Greenspoon Marder Client Alert: A Potential Surprise in the New Tax Law

Jan 11, 2018 Boca Raton, FL

Greenspoon Marder Client Alert: A Potential Surprise in the New Tax Law by: Denise Ganz, Esq. and Skip Miller, Esq.

IS THERE A REISSUANCE WHEN THE INTEREST RATE ON TAX-EXEMPT OBLIGATIONS CHANGES DUE TO THE RECENT REDUCTION IN THE MAXIMUM FEDERAL CORPORATE INCOME TAX RATE?

H.R. 1, which was signed into law on December 22, 2017, modifies the Internal Revenue Code of 1986, as amended (the “Code”). One change is to reduce the maximum federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. Other changes impact certain tax-exempt bonds and loans (“Obligations”). This alert will address one of the potential surprises in H.R. 1 for issuers, conduit borrowers and lenders with respect to Obligations that were privately placed with a bank or other financial institution(s).

Under certain circumstances, a change in the lender’s maximum federal corporate income tax rate (“Corporate Tax Rate”) may result in a change in the interest rate per annum on privately placed Obligations. This change may result in such Obligations being deemed reissued for purposes of the Code. A failure to address a reissuance may jeopardize the tax-exempt status of the applicable Obligations.

The provisions of the pertinent financing documents will determine whether the recent reduction in the Corporate Tax Rate triggers an interest rate change on privately placed Obligations. Generally, a change in yield that is greater than 25 basis points can cause a reissuance of the applicable Obligations pursuant to Section 1001 of the Code if:

the change is not automatic and based on a formula set forth in the financing documents; or
a rate adjustment provision in the financing documents is waived by the lender; or
a different interest rate than the one determined by the express terms of the financing documents is negotiated by the parties.

Corporate income tax rate adjustment provisions can vary from one issue of Obligations to another, and may be automatic, discretionary, formula based or non-formula based, requiring careful review of the applicable financing documents. Issuers, conduit borrowers and lenders should work with counsel to determine if an interest rate adjustment has been, or will be, triggered with respect to privately placed Obligations as a result of the recent reduction in the Corporate Tax Rate and if a reissuance concern exists.

Attorneys in Greenspoon Marder LLP’s Public Finance Department are available to assist issuers, conduit borrowers and lenders in understanding how the provisions of H.R. 1 impact tax-exempt financings. You may contact Denise Ganz, Esq. at 954-527-2410 or [email protected], Skip Miller, Esq. at 561-838-4556 or [email protected]. Ms. Ganz, resident in the Boca Raton office, and Mr. Miller, resident in the West Palm Beach office, are each AV Preeminent rated attorneys by Martindale-Hubbell, partners in Greenspoon Marder and members of The Florida Bar.

About Greenspoon Marder

Greenspoon Marder LLP is a full-service law firm with over 240 attorneys and more than 20 office locations across the United States. With operations from Miami to New York and from Denver to Los Angeles, our firm attracts some of the nation’s top talent in key markets and innovation hubs. Our core practice areas include Real Estate, Litigation, and Transactional Services, complemented by the capabilities of a full-service firm. Greenspoon Marder has upheld a spot on The American Lawyer’s Am Law 200 as one of the top law firms in the U.S. since 2015, and our goal is to provide exceptional client service by developing a thorough understanding of each client’s business needs and objectives in order to provide strategic, cost-effective solutions.

MEDIA CONTACT

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954.333.4308 | [email protected]

This Greenspoon Marder LLP Client Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.

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