Urgent Message:
You May Need to Act Soon to Fully Use
Midwestern Disaster Area Bonds
by Dean Spina, Attorney
February 2010 -- A tremendous opportunity exists for the area as a result of the opportunity to fund a project at tax-exempt interest rates with Midwestern Disaster Area Bonds.
The interest savings generated by tax-exempt interest is significant. The tax-exempt interest rate will generally be approximately 70% of the taxable interest rate. Thus, a taxable rate of 7% would be 4.9% to 5% tax-exempt. Borrowing $1,000,000 at 5% with a twenty year amortization compared to borrowing at 7% means an interest savings of more than $280,000 over the life of the loan. Two-thirds of the interest savings occurs within the first ten years.
A business need not have been flooded to use tax-exempt Midwestern Disaster Area bonds.
This once-in-a-lifetime opportunity should be strongly considered for projects ranging from warehouses, office buildings, medical clinics, restaurants, and banks, to parking garages, manufacturing facilities and affordable residential rental properties.
Timing is crucial – action must be taken on or before March 1, 2010, in some circumstances.
Expenditures to be financed or refinanced from bond proceeds are tricky. Normally, a reimbursement resolution adopted by the Issuer is required to include the expenditures and interim financing in the bond financing. Once a reimbursement resolution is in place, expenditures paid during the prior 60 days and those paid after the adoption of the resolution can be reimbursed.
IRS Notice 2010-10 deemed a reimbursement resolution to have been adopted for expenditures PAID on or prior to December 31, 2009. A project fully financed and constructed prior to December 31, 2009, can be fully reimbursed/refinanced with bond proceeds if all expenditures were paid on or before that date.
However, a project that has expenditures paid AFTER December 31, 2009, requires a reimbursement resolution adopted by the Issuer to reimburse/refinance the post 2009 expenditures.
The course of action for a project where expenditures will be PAID after 2009 is to have the reimbursement resolution adopted by the Issuer within sixty days of the expenditure. For example if an expenditure was paid January 1, 2010, the reimbursement resolution should be adopted by March 1, 2010. If that is not possible, there may be certain expenditures that cannot be reimbursed with a Midwestern Disaster Area bond.
For more information about Midwestern Disaster Area Bonds, contact Dean Spina at 319-861-8725 or dspina@bradleyriley.com.
NOTICE: Internal Revenue Service Regulations require that certain types of written advice include a disclaimer. To the extent that this article contains tax advice relating to a federal tax issue, unless expressly stated otherwise, the advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer for the purpose of avoiding federal tax penalties, and was not written to support the promotion or marketing of any transaction or matter discussed herein.