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Res No 054-25-16346RESOLUTION NO.054-25-16346 A RESOLUTION OF THE MAYOR AND COMMISSION OF THE CITY OF SOUTH MIAMI,FLORIDA,INDICATING THE CITY’S OFFICIAL INTENT TO ISSUE TAX-EXEMPT BONDS IN AN AMOUNT NOT TO EXCEED $35,000,000 TO FINANCE THE COSTS OF ACQUIRING,CONSTRUCTING, RECONSTRUCTING,IMPROVING AND EQUIPPING VARIOUS CAPITAL IMPROVEMENTS,REAL PROPERTY, AND INFRASTRUCTURE FOR PARKS AND RECREATION, PUBLIC WORKS,AND PUBLIC SAFETY WITHIN THE CITY OF SOUTH MIAMI AND TO USE A PORTION OF THE PROCEEDS OF SUCH BONDS TO REIMBURSE EXPENDITURES PAID OR INCURRED PRIOR TO THE DATE OF ISSUANCE THEREOF;AND PROVIDING FOR IMPLEMENTATION,CORRECTIONS AND AN EFFECTIVE DATE. WHEREAS,the City of South Miami,Florida (the “City”)has determined that acquiring, constructing,reconstructing,improving and equipping various capital improvements,real property,and infrastructure for parks and recreation,public works,and public safety (the “Improvements”)is in the best interest of the City;and WHEREAS,the City intends to issue tax-exempt bonds (the “Bonds”)for the purpose of financing the costs of the Improvements;and WHEREAS,a portion of the costs of the Improvements may be paid before the Bonds are issued in anticipation of the reimbursement of such expenditures from proceeds of the Bonds;and WHEREAS,Section 1.150-2 of the Federal income tax regulations requires the City to officially declare its intent to use proceeds of the Bonds to reimburse expenditures paid prior to issuance thereof as a prerequisite to the proceeds being treated as used for reimbursement purposes; and WHEREAS,the City Commission finds that the adoption of this Resolution is in the best interest and welfare of the residents of the City. NOW,THEREFORE,BE IT RESOLVED BY THE MAYOR AND CITY COMMISSION OF THE CITY OF SOUTH MIAMI,FLORIDA,AS FOLLOWS: Section 1.Recitals.The above-stated recitals are true and correct and are incorporated herein by this reference. Section 2.Expression of Intent.The City Commission intends to issue tax-exempt Bonds in the amount necessary to finance the costs of the Improvements.The maximum principal amount of the Bonds expected to be issued for the Improvement is $35,000,000.This Resolution does Res.No.054-25-16346 not commit the City to issue the Bonds,but is adopted solely for the purposes of complying with the requirements of the Code of Federal Regulations,Title 26,§1.150-2.No bonds are being issued hereby.The issuance of the Bonds shall be subject to subsequent ordinance or resolution of the City Commission. Section 3.Implementation.The City Manager and City Officials are hereby authorized to take any and all actions necessary to implement the purposes of this Resolution. Section 4.Corrections.Conforming language or technical scrivener-type corrections may be made by the City Attorney for any conforming amendments to be incorporated into the final resolution for signature. Section 5.Effective Date.This Resolution shall take effect immediately upon adoption. PASSED AND ADOPTED this 29th day of July,2025. ATTEST: READ AND APPROVED AS TO FORM, LANGUAGE,LEGALITY AND EXECUTION THEREOF WEISS SEROTA HELFMAN COLE &BIERMAN,P.L. CITY ATTORNEY APPROVED: MAYOR COMMISSION VOTE:4-1 Mayor Javier Fernandez:Yea Vice Mayor Brian Corey:Yea Commissioner Steve Calle:Yea Commissioner Danny Rodriguez;Yea Commissioner Lisa Bonich:Nay Page 2 of 2 Subject: Suggested Action: Meeting Date:July 29, 2025 Submitted By:Nkenga Payne Submitted Department:Finance Department Item Type:Resolution Agenda Section:CONSENT AGENDA A RESOLUTION OF THE MAYOR AND COMMISSION OF THE CITY OF SOUTH MIAMI, FLORIDA, INDICATING THE CITY’S OFFICIAL INTENT TO ISSUE TAX-EXEMPT BONDS IN AN AMOUNT NOT TO EXCEED $10,000,000 TO FINANCE THE COSTS OF ACQUIRING, CONSTRUCTING, RECONSTRUCTING, IMPROVING AND EQUIPPING VARIOUS CAPITAL IMPROVEMENTS, REAL PROPERTY, AND INFRASTRUCTURE FOR PARKS AND RECREATION, PUBLIC WORKS, AND PUBLIC SAFETY WITHIN THE CITY OF SOUTH MIAMI AND TO USE A PORTION OF THE PROCEEDS OF SUCH BONDS TO REIMBURSE EXPENDITURES PAID OR INCURRED PRIOR TO THE DATE OF ISSUANCE THEREOF; AND PROVIDING FOR IMPLEMENTATION, CORRECTIONS AND AN EFFECTIVE DATE. 3/5 (CITY MANAGER-FINANCE DEPT.) Agenda Item No. 1. CITY COMMISSION Agenda Item Report Attachments: CM_Memo_Reimbursement_Resolution_2025__1_.docx 4BJ8978-Resolution_Declaring_Intent_to_Issue_Tax-Exempt_Bonds__10m_2025_CAv2.docx CFR-2020-title26-vol3-sec1-150-2.pdf 1 CITY OF SOUTH MIAMI OFFICE OF THE CITY MANAGER INTER-OFFICE MEMORANDUM TO: The Honorable Mayor, Vice Mayor, and Members of the City Commission FROM: Genaro “Chip” Iglesias, City Manager DATE: July 29, 2025 Subject: Possible Future Issuance of Tax-Exempt Bonds and Reimbursement of Prior Expenditures RECOMMENDATION: Adoption of a reimbursement resolution that would allow the City of South Miami to preserve the ability to use future tax-exempt bond proceeds to reimburse itself for eligible costs associated with capital projects. These expenses may be incurred in advance of any future financing decisions. This resolution does not state or imply that the City will issue debt. It simply ensures that, if the Commission decides to issue tax-exempt bonds, the City would be able to include prior eligible expenditures in that financing. Without this resolution, those earlier costs could not be reimbursed using bond proceeds. BACKGROUND: The City is moving forward with several capital improvement initiative s designed to enhance public spaces and community infrastructure. Some planning, design, and pre-acquisition work for these projects may begin before any financing decision is made. Under IRS regulations (Section 1.150-2), the City must adopt a reimbursement resolution before incurring such costs if it wishes to preserve the right to reimburse them later using tax-exempt bond proceeds. PURPOSE: This resolution is a procedural safeguard—not a financial decision. It protects the City’s flexibility without committing it to any future action. Specifically:  Maintains IRS Eligibility: The IRS requires this resolution to be in place before funds are spent in order for those costs to be eligible for reimbursement with tax-exempt bond proceeds later. 2 South^'Miami THE CITY OF PLEASANT LIVING CITY OF SOUTH MIAMI OFFICE OF THE CITY MANAGER INTER-OFFICE MEMORANDUM  Reimbursement Timeframe: Once adopted, the resolution allows the City to reimburse itself for qualified costs paid up to 18 months prior to the bond issuance, and no later than three years from the date the original expense is incurred. These deadlines are defined by federal regulation and are strictly enforced.  Protects Project Timelines: Projects and property acquisitions, like the Manor Lane parcel, may require action ahead of formal bond issuance. This resolution ensures the City isn’t locked out of using bond proceeds to cover those earlier costs.  No Commitment to Borrowing: Again, this resolution does not authorize or require the City to issue bonds. It simply preserves the option to do so in the future while retaining the ability to include already-incurred project costs.  Supports Financial Best Practices: This is a common, prudent planning step used by many cities and counties when preparing for possible long-term financing. If approved, this resolution will preserve the City’s flexibility to finance any design or preliminary project work completed, should the Commission later determine that issuing debt is in the City’s best interest. At that time, a separate ordinance would be required and presented for formal approval of any financing. ATTACHMENTS: Proposed Resolution CFR-2020-title26-vol3-sec1-150-2 3 South^'Miami THE CITY OF PLEASANT LIVING 165 Internal Revenue Service, Treasury §1.150–2 (4) Advance refunding issue. Advance refunding issue means a refunding issue that is not a current refunding issue. (5) Prior issue. Prior issue means an issue of obligations all or a portion of the principal, interest, or call premium on which is paid or provided for with proceeds of a refunding issue. A prior issue may be issued before, at the same time as, or after a refunding issue. If the refunded and unrefunded portions of a prior issue are treated as separate issues under §1.148–9(i), for the pur- poses for which that section applies, except to the extent that the context clearly requires otherwise, references to a prior issue refer only to the re- funded portion of that prior issue. (e) Controlled group means a group of entities controlled directly or indi- rectly by the same entity or group of entities within the meaning of this paragraph (e). (1) Direct control. The determination of direct control is made on the basis of all the relevant facts and cir- cumstances. One entity or group of en- tities (the controlling entity) generally controls another entity or group of en- tities (the controlled entity) for purposes of this paragraph if the controlling en- tity possesses either of the following rights or powers and the rights or pow- ers are discretionary and non-ministe- rial— (i) The right or power both to ap- prove and to remove without cause a controlling portion of the governing body of the controlled entity; or (ii) The right or power to require the use of funds or assets of the controlled entity for any purpose of the control- ling entity. (2) Indirect control. If a controlling en- tity controls a controlled entity under the test in paragraph (e)(1) of this sec- tion, then the controlling entity also controls all entities controlled, di- rectly or indirectly, by the controlled entity or entities. (3) Exception for general purpose gov- ernmental entities. An entity is not a controlled entity under this paragraph (e) if the entity possesses substantial taxing, eminent domain, and police powers. For example, a city possessing substantial amounts of each of these sovereign powers is not a controlled en- tity of the state. (f) Definition and treatment of grants— (1) Definition. Grant means a transfer for a governmental purpose of money or property to a transferee that is not a related party to or an agent of the transferor. The transfer must not im- pose any obligation or condition to di- rectly or indirectly repay any amount to the transferor or a related party. Obligations or conditions intended solely to assure expenditure of the transferred moneys in accordance with the governmental purpose of the trans- fer do not prevent a transfer from being a grant. (2) Treatment. Except as otherwise provided (for example, §1.148–6(d)(4), which treats proceeds used for grants as spent for arbitrage purposes when the grant is made), the character and nature of a grantee’s use of proceeds are taken into account in determining which rules are applicable to the bond issue and whether the applicable re- quirements for the bond issue are met. For example, a grantee’s use of pro- ceeds generally determines whether the proceeds are used for capital projects or working capital expenditures under section 148 and whether the qualified purposes for the specific type of bond issue are met. [T.D. 8476, 58 FR 33549, June 18, 1993; 58 FR 44453, Aug. 23, 1993, as amended by T.D. 8538, 59 FR 24046, May 10, 1994; T.D. 8712, 62 FR 2304, Jan. 16, 1997; T.D. 8718, 62 FR 25513, May 9, 1997; T.D. 9234, 70 FR 75036, Dec. 19, 2005; T.D. 9533, 76 FR 39280, July 6, 2011; T.D. 9637, 78 FR 54759, Sept. 6, 2013; T.D. 9777, 81 FR 46598, July 18, 2016] §1.150–2 Proceeds of bonds used for reimbursement. (a) Table of contents. This table of contents contains a listing of the head- ings contained in §1.150–2. (a) Table of contents. (b) Scope. (c) Definitions. (d) General operating rules for reimburse- ment expenditures. (1) Official intent. (2) Reimbursement period. (3) Nature of expenditure. (e) Official intent rules. (1) Form of official intent. (2) Project description in official intent. (3) Reasonableness of official intent. (f) Exceptions to general operating rules. (1) De minimis exception. (2) Preliminary expenditures exception. VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00175 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 610 166 26 CFR Ch. I (4–1–20 Edition) §1.150–2 (g) Special rules on refundings. (1) In general—once financed, not reim- bursed. (2) Certain proceeds of prior issue used for reimbursement treated as unspent. (h) Anti-abuse rules. (1) General rule. (2) One-year step transaction rule. (i) Authority of the Commissioner to pre- scribe rules. (j) Effective date. (1) In general. (2) Transitional rules. (3) Nature of expenditure. (b) Scope. This section applies to re- imbursement bonds (as defined in para- graph (c) of this section) for all pur- poses of sections 103 and 141 to 150. (c) Definitions. The following defini- tions apply: Issuer means— (1) For any private activity bond (ex- cluding a qualified 501(c)(3) bond, quali- fied student loan bond, qualified mort- gage bond, or qualified veterans’ mort- gage bond), the entity that actually issues the reimbursement bond; and (2) For any bond not described in paragraph (1) of this definition, either the entity that actually issues the re- imbursement bond or, to the extent that the reimbursement bond proceeds are to be loaned to a conduit borrower, that conduit borrower. Official intent means an issuer’s dec- laration of intent to reimburse an original expenditure with proceeds of an obligation. Original expenditure means an expend- iture for a governmental purpose that is originally paid from a source other than a reimbursement bond. Placed in service means, with respect to a facility, the date on which, based on all the facts and circumstances— (1) The facility has reached a degree of completion which would permit its operation at substantially its design level; and (2) The facility is, in fact, in oper- ation at such level. Reimbursement allocation means an al- location in writing that evidences an issuer’s use of proceeds of a reimburse- ment bond to reimburse an original ex- penditure. An allocation made within 30 days after the issue date of a reim- bursement bond may be treated as made on the issue date. Reimbursement bond means the por- tion of an issue allocated to reimburse an original expenditure that was paid before the issue date. (d) General operating rules for reim- bursement expenditures. Except as other- wise provided, a reimbursement alloca- tion is treated as an expenditure of proceeds of a reimbursement bond for the governmental purpose of the origi- nal expenditure on the date of the re- imbursement allocation only if: (1) Official intent. Not later than 60 days after payment of the original ex- penditure, the issuer adopts an official intent for the original expenditure that satisfies paragraph (e) of this section. (2) Reimbursement period—(i) In gen- eral. The reimbursement allocation is made not later than 18 months after the later of— (A) The date the original expenditure is paid; or (B) The date the project is placed in service or abandoned, but in no event more than 3 years after the original ex- penditure is paid. (ii) Special rule for small issuers. In ap- plying paragraph (d)(2)(i) of this sec- tion to an issue that satisfies section 148(f)(4)(D)(i) (I) through (IV), the ‘‘18 month’’ limitation is changed to ‘‘3 years’’ and the ‘‘3-year’’ maximum re- imbursement period is disregarded. (iii) Special rule for long-term construc- tion projects. In applying paragraph (d)(2)(i) to a construction project for which both the issuer and a licensed ar- chitect or engineer certify that at least 5 years is necessary to complete con- struction of the project, the maximum reimbursement period is changed from ‘‘3 years’’ to ‘‘5 years.’’ (3) Nature of expenditure. The original expenditure is a capital expenditure, a cost of issuance for a bond, an expendi- ture described in §1.148–6(d)(3)(ii)(B) (relating to certain extraordinary working capital items), a grant (as de- fined in §1.150–1(f)), a qualified student loan, a qualified mortgage loan, or a qualified veterans’ mortgage loan. (e) Official intent rules. An official in- tent satisfies this paragraph (e) if: (1) Form of official intent. The official intent is made in any reasonable form, including issuer resolution, action by an appropriate representative of the VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00176 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 711 167 Internal Revenue Service, Treasury §1.150–2 issuer (e.g., a person authorized or des- ignated to declare official intent on be- half of the issuer), or specific legisla- tive authorization for the issuance of obligations for a particular project. (2) Project description in official in- tent—(i) In general. The official intent generally describes the project for which the original expenditure is paid and states the maximum principal amount of obligations expected to be issued for the project. A project in- cludes any property, project, or pro- gram (e.g., highway capital improvement program, hospital equipment acquisition, or school building renovation). (ii) Fund accounting. A project de- scription is sufficient if it identifies, by name and functional purpose, the fund or account from which the original ex- penditure is paid (e.g., parks and recre- ation fund—recreational facility capital improvement program). (iii) Reasonable deviations in project description. Deviations between a project described in an official intent and the actual project financed with reimbursement bonds do not invalidate the official intent to the extent that the actual project is reasonably related in function to the described project. For example, hospital equipment is a reasonable deviation from hospital building improvements. In contrast, a city office building rehabilitation is not a reasonable deviation from highway im- provements. (3) Reasonableness of official intent. On the date of the declaration, the issuer must have a reasonable expectation (as defined in §1.148–1(b)) that it will reim- burse the original expenditure with proceeds of an obligation. Official in- tents declared as a matter of course or in amounts substantially in excess of the amounts expected to be necessary for the project (e.g., blanket declara- tions) are not reasonable. Similarly, a pattern of failure to reimburse actual original expenditures covered by offi- cial intents (other than in extraor- dinary circumstances) is evidence of unreasonableness. An official intent declared pursuant to a specific legisla- tive authorization is rebuttably pre- sumed to satisfy this paragraph (e)(3). (f) Exceptions to general operating rules—(1) De minimis exception. Para- graphs (d)(1) and (d)(2) of this section do not apply to costs of issuance of any bond or to an amount not in excess of the lesser of $100,000 or 5 percent of the proceeds of the issue. (2) Preliminary expenditures exception. Paragraphs (d)(1) and (d)(2) of this sec- tion do not apply to any preliminary expenditures, up to an amount not in excess of 20 percent of the aggregate issue price of the issue or issues that fi- nance or are reasonably expected by the issuer to finance the project for which the preliminary expenditures were incurred. Preliminary expendi- tures include architectural, engineer- ing, surveying, soil testing, reimburse- ment bond issuance, and similar costs that are incurred prior to commence- ment of acquisition, construction, or rehabilitation of a project, other than land acquisition, site preparation, and similar costs incident to commence- ment of construction. (g) Special rules on refundings—(1) In general—once financed, not reimbursed. Except as provided in paragraph (g)(2) of this section, paragraph (d) of this section does not apply to an allocation to pay principal or interest on an obli- gation or to reimburse an original ex- penditure paid by another obligation. Instead, such an allocation is analyzed under rules on refunding issues. See §1.148–9. (2) Certain proceeds of prior issue used for reimbursement treated as unspent. In the case of a refunding issue (or series of refunding issues), proceeds of a prior issue purportedly used to reimburse original expenditures are treated as unspent proceeds of the prior issue un- less the purported reimbursement was a valid expenditure under applicable law on reimbursement expenditures on the issue date of the prior issue. (h) Anti-abuse rules—(1) General rule. A reimbursement allocation is not an expenditure of proceeds of an issue under this section if the allocation em- ploys an abusive arbitrage device under §1.148–10 to avoid the arbitrage restric- tions or to avoid the restrictions under sections 142 through 147. (2) One-year step transaction rule—(i) Creation of replacement proceeds. A pur- ported reimbursement allocation is in- valid and thus is not an expenditure of proceeds of an issue if, within 1 year VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00177 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 812 168 26 CFR Ch. I (4–1–20 Edition) §1.150–4 after the allocation, funds cor- responding to the proceeds of a reim- bursement bond for which a reimburse- ment allocation was made are used in a manner that results in the creation of replacement proceeds (as defined in §1.148–1) of that issue or another issue. The preceding sentence does not apply to amounts deposited in a bona fide debt service fund (as defined in §1.148– 1). (ii) Example. The provisions of para- graph (h)(2)(i) of this section are illus- trated by the following example. Example. On January 1, 1994, County A issues an issue of 7 percent tax-exempt bonds (the 1994 issue) and makes a purported reim- bursement allocation to reimburse an origi- nal expenditure for specified capital im- provements. A immediately deposits funds corresponding to the proceeds subject to the reimbursement allocation in an escrow fund to provide for payment of principal and in- terest on its outstanding 1991 issue of 9 per- cent tax-exempt bonds (the prior issue). The use of amounts corresponding to the pro- ceeds of the reimbursement bonds to create a sinking fund for another issue within 1 year after the purported reimbursement alloca- tion invalidates the reimbursement alloca- tion. The proceeds retain their character as unspent proceeds of the 7 percent issue upon deposit in the escrow fund. Accordingly, the proceeds are subject to the 7 percent yield restriction of the 1994 issue instead of the 9 percent yield restriction of the prior issue. (i) Authority of the Commissioner to prescribe rules. The Commissioner may by revenue ruling or revenue procedure (see §601.601(d)(2)(ii)(b) of this chapter) prescribe rules for the expenditure of proceeds of reimbursement bonds in circumstances that do not otherwise satisfy this section. (j) Effective date—(1) In general. Ex- cept as otherwise provided, the provi- sions of this section apply to all alloca- tions of proceeds of reimbursement bonds issued after June 30, 1993. (2) Transitional rules—(i) Official in- tent. An official intent is treated as satisfying the official intent require- ment of paragraph (d)(1) of this section if it— (A) Satisfied the applicable provi- sions of §1.103–8(a)(5) as in effect prior to July 1, 1993, (as contained in 26 CFR part 1 revised as of April 1, 1993) and was made prior to that date, or (B) Satisfied the applicable provi- sions of §1.103–18 as in effect between January 27, 1992, and June 30, 1993, (as contained in 26 CFR part 1 revised as of April 1, 1993) and was made during that period. (ii) Certain expenditures of private ac- tivity bonds. For any expenditure that was originally paid prior to August 15, 1993, and that would have qualified for expenditure by reimbursement from the proceeds of a private activity bond under T.D. 7199, section 1.103–8(a)(5), 1972–2 C.B. 45 (see §601.601(d)(2)(ii)(b)) of this chapter, the requirements of that section may be applied in lieu of this section. (3) Nature of expenditure. Paragraph (d)(3) of this section applies to bonds that are sold on or after October 17, 2016. [T.D. 8476, 58 FR 33551, June 18, 1993; 58 FR 44453, Aug. 23, 1993; T.D. 9777, 81 FR 46598, July 18, 2016] §1.150–4 Change in use of facilities fi- nanced with tax-exempt private ac- tivity bonds. (a) Scope. This section applies for purposes of the rules for change of use of facilities financed with private ac- tivity bonds under sections 150(b)(3) (relating to qualified 501(c)(3) bonds), 150(b)(4) (relating to certain exempt fa- cility bonds and small issue bonds), 150(b)(5) (relating to facilities required to be owned by governmental units or 501(c)(3) organizations), and 150(c). (b) Effect of remedial actions—(1) In general. Except as provided in this sec- tion, the change of use provisions of sections 150(b) (3) through (5), and 150(c) apply even if the issuer takes a remedial action described in §§1.142–2, 1.144–2, or 1.145–2. (2) Exceptions—(i) Redemption. If non- qualified bonds are redeemed within 90 days of a deliberate action under §1.145–2(a) or within 90 days of the date on which a failure to properly use pro- ceeds occurs under §1.142–2 or §1.144–2, sections 150(b) (3) through (5) do not apply during the period between that date and the date on which the non- qualified bonds are redeemed. (ii) Alternative qualifying use of facil- ity. If a bond-financed facility is used for an alternative qualifying use under §§1.145–2 and 1.141–12(f), sections 150(b) (3) and (5) do not apply because of the alternative use. VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00178 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 913 165 Internal Revenue Service, Treasury §1.150–2 (4) Advance refunding issue. Advance refunding issue means a refunding issue that is not a current refunding issue. (5) Prior issue. Prior issue means an issue of obligations all or a portion of the principal, interest, or call premium on which is paid or provided for with proceeds of a refunding issue. A prior issue may be issued before, at the same time as, or after a refunding issue. If the refunded and unrefunded portions of a prior issue are treated as separate issues under §1.148–9(i), for the pur- poses for which that section applies, except to the extent that the context clearly requires otherwise, references to a prior issue refer only to the re- funded portion of that prior issue. (e) Controlled group means a group of entities controlled directly or indi- rectly by the same entity or group of entities within the meaning of this paragraph (e). (1) Direct control. The determination of direct control is made on the basis of all the relevant facts and cir- cumstances. One entity or group of en- tities (the controlling entity) generally controls another entity or group of en- tities (the controlled entity) for purposes of this paragraph if the controlling en- tity possesses either of the following rights or powers and the rights or pow- ers are discretionary and non-ministe- rial— (i) The right or power both to ap- prove and to remove without cause a controlling portion of the governing body of the controlled entity; or (ii) The right or power to require the use of funds or assets of the controlled entity for any purpose of the control- ling entity. (2) Indirect control. If a controlling en- tity controls a controlled entity under the test in paragraph (e)(1) of this sec- tion, then the controlling entity also controls all entities controlled, di- rectly or indirectly, by the controlled entity or entities. (3) Exception for general purpose gov- ernmental entities. An entity is not a controlled entity under this paragraph (e) if the entity possesses substantial taxing, eminent domain, and police powers. For example, a city possessing substantial amounts of each of these sovereign powers is not a controlled en- tity of the state. (f) Definition and treatment of grants— (1) Definition. Grant means a transfer for a governmental purpose of money or property to a transferee that is not a related party to or an agent of the transferor. The transfer must not im- pose any obligation or condition to di- rectly or indirectly repay any amount to the transferor or a related party. Obligations or conditions intended solely to assure expenditure of the transferred moneys in accordance with the governmental purpose of the trans- fer do not prevent a transfer from being a grant. (2) Treatment. Except as otherwise provided (for example, §1.148–6(d)(4), which treats proceeds used for grants as spent for arbitrage purposes when the grant is made), the character and nature of a grantee’s use of proceeds are taken into account in determining which rules are applicable to the bond issue and whether the applicable re- quirements for the bond issue are met. For example, a grantee’s use of pro- ceeds generally determines whether the proceeds are used for capital projects or working capital expenditures under section 148 and whether the qualified purposes for the specific type of bond issue are met. [T.D. 8476, 58 FR 33549, June 18, 1993; 58 FR 44453, Aug. 23, 1993, as amended by T.D. 8538, 59 FR 24046, May 10, 1994; T.D. 8712, 62 FR 2304, Jan. 16, 1997; T.D. 8718, 62 FR 25513, May 9, 1997; T.D. 9234, 70 FR 75036, Dec. 19, 2005; T.D. 9533, 76 FR 39280, July 6, 2011; T.D. 9637, 78 FR 54759, Sept. 6, 2013; T.D. 9777, 81 FR 46598, July 18, 2016] §1.150–2 Proceeds of bonds used for reimbursement. (a) Table of contents. This table of contents contains a listing of the head- ings contained in §1.150–2. (a) Table of contents. (b) Scope. (c) Definitions. (d) General operating rules for reimburse- ment expenditures. (1) Official intent. (2) Reimbursement period. (3) Nature of expenditure. (e) Official intent rules. (1) Form of official intent. (2) Project description in official intent. (3) Reasonableness of official intent. (f) Exceptions to general operating rules. (1) De minimis exception. (2) Preliminary expenditures exception. VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00175 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 610 166 26 CFR Ch. I (4–1–20 Edition) §1.150–2 (g) Special rules on refundings. (1) In general—once financed, not reim- bursed. (2) Certain proceeds of prior issue used for reimbursement treated as unspent. (h) Anti-abuse rules. (1) General rule. (2) One-year step transaction rule. (i) Authority of the Commissioner to pre- scribe rules. (j) Effective date. (1) In general. (2) Transitional rules. (3) Nature of expenditure. (b) Scope. This section applies to re- imbursement bonds (as defined in para- graph (c) of this section) for all pur- poses of sections 103 and 141 to 150. (c) Definitions. The following defini- tions apply: Issuer means— (1) For any private activity bond (ex- cluding a qualified 501(c)(3) bond, quali- fied student loan bond, qualified mort- gage bond, or qualified veterans’ mort- gage bond), the entity that actually issues the reimbursement bond; and (2) For any bond not described in paragraph (1) of this definition, either the entity that actually issues the re- imbursement bond or, to the extent that the reimbursement bond proceeds are to be loaned to a conduit borrower, that conduit borrower. Official intent means an issuer’s dec- laration of intent to reimburse an original expenditure with proceeds of an obligation. Original expenditure means an expend- iture for a governmental purpose that is originally paid from a source other than a reimbursement bond. Placed in service means, with respect to a facility, the date on which, based on all the facts and circumstances— (1) The facility has reached a degree of completion which would permit its operation at substantially its design level; and (2) The facility is, in fact, in oper- ation at such level. Reimbursement allocation means an al- location in writing that evidences an issuer’s use of proceeds of a reimburse- ment bond to reimburse an original ex- penditure. An allocation made within 30 days after the issue date of a reim- bursement bond may be treated as made on the issue date. Reimbursement bond means the por- tion of an issue allocated to reimburse an original expenditure that was paid before the issue date. (d) General operating rules for reim- bursement expenditures. Except as other- wise provided, a reimbursement alloca- tion is treated as an expenditure of proceeds of a reimbursement bond for the governmental purpose of the origi- nal expenditure on the date of the re- imbursement allocation only if: (1) Official intent. Not later than 60 days after payment of the original ex- penditure, the issuer adopts an official intent for the original expenditure that satisfies paragraph (e) of this section. (2) Reimbursement period—(i) In gen- eral. The reimbursement allocation is made not later than 18 months after the later of— (A) The date the original expenditure is paid; or (B) The date the project is placed in service or abandoned, but in no event more than 3 years after the original ex- penditure is paid. (ii) Special rule for small issuers. In ap- plying paragraph (d)(2)(i) of this sec- tion to an issue that satisfies section 148(f)(4)(D)(i) (I) through (IV), the ‘‘18 month’’ limitation is changed to ‘‘3 years’’ and the ‘‘3-year’’ maximum re- imbursement period is disregarded. (iii) Special rule for long-term construc- tion projects. In applying paragraph (d)(2)(i) to a construction project for which both the issuer and a licensed ar- chitect or engineer certify that at least 5 years is necessary to complete con- struction of the project, the maximum reimbursement period is changed from ‘‘3 years’’ to ‘‘5 years.’’ (3) Nature of expenditure. The original expenditure is a capital expenditure, a cost of issuance for a bond, an expendi- ture described in §1.148–6(d)(3)(ii)(B) (relating to certain extraordinary working capital items), a grant (as de- fined in §1.150–1(f)), a qualified student loan, a qualified mortgage loan, or a qualified veterans’ mortgage loan. (e) Official intent rules. An official in- tent satisfies this paragraph (e) if: (1) Form of official intent. The official intent is made in any reasonable form, including issuer resolution, action by an appropriate representative of the VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00176 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 711 167 Internal Revenue Service, Treasury §1.150–2 issuer (e.g., a person authorized or des- ignated to declare official intent on be- half of the issuer), or specific legisla- tive authorization for the issuance of obligations for a particular project. (2) Project description in official in- tent—(i) In general. The official intent generally describes the project for which the original expenditure is paid and states the maximum principal amount of obligations expected to be issued for the project. A project in- cludes any property, project, or pro- gram (e.g., highway capital improvement program, hospital equipment acquisition, or school building renovation). (ii) Fund accounting. A project de- scription is sufficient if it identifies, by name and functional purpose, the fund or account from which the original ex- penditure is paid (e.g., parks and recre- ation fund—recreational facility capital improvement program). (iii) Reasonable deviations in project description. Deviations between a project described in an official intent and the actual project financed with reimbursement bonds do not invalidate the official intent to the extent that the actual project is reasonably related in function to the described project. For example, hospital equipment is a reasonable deviation from hospital building improvements. In contrast, a city office building rehabilitation is not a reasonable deviation from highway im- provements. (3) Reasonableness of official intent. On the date of the declaration, the issuer must have a reasonable expectation (as defined in §1.148–1(b)) that it will reim- burse the original expenditure with proceeds of an obligation. Official in- tents declared as a matter of course or in amounts substantially in excess of the amounts expected to be necessary for the project (e.g., blanket declara- tions) are not reasonable. Similarly, a pattern of failure to reimburse actual original expenditures covered by offi- cial intents (other than in extraor- dinary circumstances) is evidence of unreasonableness. An official intent declared pursuant to a specific legisla- tive authorization is rebuttably pre- sumed to satisfy this paragraph (e)(3). (f) Exceptions to general operating rules—(1) De minimis exception. Para- graphs (d)(1) and (d)(2) of this section do not apply to costs of issuance of any bond or to an amount not in excess of the lesser of $100,000 or 5 percent of the proceeds of the issue. (2) Preliminary expenditures exception. Paragraphs (d)(1) and (d)(2) of this sec- tion do not apply to any preliminary expenditures, up to an amount not in excess of 20 percent of the aggregate issue price of the issue or issues that fi- nance or are reasonably expected by the issuer to finance the project for which the preliminary expenditures were incurred. Preliminary expendi- tures include architectural, engineer- ing, surveying, soil testing, reimburse- ment bond issuance, and similar costs that are incurred prior to commence- ment of acquisition, construction, or rehabilitation of a project, other than land acquisition, site preparation, and similar costs incident to commence- ment of construction. (g) Special rules on refundings—(1) In general—once financed, not reimbursed. Except as provided in paragraph (g)(2) of this section, paragraph (d) of this section does not apply to an allocation to pay principal or interest on an obli- gation or to reimburse an original ex- penditure paid by another obligation. Instead, such an allocation is analyzed under rules on refunding issues. See §1.148–9. (2) Certain proceeds of prior issue used for reimbursement treated as unspent. In the case of a refunding issue (or series of refunding issues), proceeds of a prior issue purportedly used to reimburse original expenditures are treated as unspent proceeds of the prior issue un- less the purported reimbursement was a valid expenditure under applicable law on reimbursement expenditures on the issue date of the prior issue. (h) Anti-abuse rules—(1) General rule. A reimbursement allocation is not an expenditure of proceeds of an issue under this section if the allocation em- ploys an abusive arbitrage device under §1.148–10 to avoid the arbitrage restric- tions or to avoid the restrictions under sections 142 through 147. (2) One-year step transaction rule—(i) Creation of replacement proceeds. A pur- ported reimbursement allocation is in- valid and thus is not an expenditure of proceeds of an issue if, within 1 year VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00177 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 812 168 26 CFR Ch. I (4–1–20 Edition) §1.150–4 after the allocation, funds cor- responding to the proceeds of a reim- bursement bond for which a reimburse- ment allocation was made are used in a manner that results in the creation of replacement proceeds (as defined in §1.148–1) of that issue or another issue. The preceding sentence does not apply to amounts deposited in a bona fide debt service fund (as defined in §1.148– 1). (ii) Example. The provisions of para- graph (h)(2)(i) of this section are illus- trated by the following example. Example. On January 1, 1994, County A issues an issue of 7 percent tax-exempt bonds (the 1994 issue) and makes a purported reim- bursement allocation to reimburse an origi- nal expenditure for specified capital im- provements. A immediately deposits funds corresponding to the proceeds subject to the reimbursement allocation in an escrow fund to provide for payment of principal and in- terest on its outstanding 1991 issue of 9 per- cent tax-exempt bonds (the prior issue). The use of amounts corresponding to the pro- ceeds of the reimbursement bonds to create a sinking fund for another issue within 1 year after the purported reimbursement alloca- tion invalidates the reimbursement alloca- tion. The proceeds retain their character as unspent proceeds of the 7 percent issue upon deposit in the escrow fund. Accordingly, the proceeds are subject to the 7 percent yield restriction of the 1994 issue instead of the 9 percent yield restriction of the prior issue. (i) Authority of the Commissioner to prescribe rules. The Commissioner may by revenue ruling or revenue procedure (see §601.601(d)(2)(ii)(b) of this chapter) prescribe rules for the expenditure of proceeds of reimbursement bonds in circumstances that do not otherwise satisfy this section. (j) Effective date—(1) In general. Ex- cept as otherwise provided, the provi- sions of this section apply to all alloca- tions of proceeds of reimbursement bonds issued after June 30, 1993. (2) Transitional rules—(i) Official in- tent. An official intent is treated as satisfying the official intent require- ment of paragraph (d)(1) of this section if it— (A) Satisfied the applicable provi- sions of §1.103–8(a)(5) as in effect prior to July 1, 1993, (as contained in 26 CFR part 1 revised as of April 1, 1993) and was made prior to that date, or (B) Satisfied the applicable provi- sions of §1.103–18 as in effect between January 27, 1992, and June 30, 1993, (as contained in 26 CFR part 1 revised as of April 1, 1993) and was made during that period. (ii) Certain expenditures of private ac- tivity bonds. For any expenditure that was originally paid prior to August 15, 1993, and that would have qualified for expenditure by reimbursement from the proceeds of a private activity bond under T.D. 7199, section 1.103–8(a)(5), 1972–2 C.B. 45 (see §601.601(d)(2)(ii)(b)) of this chapter, the requirements of that section may be applied in lieu of this section. (3) Nature of expenditure. Paragraph (d)(3) of this section applies to bonds that are sold on or after October 17, 2016. [T.D. 8476, 58 FR 33551, June 18, 1993; 58 FR 44453, Aug. 23, 1993; T.D. 9777, 81 FR 46598, July 18, 2016] §1.150–4 Change in use of facilities fi- nanced with tax-exempt private ac- tivity bonds. (a) Scope. This section applies for purposes of the rules for change of use of facilities financed with private ac- tivity bonds under sections 150(b)(3) (relating to qualified 501(c)(3) bonds), 150(b)(4) (relating to certain exempt fa- cility bonds and small issue bonds), 150(b)(5) (relating to facilities required to be owned by governmental units or 501(c)(3) organizations), and 150(c). (b) Effect of remedial actions—(1) In general. Except as provided in this sec- tion, the change of use provisions of sections 150(b) (3) through (5), and 150(c) apply even if the issuer takes a remedial action described in §§1.142–2, 1.144–2, or 1.145–2. (2) Exceptions—(i) Redemption. If non- qualified bonds are redeemed within 90 days of a deliberate action under §1.145–2(a) or within 90 days of the date on which a failure to properly use pro- ceeds occurs under §1.142–2 or §1.144–2, sections 150(b) (3) through (5) do not apply during the period between that date and the date on which the non- qualified bonds are redeemed. (ii) Alternative qualifying use of facil- ity. If a bond-financed facility is used for an alternative qualifying use under §§1.145–2 and 1.141–12(f), sections 150(b) (3) and (5) do not apply because of the alternative use. VerDate Sep<11>2014 13:10 Jul 20, 2020 Jkt 250091 PO 00000 Frm 00178 Fmt 8010 Sfmt 8010 Y:\SGML\250091.XXX 250091 913