[Federal Register Volume 66, Number 224 (Tuesday, November 20, 2001)]
[Rules and Regulations]
[Pages 58061-58062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28998]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8967]
RIN 1545-AY88


Definition of Private Business Use

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document amends the final regulations on the definition 
of private business use applicable to tax-exempt bonds issued by State 
and local governments. The amendments provide that certain arrangements 
do not result in private business use if the term of the use does not 
exceed 50, 100 or 200 days, as applicable.

DATES: Effective Date: These regulations are effective November 20, 
2001.
    Applicability Date: For dates of applicability, see Sec. 1.141-15.

FOR FURTHER INFORMATION CONTACT: Michael P. Brewer at (202) 622-3980 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 103(a) of the Internal Revenue Code (Code) provides that, 
generally, interest on any State or local bond is not included in gross 
income. However, this exclusion does not apply to any private activity 
bond that is not a qualified bond.
    Under section 141, a bond is a private activity bond if it is 
issued as part of an issue that meets either the private business use 
test and the private security or payment test, or the private loan 
financing test.
    The private business use test is met if more than 10 percent of the 
proceeds of an issue are to be used for any private business use. 
Section 141(b)(6)(A) defines the term private business use as use 
(directly or indirectly) in a trade or business carried on by any 
person other than a governmental unit. For this purpose, use as a 
member of the general public is not taken into account.
    Section 1.141-3 provides guidance regarding the private business 
use test. Generally, the private business use test is met only if a 
nongovernmental person has special legal entitlements to use the 
financed property under an arrangement with the issuer. The existing 
regulations provide the following three special rules for use by 
nongovernmental persons under short-term arrangements:
    1. Section 1.141-3(c)(3) states that an arrangement is not treated 
as general

[[Page 58062]]

public use if the term of the use under the arrangement, including all 
renewal options, is greater than 180 days.
    2. Section 1.141-3(d)(3)(i) provides that certain arrangements are 
not private business use if the term of the use under the arrangement, 
including all renewal options, is not longer than 90 days.
    3. Section 1.141-3(d)(3)(ii) provides that certain arrangements are 
not private business use if the term of the use under the arrangement, 
including all renewal options, is not longer than 30 days.
    Section 1.141-3(f) contains examples that illustrate these special 
rules.

Explanation of Provisions

    Comments have been received requesting that the regulations provide 
for additional flexibility in structuring short-term arrangements with 
nongovernmental persons. For example, commentators have requested that 
the 180-day, 90-day, and 30-day rules of Sec. 1.141-3 be changed to 
accommodate six-month, three-month, and one-month arrangements, 
respectively (i.e., arrangements with terms of use based on months that 
exceed 30 days). This Treasury decision adopts this suggested 
modification by amending Sec. 1.141-3(c)(3), (d)(3) and (f) to change 
all references to 180 days, 90 days, and 30 days to 200 days, 100 days, 
and 50 days, respectively.

Effective Dates

    The changes made by this Treasury decision apply to any bond sold 
on or after November 20, 2001. The changes made by this Treasury 
decision may be applied by issuers to any bond outstanding on November 
20, 2001 to which Sec. 1.141-3 applies.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) and (d) of the Administrative Procedure 
Act (5 U.S.C. chapter 5) does not apply to these regulations, and, 
because no notice of proposed rulemaking is required, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, this final regulation was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Drafting Information

    The principal authors of these final regulations are Bruce M. 
Serchuk and Michael P. Brewer, Office of Chief Counsel (TE/GE), 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is 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 * * *


Sec. 1.141-3  [Amended]

    Par. 2. In the list below, for each paragraph indicated in the left 
column, remove the words indicated in the middle column from wherever 
they appear in the paragraph, and add the words indicated in the right 
column:

------------------------------------------------------------------------
                                                   Remove
                   Paragraph                       (days)    Add  (days)
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1.141-3(c)(3), first sentence of introductory           180          200
 text.........................................
1.141-3(d)(3)(i)(A)...........................           90          100
1.141-3(d)(3)(ii)(A)..........................           30           50
1.141-3(f) Example 10, penultimate sentence...          180          200
1.141-3(f) Example 12, third sentence (twice).          180          200
1.141-3(f) Example 13, fifth sentence.........          180          200
1.141-3(f) Example 15, fourth sentence........           90          100
1.141-3(f) Example 16(i), last sentence.......           30           50
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    Par. 3. Section 1.141-15 is amended as follows:
    1. Paragraph (b) is redesignated (b)(1).
    2. A paragraph heading for newly designated paragraph (b)(1) is 
added.
    3. Paragraph (b)(2) is added.
    The additions read as follows:


Sec. 1.141-15  Effective dates.

* * * * *
    (b) Effective Dates--(1) In general. * * *
    (2) Certain short-term arrangements. The provisions of Sec. 1.141-3 
that refer to arrangements for 200 days, 100 days, or 50 days apply to 
any bond sold on or after November 20, 2001 and may be applied to any 
bond outstanding on November 20, 2001 to which Sec. 1.141-3 applies.

David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
    Approved: November 14, 2001.
Mark Weinberger,
Assistant Secretary of the Treasury.
[FR Doc. 01-28998 Filed 11-19-01; 8:45 am]
BILLING CODE 4830-01-P