52220 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Proposed Rules 

§ 1.6043–3 Returns regarding liquidation, 

dissolution, termination, or substantial 

contraction of organizations exempt from 

taxation under section 501(a). 

* * * * * 

(b) * * * 

(8) [The text of this proposed 

amendment to § 1.6043–3(b)(8) is the 

same as the text of § 1.6043–3T(b)(8) 

published elsewhere in this issue of the 

Federal Register.] 

* * * * * 

(d) [The text of this proposed 

amendment to § 1.6043–3(d) is the same 

as the text of § 1.6043–3T(d) published 

elsewhere in this issue of the Federal 

Register.] 

(e) [The text of this proposed 

amendment to § 1.6043–3(e) is the same 

as the text of § 1.6043–3T(e)(1) and 

(e)(2) published elsewhere in this issue 

of the Federal Register.] 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. E8–20556 Filed 9–8–08; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–128841–07] 

RIN 1545–BG91 

Public Approval Guidance for TaxExempt Bonds 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

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 § 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 

§ 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 

§ 5f.103–2 were published under section 


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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Proposed Rules 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 taxexempt 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 taxexempt 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 


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52222 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Proposed Rules 

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 § 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 § 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 § 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 


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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 taxexempt 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: 


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52224 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Proposed Rules 

§ 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, § 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 § 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 Federallyguaranteed 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 


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Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Proposed Rules 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 § 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 


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52226 Federal Register / Vol. 73, No. 175 / Tuesday, September 9, 2008 / Proposed Rules 

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 § 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, 

§ 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 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R04–OAR–2005–0534–200816; FRL–

8712–5] 

Approval and Promulgation of 

Implementation Plans North Carolina: 

Prevention of Significant Deterioration 

and Nonattainment New Source 

Review Rules 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: EPA is proposing to approve 

revisions to the North Carolina State 

Implementation Plan (SIP) submitted by 

the State of North Carolina in three 

submittals dated November 30, 2005, 

March 16, 2007, and June 20, 2008. The 

proposed revisions modify North 

Carolina’s Prevention of Significant 

Deterioration (PSD) and Nonattainment 

New Source Review (NNSR) permitting 

regulations in the SIP to address 

changes to the federal New Source 

Review (NSR) regulations, which were 

promulgated by EPA on December 31, 

2002, and reconsidered with minor 

changes on November 7, 2003 

(collectively, these two final actions are 

referred to as the ‘‘2002 NSR Reform 

Rules’’). In addition, the proposed 

revisions address an update to the NSR 

regulations promulgated by EPA on 

November 29, 2005 (‘‘Ozone 

Implementation NSR update’’) relating 

to the implementation of the 1997 8- 

hour ozone National Ambient Air 

Quality Standards (NAAQS). The 

proposed revisions include provisions 

for baseline emissions calculations, an 

actual-to-projected-actual methodology 

for calculating emissions changes, 

options for plantwide applicability 

limits (PALs), recordkeeping and 

reporting requirements, and provisions 

recognizing nitrogen oxides (NOX) as a 

precursor to ozone. The June 20, 2008, 

SIP submittal also contains proposed 

revisions that are not related to EPA’s 

2002 NSR Reform Rules. EPA will 

propose action on those revisions in a 

separate Federal Register notice. 

DATES: Comments must be received on 

or before October 9, 2008. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R04–

OAR–2005–0534, by one of the 

following methods: 

1. http://www.regulations.gov: Follow 

the on-line instructions for submitting 

comments. 

2. E-mail: adams.yolanda@epa.gov. 

3. Fax: 404–562–9019. 

4. Mail: ‘‘EPA–R04–OAR–2005–0534’’

Regulatory Development Section, Air 

Planning Branch, Air, Pesticides and 

Toxics Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street, SW., 

Atlanta, Georgia 30303–8960. 

5. Hand Delivery or Courier: Ms. 

Yolanda Adams, Air Planning Branch, 

Air, Pesticides and Toxics Management 

Division, U.S. Environmental Protection 

Agency, Region 4, 61 Forsyth Street, 

SW., Atlanta, Georgia 30303–8960. Such 

deliveries are only accepted during the 

Regional Office’s normal hours of 

operation. The Regional Office’s official 

hours of business are Monday through 

Friday, 8:30 a.m. to 4:30 p.m., excluding 

federal holidays. 

Instructions: Direct your comments to 

Docket ID No. ‘‘EPA–R04–OAR–2005–

0534.’’ EPA’s policy is that all 

comments received will be included in 

the public docket without change and 

may be made available online at http:// 

www.regulations.gov, including any 

personal information provided, unless 

the comment includes information 

claimed to be Confidential Business 

Information (CBI) or other information 

whose disclosure is restricted by statute. 

Do not submit through http:// 

www.regulations.gov or e-mail, 

information that you consider to be CBI 

or otherwise protected. The http:// 

www.regulations.gov Web site is an 

‘‘anonymous access’’ system, which 

means EPA will not know your identity 

or contact information unless you 


yshivers on PROD1PC62 with PROPOSALS