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[Federal Register Volume 73, Number 175 (Tuesday, September 9, 2008)]
[Proposed Rules]
[Pages 52220-52226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20771]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-128841-07]
RIN 1545-BG91

Public Approval Guidance for Tax-Exempt Bonds

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations on the public 
approval requirements under section 147(f) of the Internal Revenue Code 
(Code) applicable to tax-exempt private activity bonds issued by State 
and local governments. The proposed regulations affect State and local 
governmental issuers of tax-exempt private activity bonds. This 
document also provides notice of a public hearing on these proposed 
regulations.

DATES: Written or electronic comments must be received by December 8, 
2008. Outlines of topic to be discussed at the public hearing scheduled 
for January 26, 2009, at 10 a.m., must be received by December 29, 
2008.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-128841-07), room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
128841-07), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC or sent electronically, via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-128841-07). The 
public hearing will be held in the auditorium beginning at 10 a.m. at 
the Internal Revenue Building, 1111 Constitution Avenue, NW., 
Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
David White, (202) 622-3980; concerning submissions of comments and the 
hearing, contact Fumni Taylor at (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in the proposed regulations 
has been submitted to the Office of Management and Budget 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:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments 
on the collection of information should be received by November 10, 
2008. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, 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 collection 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 services to provide information.
    The collection of information in this proposed regulation is in 
Sec.  1.147(f)-1(b). This information is required to meet the public 
approval requirement under section 147(f). The likely respondents are 
issuers of qualified private activity bonds.
    Estimated total annual reporting burden: 2,600 hours.
    Estimated average annual burden per respondent: 1.3 hours.
    Estimated number of respondents: 2,000.
    Estimated frequency of responses: Not applicable (this is a third-
party disclosure requirement).
    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 the Income Tax 
Regulations (26 CFR part 1) to add new Sec.  1.147(f)-1 (the ``Proposed 
Regulations'') relating to the public approval requirement for tax-
exempt private activity bonds under section 147(f) of the Internal 
Revenue Code.

Explanation of Provisions

I. Introduction

    In general, interest on State and local bonds is excludable from 
gross income under section 103 of the Internal Revenue Code of 1986 
(the ``Code''). Interest on a private activity bond is excludable from 
gross income under section 103 only if the bond meets the requirements 
for a ``qualified bond'' under section 141(e) and other applicable 
requirements under section 103. Section 141(e) requires that a bond 
meet the public approval requirement of section 147(f), among other 
requirements, to be a qualified bond.

II. Statutory Predecessor and Existing Regulations

    The predecessor to section 147(f) was section 103(k) of the 
Internal Revenue Code of 1954 (``1954 Code''), which was added by the 
Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248, 96 
Stat. 324 (1982). Section 103(k) of the 1954 Code imposed a public 
approval requirement on industrial development bonds. Temporary Income 
Tax Regulations Sec.  5f.103-2 were published under section

[[Page 52221]]

103(k) of the 1954 Code in the Federal Register on May 11, 1983 (TD 
7892; 48 FR 21115) (the ``Existing Regulations'').
    In the Tax Reform Act of 1986, Public Law 99-514 (the ``1986 
Act''), Congress reorganized the tax-exempt bond provisions and largely 
carried forward the provisions of section 103(k) of the 1954 Code into 
new section 147(f) of the Code. In new section 147(f), Congress also 
expanded this public approval requirement to apply to all types of tax-
exempt private activity bonds under section 141. The legislative 
history to the 1986 Act provides that ``[t]he conferees intend that, to 
the extent not amended, all principles of present law continue to apply 
under the reorganized provisions.'' 2 H.R. Conf. Rep. No. 841, 99th 
Cong., 2d Sess. II-686 (1986), 1986-3 CB (Vol. 4) at 686.

III. Proposed Regulations

A. In General
    In general, the Proposed Regulations provide updating, clarifying, 
and simplifying guidance on discrete aspects of the public approval 
requirement under section 147(f) (the ``public approval requirement''). 
The Proposed Regulations provide guidance that focuses generally on the 
scope, content, process, and timing for reasonable public notices, 
public hearings, and public approvals of tax-exempt private activity 
bonds under section 147(f).
    The Proposed Regulations provide some special rules to address 
certain changes to the public approval requirement made by the 1986 Act 
that expanded the application of this requirement to include all types 
of tax-exempt private activity bonds. The Proposed Regulations also 
provide guidance to simplify compliance and reduce administrative 
burdens on State and local governments associated with the public 
approval requirement, including guidance to recognize advances in 
technology and electronic communication. The Proposed Regulations also 
ensure that the affected public will receive reasonable public notice 
and an opportunity for a public hearing and that appropriate 
governmental units will approve a bond issue following public notice 
and a public hearing.
    The Proposed Regulations generally do not update the portions of 
the Existing Regulations relating to the applicable governmental units 
that are required to provide public approvals for a bond issue and the 
applicable elected representatives of those governmental units. One 
special rule in the Proposed Regulations provides that only the 
governmental unit by or on behalf of which bonds are issued is required 
for certain types of financings and that no separate public approval is 
required by a host governmental unit with respect to the location, if 
any, of financed facilities due to the absence of financed facilities 
(for example, qualified student loan bonds under section 144(b) or 
qualified 501(c)(3) bonds under section 145 for working capital 
expenditures) or the widespread or unknown locations of the financed 
facilities (for example, mortgage revenue bonds). The Treasury 
Department and the IRS solicit public comment on whether or in what 
respects those portions of the Existing Regulations should be updated 
or modified further.
    The Proposed Regulations provide that the Existing Regulations 
continue to apply for purposes of section 147(f) to the extent that the 
Existing Regulations are not inconsistent with the final version of the 
Proposed Regulations, the 1986 Act, or subsequent law.
B. Content of Public Approval in General
    The Proposed Regulations provide updated guidance on the content of 
information required to be included in a reasonable public notice and 
public approval. The Proposed Regulations continue and modify in 
limited respects the existing general standard from the Existing 
Regulations. Under the Proposed Regulations, required information for 
this purpose generally includes the information described in this 
preamble.
    The Existing Regulations require a functional description of the 
type and use of the facility to be financed with the bond issue. In 
response to public comment, the Proposed Regulations streamline this 
requirement to allow a general reference to the type of exempt facility 
bond being issued or, for other types of private activity bonds, a 
reference to the type of qualified bond and a general description of 
the type and use of the facility to be financed. (for example, an 
exempt facility bond for an airport under section 142(a)(1), or a 
qualified 501(c)(3) bond to finance a hospital).
    The Existing Regulations also require the maximum stated principal 
amount of bonds expected to be issued for the facility. The Proposed 
Regulations continue this requirement.
    The Existing Regulations require the name of the expected initial 
legal owner, operator, or manager of the facility. The Proposed 
Regulations modify this requirement. Under the Proposed Regulations, 
the name provided may be either the name of the legal owner or 
principal user (as defined under section 144(a)) or, alternatively, the 
name of the true beneficial party of interest (for example, the name of 
a 501(c)(3) organization, which is the sole member of a limited 
liability company owner).
    The Existing Regulations require a general description of the 
prospective location of the facility by street address, or, if none, by 
a general description that is reasonably designed to inform the public 
about the location of the project. The Existing Regulations assume that 
bond issues finance a single capital project. The Proposed Regulations 
provide that, for a facility that involves multiple capital projects on 
the same site, or adjacent or reasonably proximate sites used for 
similar purposes, a consolidated description of the geographic 
boundaries of all such capital projects may be a sufficient description 
of the location.
    The Proposed Regulations also modify and expand the existing 
definition of a ``facility'' to include within the scope of that 
defined term the principle that a facility may include multiple capital 
projects.
C. Special Rules for Mortgage Revenue Bonds, Qualified Student Loan 
Bonds, and Certain Qualified 501(c)(3) Bonds
    The 1986 Act extended the public approval requirement beyond 
traditional facility-focused industrial development bonds under the 
1954 Code to include qualified mortgage bonds and qualified veterans 
mortgage bonds under section 143(a) and 143(b) of the Code (together, 
``mortgage revenue bonds''), qualified student loan bonds under section 
144(b) of the Code, and qualified 501(c)(3) bonds under section 145 of 
the Code. The expansion of the public approval requirement to these 
types of bonds raises questions about the scope of information 
appropriately needed for public approvals for these types of bonds. 
Section 147(f) and congressional intent generally suggest that the 
public approval requirement must be met before the issuance of the 
bonds. For these types of bonds, however, certain information generally 
required for public approvals about specific borrowers or specific 
projects may be unknown before the issuance of the bonds or may be 
inappropriate for portfolio loan financings.
    The Treasury Department and IRS realize there may have been 
uncertainty on how to apply certain aspects of the public approval 
requirement to mortgage revenue bonds, qualified student loan bonds, 
and qualified 501(c)(3) pooled financing bonds under section 145 after 
the 1986 Act in light

[[Page 52222]]

of special characteristics of these financings (for example, the 
absence of financed facilities for qualified student loan bonds or the 
widespread or unknown locations of the facilities to be financed for 
mortgage revenue bonds or certain 501(c)(3) pooled bonds). Therefore, 
issuers of these types of bonds that made a good faith effort to comply 
with section 147(f) and section 5f.103-2(f)(2) of the Existing 
Regulations, taking into account Congressional intent and the special 
characteristics of these types of financings, will not be subject to 
audit by the IRS merely because the issuer did not include all of the 
information required to be included in the public notice and public 
approval for industrial development bonds under section 5f.103-2(f)(2) 
of the Existing Regulations.
    The Proposed Regulations provide special rules that allow less 
specific information for public approvals of mortgage revenue bonds, 
qualified student loan bonds, and qualified 501(c)(3) bonds that 
finance loans described in the special rule for pooled financings under 
section 147(b)(4).
    For mortgage revenue bonds, the Proposed Regulations generally 
require that reasonable public notice and public approval state the 
maximum stated principal amount of the bonds that will be issued to 
finance mortgage loans under section 143 and a general description of 
the geographic jurisdiction in which residences financed with proceeds 
of the mortgage revenue bonds will be located (for example, residences 
located throughout a state for an issuer with a statewide 
jurisdiction). No information is required on specific names of mortgage 
loan borrowers or specific locations of individual residences to be 
financed.
    For qualified student loan bonds, the Proposed Regulations 
generally require that reasonable public notice and public approval 
state the maximum stated principal amount of the bonds that will be 
issued to finance student loans and a general description of the type 
of student loan program that the loans will be made under (for example, 
a Federally-guaranteed student loan program under the Higher Education 
Act of 1965 or a state supplemental student loan program). Recognizing 
that these bonds do not finance facilities, the Proposed Regulations do 
not require names of specific student loan borrowers or locations of 
facilities.
    For qualified 501(c)(3) bonds that finance loans described in the 
special provision for pooled loan financings under section 147(b)(4), 
the Proposed Regulations provide for a two-stage public approval 
process. First, within the time specified in the Proposed Regulations 
for public approval generally, public approval must be obtained based 
on the stated maximum principal amount of bonds to be issued to finance 
such loans and a general description of the types of facility or 
facilities to be financed with the loans (for example, loans for 
hospital facilities). No statement need be made about the location of 
the facility or the initial user of the facility if that information is 
not known at that time. Second, before a loan is originated and 
potentially after the issue date of the issue, a supplemental public 
approval for that loan must be obtained based on specific information 
about the borrower and the particular facility to be financed with the 
loan, including the location of the facility. In applying the 
supplemental public approval requirement to specific loans, the public 
approval requirement applies generally as if the bonds that financed 
the specific loans were reissued for purposes of section 147(b). This 
requirement is similar to the remedial action requirement in Sec.  
1.141-12(e)(2) and (f), which treats bonds as reissued for purposes of 
section 147 when complying with certain remedial action rules. The 
Treasury Department and the IRS solicit comments on whether a rule 
similar to the special two-stage public approval requirement for 
qualified 501(c)(3) bonds in pooled bond issues should apply to other 
types of pooled bond issues.
D. Insubstantial and Substantial Deviations in Public Approval 
Information
    The Proposed Regulations provide generally that a substantial 
deviation between information required to be conveyed in a reasonable 
public notice and public approval and actual information causes the 
issue to fail to meet the public approval requirement. Whether a 
deviation is substantial is generally based on all the facts and 
circumstances.
    The Proposed Regulations continue and clarify a rule from the 
Existing Regulations that provides that insubstantial deviations in 
public approval information do not invalidate a public approval. Public 
commentators have indicated that questions often arise about what 
changes are substantial.
    The Proposed Regulations provide two objective safe harbors under 
which certain changes will not be considered substantial deviations. 
The Proposed Regulations provide that each of the following is an 
insubstantial deviation: (1) a difference in the amount of proceeds 
used for a facility when the amount used for the facility differs from 
the amount the public approval stated would be used for the facility by 
an amount that is not more than five percent (5%) of net proceeds of 
the issue; and (2) a change in initial owner or principal user of a 
project when the new owner or principal user is a related party (as 
defined in Sec.  1.150-1) to the initial owner or principal user named 
in the public approval on the issuance date.
    The prohibition against substantial deviations has created problems 
when an issuer reasonably expected at the time the bonds were issued to 
use the bonds proceeds for the facility stated in the public approval, 
but later determined, as a result of unexpected events or unforeseen 
changes in circumstances, that the original planned use was no longer 
feasible or that it did not need all of the proceeds for the facility. 
In these circumstances, an issuer may be unable to use the bond 
proceeds for another purpose because the new use was not covered by the 
information in the public approval.
    The Proposed Regulations propose a special rule for certain cases 
in which there is a substantial deviation between the information 
required to be provided in a reasonable public notice and public 
approval and subsequent events. This rule provides that, if certain 
conditions are met, an issuer can cure a substantial deviation in 
public approval information through a subsequent public approval. This 
remedial action is similar to the permitted post-issuance public 
approval used for remedial actions under Sec.  1.141-12(e)(2) and (f).
    In general, the Proposed Regulations provide that an issuer may 
cure a substantial deviation if it satisfies several conditions. First, 
the issuer must have obtained a timely public approval for the bond 
issue in accordance with the public approval requirement and the issuer 
must have reasonably expected on the issue date to use the proceeds of 
the issue in accordance with the public approval information. Second, 
the issuer must encounter unexpected events or unforeseen changes in 
circumstances after the issue date as a result of which it determines 
either that it is no longer feasible or viable to use the proceeds of 
some or all of the bonds in the manner set forth in the original public 
approval, or that it did not need to use the full amount of the 
proceeds stated in the public approval for the facility. Third, the 
issuer must obtain a supplemental public approval for the bonds 
affected by the substantial deviation that meets the public approval 
requirement applied by treating those

[[Page 52223]]

bonds as if they were reissued for this purpose.
E. Reasonable Public Notice and Public Hearing
    The Proposed Regulations update and simplify the rules in the 
Existing Regulations on reasonable public notice and public hearings in 
several ways. First, in addition to the existing permitted methods for 
providing reasonable public notice, which include newspaper publication 
or television or radio broadcast, the Proposed Regulations allow a 
governmental unit to provide reasonable public notice of a public 
hearing by posting notice of the hearing electronically on its Web site 
if it regularly uses that Web site to inform its residents about events 
affecting the residents (including notice of public meetings of the 
governmental unit) and it offers a reasonable alternative method for 
obtaining this information for residents without access to computers 
(such as phone recordings). In addition, the Proposed Regulations 
define a ``writing'' generally to include electronic communication if 
permitted by the governmental unit. Thus, the public may submit 
electronic comments to the governmental unit if permitted by the 
governmental unit. The proposed regulations also reduce the time 
required between the reasonable public notice and public hearing from 
fourteen days to seven business days. These revisions recognize the 
current market environment and the increasing importance of electronic 
communication.
    In addition, the Proposed Regulations expand the types of 
governmental units that may provide public notice in an alternative 
manner under a general State law on public notice procedures for public 
hearings to include all approving governmental units.
    Finally, the Proposed Regulations allow a governmental unit to 
cancel a public hearing if it provides reasonable public notice of the 
hearing and receives no requests to participate in the hearing.

III. Proposed Effective/Applicability Date

    The proposed regulations will apply to bonds that are sold on or 
after the date of publication of final regulations in the Federal 
Register and that are subject to section 147(f).

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It is hereby 
certified that these proposed regulations will not have a significant 
economic impact on a substantial number of small entities. This 
certification is based on considerations which are summarized. In 
general, the proposed regulations involve an existing statutory public 
approval requirement for tax-exempt private activity bonds under 
Section 147(f) of the Internal Revenue Code, which requires reasonable 
public notice, a public hearing, and public approval of these bonds by 
certain affected State or local governmental units and which imposes 
certain information requirements for this purpose. These proposed 
regulations generally address matters regarding the scope, content, 
process, and timing for public notices and public hearings in 
connection with these public approvals. These proposed regulations will 
affect all issuers of tax-exempt private activity bonds, including a 
substantial number of small State or local governmental units. These 
proposed regulations are not expected to have a significant economic 
impact on the affected entities, however, because these proposed 
regulations primarily are intended to streamline, simplify, and clarify 
the application of the existing public approval requirement in various 
ways, such as by allowing certain public notices on Web sites to reduce 
costs associated with print publication of public notices, by limiting 
the information required for certain types of bond issues, and by 
providing certain safe harbors and curative ways to assist with 
compliance in connection with changes in bond issues. Therefore, a 
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. The IRS and the Treasury Department 
specifically solicit comments from any party, particularly affected 
small entities, on the accuracy of this certification. Pursuant to 
section 7805(f) of the Internal Revenue Code, this notice of proposed 
rulemaking has been 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 comments (including a signed 
original and eight (8) copies) or electronic comments that are 
submitted timely to the IRS. The Treasury Department and the IRS 
specifically request comments on the clarity of the proposed rules and 
how they can be made easier to understand.
    All comments will be available for public inspection and copying.
    A public hearing has been scheduled for January 26, 2009, beginning 
at 10 a.m. in the IRS Auditorium, Internal Revenue Service Building, 
1111 Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue 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 8, 2008 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 29, 2008. 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 
and David White, Office of Associate Chief Counsel (Financial 
Institutions and Products), 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 1.147(f)-1 is added to read as follows:

[[Page 52224]]

Sec.  1.147(f)-1  Public approval of private activity bonds.

    (a) In general. Interest on a private activity bond is excludable 
from gross income under section 103(a) only if the bond meets the 
requirements for a qualified bond under section 141(e) and other 
applicable requirements under section 103. In order to be a qualified 
bond under section 141(e), one of the requirements that must be met is 
the public approval requirement under section 147(f). This section 
provides guidance on the public approval requirement under section 
147(f). In addition, to the extent not inconsistent with this section, 
the Tax Reform Act of 1986 (Pub. L. 99-514), or subsequent law, Sec.  
5f.103-2 of this chapter continues to apply for purposes of the public 
approval requirement under section 147(f).
    (b) Scope, content, process, and timing for public approvals--(1) 
In general. This paragraph (b) provides guidance on the scope, content, 
process, and timing required for public approval of an issue of private 
activity bonds under section 147(f). In general, except as otherwise 
provided in this section, to meet the public approval requirement under 
section 147(f) for an issue (as defined in Sec.  1.150-1) of private 
activity bonds, reasonable public notice (as defined in paragraph 
(c)(3) of this section) must be given in advance for a public hearing 
(as defined in paragraph (c)(2) of this section), a public hearing must 
be held, and the applicable governmental units under section 
147(f)(2)(A) must provide public approval within the time set forth in 
paragraph (b)(8) of this section and in the manner set forth in section 
147(f)(2)(B).
    (2) General rule on information required for a reasonable public 
notice and public approval. Except as otherwise provided in this 
section, a facility (as defined in paragraph (c) of this section) to be 
financed with an issue is within the scope of a public approval under 
section 147(f) if the reasonable public notice of the public hearing 
and the public approval include the information set forth in paragraphs 
(b)(2)(i) through (iv) of this section.
    (i) The facility. The information includes a general functional 
description of the type and use of the facility to be financed with the 
issue. For this purpose, a facility description generally is sufficient 
if it identifies the facility by reference to a particular category of 
exempt facility bond to be issued (for example, an exempt facility bond 
for an airport under section 142(a)(1) or an enterprise zone facility 
bond under section 1394(a)), or if not an exempt facility bond, by 
reference to another general category of private activity bond, 
together with accompanying information on the type and use of the 
facility to be financed with the issue (for example, a qualified small 
issue bond under section 144(b) for a manufacturing facility, a 
qualified 501(c)(3) bond under section 145 for a hospital facility and 
working capital expenditures, or a qualified mortgage bond for 
qualified mortgage loans for single-family housing residences under 
section 143).
    (ii) The maximum stated principal amount of bonds. The information 
includes the maximum stated principal amount of the issue of private 
activity bonds to be issued to finance the facility.
    (iii) The name of the initial owner or principal user of the 
facility. The information includes the name of the expected initial 
owner or principal user (as defined under section 144(a)) of the 
facility. The name provided may be either the name of the legal owner 
or principal user of the facility or, alternatively, the name of the 
true beneficial party of interest for such legal owner or user (for 
example, the name of a 501(c)(3) organization which is the sole member 
of a limited liability company owner).
    (iv) The location of the facility. The information includes a 
general description of the prospective location of the facility by 
street address, reference to boundary streets or other geographic 
boundaries, or other description of the specific geographic location 
that is reasonably designed to inform readers of the location. For a 
facility involving multiple capital projects located on the same site, 
or on adjacent or reasonably proximate sites with similar uses, a 
consolidated description of the location of those capital projects may 
provide a sufficient description of the location of the facility. For 
example, a facility for a 501(c)(3) educational entity involving 
multiple buildings on the entity's main urban college campus may 
describe the location of the facility by reference to the outside 
street boundaries of that campus with a reference to any noncontiguous 
features of that campus.
    (3) Special rule for mortgage revenue bonds. Mortgage revenue bonds 
under section 143 are treated as within the scope of a public approval 
under paragraph (b)(2) of this section if the reasonable public notice 
of the public hearing and the public approval state that the bonds are 
to be issued under section 143, the maximum stated principal amount of 
mortgage revenue bonds expected to be issued, and a general description 
of the geographic jurisdiction in which the residences to be financed 
with the proceeds of the mortgage revenue bonds are expected to be 
located, recognizing the issuer jurisdictional limitations on such 
financing under section 143(c)(1)(B) (for example, residences located 
throughout a state for an issuer with a statewide jurisdiction or 
residences within a particular local geographic jurisdiction, such as 
within a city or county, for a local issuer). In applying paragraph 
(b)(2) of this section to mortgage revenue bonds, no information is 
required on specific names of mortgage loan borrowers or specific 
locations of individual residences to be financed.
    (4) Special rule for qualified student loan bonds. Qualified 
student loan bonds under section 144(b) are treated as within the scope 
of a public approval under paragraph (b)(2) of this section if the 
reasonable public notice of the public hearing and the public approval 
state that the bonds will be issued under section 144(b), the maximum 
stated principal amount of qualified student loan bonds expected to be 
issued for qualified student loans, and a general description of the 
type of student loan program that the loans are to be made under (for 
example, a Federally-guaranteed student loan program under the Higher 
Education Act of 1965 or a state supplemental student loan program). In 
applying paragraph (b)(2) of this section to qualified student loan 
bonds, and recognizing that these bonds do not finance facilities, no 
information is required with respect to names of specific student loan 
borrowers or locations of facilities.
    (5) Special rule for certain qualified 501(c)(3) bonds. Qualified 
501(c)(3) bonds under section 145 to be used to finance loans described 
in section 147(b)(4)(B) (without regard to any election under section 
147(b)(4)(A)) are treated as within the scope of a public approval 
under paragraph (b)(2) of this section if both of the following 
requirements are met--
    (i) Pre-issuance general public approval. Within the time period 
defined in paragraph (b)(8) of this section, public approval is 
obtained after reasonable public notice of a public hearing is provided 
and a public hearing is held. For this purpose, a facility is treated 
as described in a public notice of a public hearing and public approval 
if the notice and public approval provide that the bonds will be 
qualified 501(c)(3) bonds to be used to finance loans described in 
section 147(b)(4)(B), the maximum stated principal amount of bonds 
expected to be issued to finance loans to other

[[Page 52225]]

501(c)(3) organizations or governmental units as described in section 
147(b)(4)(B), a general description of the type of facility to be 
financed with such loans (for example, loans for hospital facilities or 
college facilities), and a statement that an additional public approval 
that includes specific project information will be obtained before any 
such loans are originated; and
    (ii) Post-issuance public approval for specific loans. Before a 
loan described in section 147(b)(4)(B) is originated, a supplemental 
public approval for the bonds to be used to finance that loan is 
obtained, and that supplemental public approval meets all the 
requirements of section 147(f) and this section applied by treating the 
bonds to be used to finance such loan as if they were reissued for 
purpose of section 147(f) (applied without regard to this paragraph 
(b)(5)).
    (6) Deviations in public approval information--(i) In general. 
Except as otherwise provided in this paragraph (b)(6), a substantial 
deviation between the information required to be provided in a public 
notice of public hearing and public approval under paragraph (b)(2) of 
this section and actual information causes that issue to fail to meet 
the public approval requirement under section 147(f). Conversely, 
insubstantial deviations between information required to be provided in 
a notice of public hearing and public approval and actual information 
do not cause a failure to meet section 147(f). In general, for purposes 
of this paragraph (b)(6), the determination of whether a deviation is 
substantial is based on all the facts and circumstances. However, a 
change in the fundamental nature or type of a project is a substantial 
deviation.
    (ii) Certain insubstantial deviations in public approval 
information. For purposes of this paragraph (b)(6), the following 
deviations are treated as insubstantial deviations:
    (A) Use of proceeds. A deviation between the amount of proceeds of 
the issue that the notice of public hearing and public approval stated 
would to be used for a facility and the amount of proceeds actually 
used for that facility is insubstantial if the amount of the difference 
does not exceed an amount equal to five percent (5%) of the net 
proceeds (as defined in section 150(a)(3)) of the issue.
    (B) Initial owner or principal user. A deviation between the 
initial owner or principal user of the facility named in a notice of 
public hearing and public approval and the actual initial owner or 
principal user of the facility is treated as insubstantial if such 
parties are related parties (as defined in Sec.  1.150-1) on the issue 
date of the issue.
    (iii) Special rule to address certain substantial deviations in 
public approval information. A substantial deviation between the 
information required to be conveyed in the notice of public hearing and 
the public approval under paragraph (b)(2) and the actual information 
does not cause that issue to fail to meet the public approval 
requirement under section 147(f) if the following requirements are met:
    (A) Original public approval and reasonable expectations. The 
issuer obtained a timely public approval (as set forth in paragraph 
(b)(8) of this section) for the issue in accordance with section 147(f) 
and, on the issue date of the issue, the issuer reasonably expected 
there would be no substantial deviations between the information 
required to be conveyed in the notice of public hearing and public 
approval and actual information.
    (B) Unexpected events or unforeseen changes in circumstances. As a 
result of unexpected events or unforeseen changes in circumstances that 
arise after the issue date of the issue, the issuer determines that it 
cannot use some or all of the proceeds in the manner provided in the 
public approval either because such use is no longer feasible or 
viable, or because the cost of the facility was less than expected so 
the issuer did not need all of the proceeds specified in the public 
approval for the facility.
    (C) Supplemental public approval. Before using the proceeds of the 
bonds that are affected by the substantial deviation for a different 
use, the issuer obtains a supplemental public approval for those bonds, 
and that supplemental public approval meets all the requirements of 
section 147(f) applied by treating those bonds as if they were reissued 
for purpose of section 147(f).
    (7) Certain timing requirements. Except as otherwise provided in 
this section, a public approval of an issue under section 147(f) is 
timely only if the issuer obtains the public approval within one year 
before the issue date (as defined in section 1.150-1) of the issue. For 
a plan of financing described in section 147(f)(2)(C), public approval 
is timely for the plan of financing if the issuer obtains public 
approval for the plan of financing within one year before the issue 
date of the first issue issued under the plan of financing and the 
issuer issues all issues under the plan of financing within three years 
after the issue date of such first issue.
    (c) Definitions--Unless otherwise stated, for purposes of this 
section, the following definitions apply:
    (1) Facility. In general, for purposes of this section and section 
5f.103-2, the term facility means one or more capital projects, 
including land, buildings, equipment, and other property to be financed 
with an issue that is located on the same site, or adjacent or 
proximate sites used for similar purposes, and that is subject to the 
public approval requirement under section 147(f). For an issue of 
mortgage revenue bonds under section 143 or qualified student loan 
bonds under section 144(b), the term facility means the mortgage loans 
or qualified student loans to be financed with the proceeds of the 
issue. For an issue of qualified 501(c)(3) bonds under section 145, the 
term facility means a facility, as defined in the first sentence of 
this paragraph (c)(1), and also includes working capital expenditures 
to be financed with proceeds of the issue.
    (2) Public hearing. The term public hearing means a forum providing 
a reasonable opportunity for interested individuals to express their 
views, both orally and in writing, on the proposed issue of bonds and 
the location and nature of the proposed facility to be financed. In 
general, a governmental unit may select its own procedure for a public 
hearing, provided that interested individuals have a reasonable 
opportunity to express their views. Thus, a governmental unit may 
impose reasonable requirements on persons who wish to participate in 
the hearing, such as a requirement that persons desiring to speak at 
the hearing make a written request to speak at least 24 hours before 
the hearing or that they limit their oral remarks to a prescribed time. 
If a governmental unit provides reasonable public notice for a public 
hearing and receives no timely requests to participate in the hearing, 
then the governmental unit may cancel the hearing and, for purposes of 
this section, the public hearing requirement will be treated as met. 
For purposes of this public hearing requirement, it is unnecessary, for 
example, to have the applicable elected representative of the approving 
governmental unit present at the hearing, to submit a report on the 
hearing to that applicable elected representative, or to meet State 
administrative procedural requirements for public hearings. Except to 
the extent in conflict with a specific requirement of this paragraph 
(c)(2), compliance with State procedural requirements for public 
hearings generally satisfies the requirements of this paragraph (c)(2). 
A public hearing may be conducted by an individual appointed or 
employed to perform such function by the

[[Page 52226]]

governmental unit or its agencies, or by the issuer. Thus, for example, 
for bonds to be issued by an authority that acts on behalf of a county, 
the hearing may be conducted by the authority, the county, or an 
appointee of either.
    (3) Reasonable public notice. Reasonable public notice means notice 
that is reasonably designed to inform residents of the affected 
governmental units, including residents of the issuing governmental 
unit and the governmental unit where a facility is to be located, of 
the proposed issue. The notice must state the time and place for the 
public hearing and contain the information required under paragraph (b) 
of this section. Notice is presumed reasonable if given no fewer than 
seven (7) business days before the public hearing in one of the ways 
permitted by this paragraph (c)(2). Notice is treated as reasonably 
designed to inform affected residents of an approving governmental unit 
if it is given in one of the following ways:
    (i) Newspaper publication. Public notice may be given by 
publication in one or more newspapers of general circulation available 
to the residents of the governmental unit.
    (ii) Radio or television broadcast. Public notice may be given by 
radio or television broadcast to the residents of the governmental 
unit.
    (iii) Governmental unit Web site posting. Public notice may be 
given by electronic posting on the approving governmental unit's Web 
site for its residents, provided that the governmental unit regularly 
uses that Web site to inform its residents about events affecting the 
residents (including notice of public meetings of the governmental 
unit) and the governmental unit offers a reasonable, publicly known 
alternative method for obtaining this information for residents without 
access to computers (such as phone recordings).
    (iv) Alternative State law public notice procedures. Public notice 
may be given in a way that is permitted under a general State law for 
public notices for public hearings for the approving governmental unit.
    (4) Writing. Unless specifically stated otherwise in this section, 
if permitted by the governmental unit, the term writing includes 
electronic communication.
    (5) Mortgage revenue bonds. The term mortgage revenue bonds means 
qualified mortgage bonds under section 143(a) of the Code or qualified 
veterans' mortgage bonds under section 143(b) of the Code.
    (d) Special rule on required governmental unit approvals for 
certain types of financings. In applying section 147(f)(2) and Sec.  
5f.103-2(c) of this chapter to mortgage revenue bonds under section 
143, to qualified student loan bonds under section 144(b), and to the 
portion of an issue of qualified 501(c)(3) bonds under section 145 that 
finance working capital expenditures, the governmental unit by or on 
behalf of which those types of bonds are issued is treated as the only 
governmental unit required to provide a public approval and no separate 
public approval is required by a host governmental unit with respect to 
the location, if any, of a financed facility.
    (e) Effective/applicability date. Except as otherwise provided in 
this section, Sec.  1.147(f)-1 applies to bonds that are sold on or 
after the date of publication of final regulations in the Federal 
Register and that are subject to section 147(f).

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-20771 Filed 9-8-08; 8:45 am]
BILLING CODE 4830-01-P
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