.148–1(c)(4)). 

(2) Allocation of qualified equity. 

Amounts that are treated as qualified 

equity under this paragraph (f) may be 

allocated to a discrete portion or 

undivided portion of a project in a 

manner provided in the discrete 

physical portion allocation method 

under paragraph (c) of this section or 

the undivided portion allocation 

method under paragraph (d) of this 

section if such allocation would have 

satisfied the applicable allocation 

method had that portion been identified 

for purposes of financing it in a new 

issue at the time of the retirement of 

anticipatory redemption bond. 

Allocations under this paragraph (f) 

cannot later be changed. 

(3) Allocations of use. Use of a project 

to which this paragraph (f) applies is 

allocated in accordance with the 

discrete physical portion allocation 

method or undivided portion allocation 

method, as applied under the 

immediately preceding paragraph. 

(4) Relationship to § 1.141–12. 

Anticipatory redemption bonds that are 

treated as qualified equity under this 

paragraph (f) have a comparable effect 

on continuing compliance as remedial 

actions under § 1.141–12 and need not 

be further remediated under § 1.141–12. 

(g) Special rules for applying the 

undivided portion allocation method to 

mixed-use output facilities—(1) In 

general. This paragraph (g) sets forth 

certain special rules regarding how to 

apply the undivided portion allocation 

method to a mixed-use project that is an 

output facility. 


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(2) Governmental ownership 

requirement for mixed-use output 

facilities. An issuer may elect to apply 

the undivided portion method to a 

mixed-use project that is an output 

facility if it is wholly-owned by 

governmental persons or if it has 

multiple undivided ownership interests 

which are owned by governmental 

persons or private businesses, provided 

that all owners of the undivided 

ownership interests share the 

ownership, output, and operating 

expenses in proportion to their 

contributions to the costs of the output 

facility. 

(3) The measure of an undivided 

portion of a mixed-use output facility. 

The measure of an undivided portion of 

a mixed-use project that is an output 

facility is based on a reasonable 

proportionate allocation method that 

properly reflects the proportionate 

benefit to be derived by the various 

users of the mixed-use project. For an 

output facility that has multiple 

undivided ownership interests that meet 

the requirements of paragraph (g)(2) of 

this section, those undivided ownership 

interests are treated as undivided 

portions. In addition, for purposes of 

determining the measure of 

proportionate benefit to be derived from 

users of an output facility (or of an 

undivided ownership interest in an 

output facility treated as an undivided 

portion) as a result of output contracts, 

the measure of an undivided portion is 

based on a benchmark equal to the 

proportionate share of available output 

(as defined in § 1.141–7(b)(1)) to be 

received by the user. For purposes of 

determining the measure of an 

undivided portion of an output facility 

based on the proportionate share of 

available output, the facts and 

circumstances test under § 1.141–7(h) 

governs allocations of output contracts 

to output facilities. 

(h) Allocations of private payments. 

Private payments for financed property 

are allocated in accordance with 

§ 1.141–4. Thus, private payments for a 

mixed-use project for which an election 

is made to apply the discrete physical 

portion allocation method are allocated 

under § 1.141–4(c)(3)(ii), and private 

payments for a mixed-use project for 

which an election is made to apply the 

undivided portion allocation method 

are allocated under 1.141–4(c)(3) 

without regard to the undivided 

portions. However, payments under 

output contracts that result in private 

business use are allocated to the 

undivided portion financed with 

qualified equity (notwithstanding 

§ 1.141–4(c)(3)(v) (regarding certain 

allocations of private payments to 

equity)) in the same manner as the 

private business use from such contracts 

is allocated to that undivided portion 

under paragraph (d)(4) of this section. 

(i) Allocations of proceeds to common 

costs of an issue. Proceeds of taxexempt bonds allocated to expenditures 

for common costs (for example, issuance 

costs, qualified guarantee fees, or 

reasonably required reserve or 

replacement funds) are allocated in 

accordance with § 1.141–3(g)(6). 

Common costs allocable to a mixed-use 

project for which an election has been 

made to apply the undivided portion or 

discrete physical portion allocation 

method are allocated ratably to the 

discrete portions or undivided portion 

of the mixed-use project to which 

proceeds are allocated. 

(j) Allocations of proceeds to bonds. 

In general, proceeds of tax-exempt 

bonds are allocated to bonds in 

accordance with the rules for allocations 

of proceeds to bonds for separate 

purposes of multipurpose issues in 

§ 1.141–13(d). In the case of an issue 

that is not a multipurpose issue, 

proceeds are allocated to bonds ratably 

in a manner similar to the allocation of 

proceeds to projects under the general 

pro rata allocation method in paragraph 

(a)(2) of this section. 

(k) Examples. The following examples 

illustrate the application of this section: 

Example 1. Discrete portions of a mixeduse project. City A constructs a 10-story 

office building, having 100x square foot of 

office space, and costing $100x. Each floor 

has an equal amount of office space. Assume 

the building has no common areas. City A 

reasonably expects to use the first six floors 

for governmental use (and possibly for de 

minimis permitted private business use). City 

A will lease the top four floors to Corporation 

B for private business use. City A wants to 

divide the mixed-use project into two 

discrete portions and to allocate proceeds to 

the first six floors and qualified equity to the 

top four floors. City A treats the first six 

floors as one discrete portion (the 

Governmental Portion) and the top four 

floors as another discrete portion (the Private 

Business Portion). City A proposes to 

determine how much of the $100x can be 

allocated to each discrete portion using 

relative square feet of usable office space. 

The percentage of the $100x that would be 

allocated to the Private Business Portion 

using relative fair market values, determined 

at the start of the measurement period, would 

not be significantly greater than the amount 

that will be allocated using relative square 

footage. Relative square footage is an 

appropriate discrete portion benchmark 

because it is an objective measure that 

properly reflects the proportionate benefit to 

be derived by the various users. City A 

finances the costs of the Governmental 

Portion ($60x) with proceeds of tax-exempt 

governmental bonds (the Bonds) and the 

costs of the Private Business Portion ($40x) 

with qualified equity which consists of 

taxable bonds (the qualified equity). City A 

allocates Bond proceeds to capital 

expenditures for the costs of the 

Governmental Portion (that is, $60x for 

capital costs of six specific floors of the 

building). City A allocates the qualified 

equity to capital expenditures for the costs of 

the Private Business Portion (that is, $40x for 

capital costs of four specific floors of the 

building). The financed property to which 

proceeds of the Bonds are allocated is the 

Governmental Portion. For purposes of 

measuring ongoing use of the Bond proceeds, 

use of the Private Business Portion will be 

disregarded, but any private business use of 

the six specific floors which comprise the 

Governmental Portion will be taken into 

account during the measurement period. The 

proceeds of the Bonds are treated as used for 

the Governmental Portion and ongoing 

compliance depends on the amount of 

private business use of that Governmental 

Portion over the term of the applicable 

measurement period. Thus, if more than 10 

percent of the specific physically discrete 

floors which comprise the Governmental 

Portion of the mixed-use project (that is, 

more than $6x of the proceeds or 6x square 

feet of the office space within the 

Governmental Portion) were used for private 

business use during the measurement period 

as a result of deliberate actions, then the 

Bonds would violate the private business use 

test. 

Example 2. Reallocations among discrete 

portions. City A constructs a 10-story office 

building having 100x square feet of office 

space, and costing $100x. The top five floors 

are to be leased to a private business, 

Corporation B. Before the start of the 

measurement period, City A appropriately 

elected a discrete physical portion allocation 

method using a relative square footage 

measure and allocated $50x of proceeds to 

the first five floors (the Governmental 

Portion) and $50x in qualified equity to the 

top five floors (the Private Business Portion). 

After the time for finalizing allocations has 

passed, Corporation B defaults on its lease for 

the top five floors of the building and vacates 

the building. Corporation C, another private 

business, expresses interest in leasing office 

space, but Corporation C wants to lease the 

first five floors of the building rather than the 

top five floors previously leased by 

Corporation B. City A wants to reallocate the 

proceeds used for the Private Business 

Portion to the Governmental Portion. City A 

plans to use the Private Business Portion for 

governmental use. At the time of both the 

original allocation and this reallocation the 

measures of the Private Business Portion and 

Governmental Portion under the applicable 

discrete portion benchmarks are within five 

percent of each other. City A determines that 

the measures of the two discrete portions are 

reasonably comparable at the time of the 

reallocation by using the benchmarks of 

relative square footage and the then-current 

fair market values of the two discrete 

portions. This reallocation between discrete 

portions is permissible. 

Example 3. Undivided portions of a mixeduse project. City A constructs a 10-story 

office building, having 100x square foot of 


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office space, and costing $100x. City A has 

not identified specific space to be leased to 

any specific private business. Instead, City A 

reasonably expects to use 70 percent of the 

office space in the building for governmental 

use (or possibly for de minimis permitted 

private business use) (the Governmental 

Portion). City A reasonably expects that it 

will lease out a maximum of 30 percent of 

the office space to one or more private 

businesses in unspecified locations in the 

building (the Private Business Portion). City 

A wants to allocate this mixed-use project 

between two undivided portions and target 

the expected private business use to the 

undivided portion financed with qualified 

equity. City A determines how much of the 

$100x can be financed with tax-exempt 

governmental bonds based on relative square 

feet of usable office space. This undivided 

portion benchmark is an objective measure 

that properly reflects the proportionate 

benefit to be derived by the various users. 

City A finances 70 percent of the costs of the 

building ($70x) with proceeds (the Bonds) 

and 30 percent ($30x) of those costs with 

qualified equity which consists of taxable 

bonds (the Qualified Equity). Bond proceeds 

are allocated to capital expenditures for the 

costs of the Governmental Portion. Qualified 

Equity is allocated to capital expenditures for 

the costs of the Private Business Portion. For 

purposes of measuring ongoing use of the 

mixed-use project, private business use and 

governmental use of the entire 10-story office 

building is considered. As long as average 

private business use of the mixed-use project 

under the measurement rules does not 

exceed 30 percent in a particular year, that 

private business use is allocated to the 

Private Business Portion. Thus, none of that 

private business use is allocated to the 

Governmental Portion, and that private 

business use is disregarded for purposes of 

determining whether there is private 

business use of the proceeds allocated to the 

Governmental Portion. If average private 

business use of the mixed-use project 

increases to 45 percent in a subsequent year, 

a maximum of 30 percent of that private 

business use is properly allocable to the 

Private Business Portion and thereby 

disregarded in determining ongoing use of 

the Governmental Portion. Private business 

use in excess of the 30 percent properly 

allocable to the Private Business Portion (for 

example, 15 percent of private business use) 

would be allocated to the Governmental 

Portion. Conversely, if private business use of 

the mixed-use project in a subsequent year 

decreased to 20 percent, all 20 percent of the 

private use would be allocated to the Private 

Business Portion and thereby disregarded for 

purposes of measuring private use of the 

proceeds in that year. Because there would 

be governmental use in that year in excess of 

the 70 percent that is properly allocable to 

the Governmental use Portion, the 

governmental use in excess of 70 percent (for 

example, 10 percent of governmental use) 

would be allocated to the Private Business 

Portion. 

Example 4. Revenue-based undivided 

portion of research facility. University A is 

a state university. University A owns and 

operates research facilities. In 2008, 

University A plans to build a new research 

facility (the 2008 Mixed-Use Research 

Project), which it expects will be used for 

both qualified research arrangements for 

governmental use (Governmental Research) 

and nonqualified research arrangements for 

private business use (Private Business 

Research). University A wants to allocate the 

2008 mixed-use research facility between two 

undivided portions for Governmental 

Research and for Private Business Research 

and to target Private Business Research to the 

undivided portion financed with equity. 

University A proposes to make this allocation 

using a revenue-based undivided portion 

benchmark. All of University A’s research 

activities will have the following operational 

characteristics: 

(i) The research facilities are continuously 

available for both Governmental Research 

and Private Business Research; 

(ii) Governmental Research and Private 

Business Research take place simultaneously 

in the same research facilities; and 

(iii) The same research may relate to one 

or more research projects involving both 

Governmental Research and Private Business 

Research. University A also has a reasonable 

basis for determining the percentage of 

revenues that will be derived from Private 

Business Research and Governmental 

Research. During the past five years, of the 

total revenues, net of royalties and licenses, 

from University A’s research facilities, the 

percentage of revenues from Governmental 

Research and the percentage of revenues 

from Private Business Research (on a present 

value basis) have not changed. University A 

reasonably expects that this split of revenues 

will continue with the 2008 Mixed-Use 

Research Project. Under all the facts and 

circumstances, including, among other 

things, the nature of the particular research 

arrangements (for example, the governmental 

or private business nature of particular 

research grantors or contractual terms that 

result in governmental use or private 

business use) and historic actual revenues 

and future expected revenues from research 

arrangements of a particular nature, net of 

royalties and licenses, the only objective 

measurable benchmark that can reasonably 

distinguish the Governmental Research 

portion from the Private Business Research 

portion is the expected percentage of 

revenues each will generate. Therefore, 

University A will be using a reasonable 

method for determining the undivided 

portions of the 2008 mixed-use research 

facility if it bases the portions on the 

revenues each is expected to generate. 

Example 5. Output facility. Authority A is 

a governmental person that owns and 

operates an electric transmission facility. 

Prior to 2009, Authority A used its equity to 

pay capital expenditures of $1000x for the 

facility. In 2009, Authority A wants to make 

capital improvements to the facility in the 

amount of $100x. Authority A reasonably 

expects that, after completion of such capital 

improvements, 54 percent of the available 

output from the facility, as determined under 

§ 1.141–7, will be sold under output 

contracts for governmental use and that 46 

percent of such available output will be sold 

under output contracts for private business 

use. Authority A wants to allocate this 2009 

project for capital improvements (the 2009 

Mixed-Use Output Project) between two 

undivided portions based on proportionate 

measures of available output and to finance 

the maximum eligible undivided portion 

with tax-exempt governmental bonds 

(assuming use of the maximum 10 percent de 

minimis amount of private business use 

permitted for tax-exempt governmental 

bonds). Authority A treats a 60 percent 

undivided portion of the 2009 Mixed-Use 

Output Project as one undivided portion (the 

Governmental Portion), which it reasonably 

expects to use for output contracts involving 

90 percent governmental use (representing 54 

percent of the available output), plus 10 

percent private business use (representing 6 

percent of the available output). Authority A 

treats a 40 percent undivided portion of the 

2009 Mixed-Use Output Project as another 

undivided portion (the Private Business 

Portion), which it reasonably expects to use 

for output contracts involving private 

business use. Authority A determines the 

measures of these two undivided portions 

based on relative shares of available output, 

as determined under § 1.141–7. This measure 

uses a reasonable proportionate allocation 

method which properly reflects the 

proportionate benefit to be derived by the 

various users. On January 1, 2009, Authority 

A issues bonds with proceeds of $60x (the 

Bonds) to finance the Governmental Portion 

of the 2009 Mixed-Use Output Project and 

uses $40 million of funds that are not derived 

from proceeds of a borrowing (the Qualified 

Equity) to finance the Private Business 

Portion of the 2009 Mixed-Use Output 

Project. Authority A allocates Bond proceeds 

to capital expenditures for the costs of the 

Governmental Portion and Qualified Equity 

to capital expenditures for the costs of the 

Private Business Portion. For purposes of 

measuring ongoing use of the Governmental 

Portion financed with the Bond proceeds, use 

of the Private Business Portion is 

disregarded, but any private business use of 

the Governmental Portion will be taken into 

account during the measurement period. So 

long as the actual amount of private business 

use of the Governmental Portion’s share of 

available output does not exceed 6 percent, 

the Bonds will not be private activity bonds. 

Example 6. Treatment of retirement of 

bonds. City B issues bonds to build a parking 

garage (the Garage), costing $100x, that it will 

own and operate. At the start of the 

measurement period, City B reasonably 

expects that the only use of the garage will 

be governmental use. The term of the issue 

is no longer than reasonably necessary for the 

governmental purpose of the issue. During 

the first six years of the measurement period, 

the garage is used as the issuer expected. In 

year seven of the measurement period, 

however, City B expects that in less than one 

year it will enter into a contract with 

Corporation C, a private business, which will 

cause 20 percent of the Garage to be used for 

private business use. More than 90 days 

before entering into a binding contract with 

Corporation C, City B uses $20x of funds 

other than proceeds of tax-exempt bonds to 

retire bonds and City B determines the bonds 

to be retired on a pro rata basis. The 


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applicable bonds will be retired at least 5 

years prior to their scheduled maturity dates. 

As of the date of the anticipatory redemption, 

the Garage qualifies as a mixed-use project, 

and City B applies paragraph (f) of this 

section and allocates the $20x that was used 

to redeem the bonds to an undivided portion 

to which the private business use will be 

allocated. If City B failed to meet the 

requirements of paragraph (f) of this section, 

amounts that City B used to redeem the 

bonds would not be qualified equity. 

Par 5. Section 1.141–13 is amended 

by revising paragraph (d)(1) and 

paragraph (g) Example 5 to read as 

follows: 

§ 1.141–13 Refunding issues 

* * * * * 

(d) Multipurpose issue allocations—

(1) In general. For purposes of section 

141, unless the context clearly requires 

otherwise, § 1.148–9(h) applies to 

allocations of multipurpose issues (as 

defined in § 1.148–1(b)), including 

allocations involving the refunding 

purposes of the issue. An allocation 

under this paragraph (d) may be made 

at any time, but once made may not be 

changed. An allocation is not reasonable 

under this paragraph (d) if it achieves 

more favorable results under section 141 

than could be achieved with actual 

separate issues. Each of the separate 

issues under the allocation must consist 

of one or more tax-exempt bonds. 

Allocations made under this paragraph 

(d) and § 1.148–9(h) must be consistent 

for purposes of section 141 and section 

148. 

* * * * * 

(g) Examples. * * * 

Example 5. Multipurpose issue. (i) In 

2006, State D issues bonds to finance the 

construction of two office buildings, Building 

1 and Building 2. D expends an equal amount 

of the proceeds on each building. D enters 

into arrangements that result in private 

business use of 8 percent of Building 1 and 

12 percent of Building 2 during the 

measurement period under § 1.141–3(g). In 

addition, D enters into arrangements that 

result in private payments in percentages 

equal to that private business use. These 

arrangements result in a total of 10 percent 

of the proceeds of the 2006 bonds being used 

for a private business use and for private 

payments. In 2007, D purports to make a 

multipurpose issue allocation under 

paragraph (d) of this section of the 

outstanding 2006 bonds, allocating the issue 

into two separate issues of equal amounts 

with one issue allocable to Building 1 and 

the second allocable to Building 2. An 

allocation is unreasonable under paragraph 

(d) of this section if it achieves more 

favorable results under section 141 than 

could be achieved with actual separate 

issues. D’s allocation is unreasonable 

because, if permitted, it would allow more 

favorable results under section 141 for the 

2006 bonds (for example, private business 

use and private payments which exceeds the 

aggregate 10 percent permitted de minimis 

amounts for the 2006 bonds allocable to 

Building 2) than could be achieved with 

actual separate issues. In addition, if D’s 

purported allocation was intended to result 

in two separate issues of tax-exempt 

governmental bonds (versus tax-exempt 

private activity bonds), the allocation would 

violate paragraph (d) of this section in the 

first instance because the allocation to the 

separate issue for Building 2 would fail to 

qualify separately as an issue of tax-exempt 

governmental bonds as a result of its 12 

percent of private business use and private 

payments, which exceed the 10 percent 

permitted de minimis amounts. 

(ii) The facts are the same as in 

paragraph (i) of this Example 5, except 

that D enters into arrangements that 

result in 8 percent private business use 

for Building 1, and it expects no private 

business use of Building 2. In 2007, D 

allocates an equal amount of the 

outstanding 2006 bonds to Building 1 

and Building 2. D selects particular 

bonds for each separate issue such that 

the allocation does not achieve a more 

favorable result than could have been 

achieved by issuing actual separate 

issues. D uses the same allocation for 

purposes of both section 141 and 148. 

D’s allocation is reasonable. 

(iii) The facts are the same as in 

paragraph (ii) of this Example 5, except 

that as part of the same issue, D issues 

bonds for a privately used airport. The 

airport bonds if issued as a separate 

issue would be qualified private activity 

bonds. The remaining bonds if issued 

separately from the airport bonds would 

be governmental bonds. Treated as one 

issue, however, the bonds are taxable 

private activity bonds. Therefore, D 

makes its allocation of the bonds under 

§§ 1.141–13(d) and 1.150–1(c)(3) into 3 

separate issues on or before the issue 

date. Assuming all other applicable 

requirements are met, the bonds of the 

respective issues will be tax-exempt 

qualified private activity bonds or 

governmental bonds. 

* * * * * 

Par. 6. Section 1.141–15 is amended 

by revising paragraph (a) and (i) and 

adding paragraphs (k) and (l) to read as 

follows: 

§ 1.141–15 Effective Dates 

(a) Scope. The effective dates of this 

section apply for purposes of §§ 1.141–

1 through 1.141–14, 1.145–1 through 

1.145–2, 1.150–1(a)(3) and the 

definition of bond documents contained 

in § 1.150–1(b). 

* * * * * 

(i) Permissive application of certain 

regulations relating to output facilities. 

(1) Issuers may apply § 1.141–7(f)(3) 

and § 1.141–7(g) to any bonds used to 

finance output facilities. 

(2) Issuers may apply § 1.141–6 to any 

bonds used to finance output facilities 

that are sold on or after the date that is 

60 days after the date of publication of 

the Treasury decisions adopting these 

rules as final regulations in the Federal 

Register 

* * * * * 

(k) Effective date for certain 

regulations relating to allocation and 

accounting. Except as otherwise 

provided in this section, §§ 1.141–1(e), 

1.141–6, 1.141–13(d), and 1.145–2(b)(4), 

(b)(5), and (c)(3) apply to bonds that are 

sold on or after the date that is 60 days 

after the date of publication of the 

Treasury decisions adopting these rules 

as final regulations in the Federal 

Register and that are subject to the 1997 

Final Regulations. 

(l) Permissive retroactive application 

of certain regulations. Issuers may apply 

§ 1.141–13(d) to bonds to which 

§ 1.141–13 applies. 

Par. 7. Section 1.145–2 is amended by 

adding paragraphs (b)(4), (b)(5), and 

(c)(3) to read as follows: 

§ 1.145–2 Application of Private Activity 

Bond Regulations 

* * * * * 

(b) * * * 

(4) References to governmental bonds 

in § 1.141–6 mean qualified 501(c)(3) 

bonds. 

(5) References to ownership by 

governmental persons in § 1.141–6 

mean ownership by governmental 

persons or 501(c)(3) organizations. 

(c) * * * 

(3) Partnerships. Section 1.141–1(e)(2) 

does not apply for purposes of section 

145(a)(1). For purposes of section 

145(a)(2), in the case of a partnership (as 

defined in section 7701(a)(2)) in which 

each of the partners is a governmental 

person or a section 501(c)(3) 

organization, the partnership is 

disregarded as a separate entity and is 

treated as an aggregate of its partners. 

Mark E. Matthews, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 06–8202 Filed 9–25–06; 8:45 am] 

BILLING CODE 4830–01–P 


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