n-14-09.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Current Refundings of Recovery Zone Facility Bonds

Notice 2014-9

SECTION 1. PURPOSE
This Notice provides guidance on “current refunding issues” (as defined in
§ 1.150-1(d)(3) of the Income Tax Regulations) that refund outstanding prior issues of
bonds that qualify as Recovery Zone Facility Bonds (Recovery Zone Facility Bonds)
under § 1400U-3 of the Internal Revenue Code (“Code”). In particular, this Notice
applies to current refunding issues that are used (directly or indirectly in a series of
current refunding issues) to refund original tax-exempt bonds issued before January 1,
2011 (the “Applicable Deadline”), that met the qualification requirements for qualified
Recovery Zone Facility Bonds. These original qualified tax-exempt bonds are referred
to in this Notice as “Qualified Bonds.”
SECTION 2. BACKGROUND
Section 1401 of the American Recovery and Reinvestment Act of 2009, Pub. L.
No. 111-5, 123 Stat. 115, 348 (2009) (“ARRA”), added §§ 1400U-1 and 1400U-3 to the
Code to authorize State and local governments to issue Recovery Zone Facility Bonds.
Section 1400U-1(a)(4)(B) imposes a national bond volume limitation of $15 billion for
Recovery Zone Facility Bonds. Section 1400U-1(a)(1)(A) provides that the Secretary
shall allocate the national recovery zone facility bond limitation among the States in the
proportion that each such State’s 2008 State employment decline bears to the

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aggregate of 2008 State employment declines for all of the States. Notice 2009-50,
2009-26 I.R.B. 1118 (June 29, 2009), provides guidance regarding the maximum face
amount of Recovery Zone Facility Bonds that may be issued by each State and
counties and large municipalities within each State as provided in § 1400U-1(a).
In general, Recovery Zone Facility Bonds may be used to finance certain
property, referred to as “recovery zone property,” for use within certain designated
zones, referred to as “recovery zones.” Section 1400U-1(b) provides that, for purposes
of §§ 1400U-1 through 1400U-3, the term “recovery zone” means: (1) any area
designated by the issuer as having significant poverty, unemployment, rate of home
foreclosures, or general distress; (2) any area designated by the issuer as economically
distressed by reason of the closure or realignment of a military installation pursuant to
the Defense Base Closure and Realignment Act of 1990; and (3) any area for which a
designation as an empowerment or renewal community is in effect as of the effective
date of ARRA, which is February 17, 2009.
Section 1400U-3(c)(1) defines the term “recovery zone property” to mean any
property in a recovery zone to which § 168 (relating to the accelerated cost recovery
system) applies (or would apply but for § 179 (relating to the election to expense certain
depreciable business assets)) if: (A) such property was constructed, reconstructed,
renovated, or acquired by purchase (as defined in § 179(d)(2)) by the taxpayer after the
date on which the designation of the recovery zone took effect; (B) the original use of
which in the recovery zone commences with the taxpayer; and (C) substantially all of
the use of which is in the recovery zone and is in the active conduct of a qualified
business (as defined in § 1400U-3(c)(2)) by the taxpayer in the recovery zone. Section

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1400U-3(d) provides in part that § 146 (relating to volume cap) and § 147(d) (relating to
prohibition against acquisition of existing property) shall not apply to any Recovery Zone
Facility Bond.
Section 141(e) provides that an “exempt facility bond” under §142 is one type of
qualified private activity bond that may be issued with interest that is excludable from
gross income under §103(a). Section 1400U-3(a) provides that, for purposes of §§ 141
through 150, the term “exempt facility bond” includes any Recovery Zone Facility Bond.
Section 1400U-3(b)(1) defines the term “Recovery Zone Facility Bond” to mean any
bond issued as part of an issue if (A) 95 percent or more of the net proceeds (as
defined in § 150(a)(3)) of such issue are to be used for recovery zone property; (B) such
bond is issued before the Applicable Deadline; and (C) the issuer designates such bond
for purposes of § 1400U-3.
The statutory provisions relating to Recovery Zone Facility Bonds are silent
regarding the permissibility of current refundings of these bonds after the Applicable
Deadline. Under similar provisions for exempt facility bonds for disaster relief, the
Treasury Department and the IRS have previously provided guidance permitting current
refundings within certain size limitations for purposes of bond issuance deadlines
applicable to those bonds. See
Notice 2012-3, 2012-3 I.R.B. 289 (January 17, 2012)
(permitting current refundings of outstanding prior issues of Gulf Opportunity Zone
Bonds issued under § 1400N and outstanding prior issues under certain other disaster
relief bond programs) and Notice 2003-40, 2003-27 I.R.B. 10, at Question 5 (July 7,
2003) (permitting current refundings of qualified New York Liberty Bonds issued under
§ 1400L).

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SECTION 3. SCOPE AND APPLICATION
.01 Guidance and Reliance. Pending the promulgation and effective date of
future administrative or regulatory guidance, taxpayers may rely on the guidance
provided in this Notice.
.02 Scope of Application
. This Notice applies to any current refunding issue that
is used (directly or indirectly in a series of current refunding issues) to refund Qualified
Bonds described in Section 1 of this Notice if the following requirements are met:
(1) The original Qualified Bonds were issued before the Applicable Deadline, or
any statutory extension of such deadline.
(2) Except as provided herein, the “issue price” (as defined in § 1.148-1(b)) of the
current refunding issue is no greater than the outstanding stated principal amount of the
refunded bonds. For refunded bonds originally issued with more than a de minimis
amount of original issue discount or premium (as defined in § 1.148-1(b)), the present
value of the refunded bonds (as determined under § 1.148-4(e)) must be used in lieu of
the outstanding stated principal amount to determine the maximum issue price of the
current refunding issue.
(3) The current refunding issue meets all applicable requirements for the
issuance of tax-exempt private activity bonds as Qualified Bonds (other than the
Applicable Deadline), including, without limitation, the requirement under § 147(b) that
the average maturity of the bonds issued as part of such issue be no longer than 120
percent of the average reasonably expected economic life of the facilities financed or
refinanced with the net proceeds of such issue.

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.03 Guidance. A current refunding issue that meets the requirements of section
3.02 of this Notice may be issued after the Applicable Deadline for the issuance of the
original Qualified Bonds and will be treated as an issue of Qualified Bonds. In addition,
in the case of such a current refunding issue, the designation of the original Qualified
Bonds by a specified State or local governmental official or state bond commission that
meets the designation requirement of § 1400U-3(b)(1)(C) for Recovery Zone Facility
Bonds is treated as meeting this designation requirement for the current refunding issue
without further designation or further official State or local governmental action.
.04 No Inferences
. Other than bonds issued to currently refund Qualified Bonds,
to which this Notice expressly applies, no inference should be drawn from this Notice
that bonds issued to refund other types of bonds, such as build America bonds under
§ 54AA, after their statutory deadline for issuance meet the qualifications for such types
of bonds.
SECTION 4. DRAFTING INFORMATION
The principal author of this Notice is Zoran Stojanovic of the Office of Associate
Chief Counsel (Financial Institutions & Products). For further information regarding this
Notice, contact Mr. Stojanovic at (202) 317-6980 (not a toll-free call).