Res 1996-052 - Laserfiche WebLink

Home Browse Search

4:JfJG TAX MATI'ERS - Tax Exemption. . . The Bonds, in the opinion of Bond Counsel, will not be "private activity bonds" within the meaning of Section l4l(a) of the Internal Revenue Code of 1986 (the "Code"). AccordiDgly, interest on the Bonds will DDt be treated as a preference item under the alternative minimum tax provisions of the Code as applicable to individuals and corporations, except tlurt interest on the Bonds will be included in the "adjusted current earnings" of certain corporations for purposes of computing the alternative minimum tax and the environmental tax imposed on such corporations. Furth.cnnore, in the opinion of Bond Counsel. interest on the Bonds will be excludable from gross income under Section 103(a) of the Code. The statutes, applicable regulations, published rulings of the Internal Revenue Service and court decisions on which such opinions are based are subjed to change. In considering the matters of whether the Bonds are "arbitrage bonds" under Section 148 of the Code, Bond Counsel has . examined and relied upon certain certificates and other showings regarding the use and investment of the proceeds of the Bonds, certain representations made by the initial purchasers of the Bond with respect to the initial offering prices of the Bonds to the public. Additionally, these opinions are dependent in part on future compl.ianœ by the City with certain post-issuance - requirements of the Code, including the arbitrage rebate requirements. Failure to comply with such requirenu:nts may cause the interest on the Bonds to be includable in gross income retroactive to the date of issue. In this connection, various covenants and representations have been made by the City in the documents authorizing the issuance of the Bonds tlurt are designed to provide assurance of compl.ianœ with such requirenu:nts, and for the purposes of these opinions, Bond Counsel has as.'>I1med compliance by the City therewith. In addition, such opinions are based upon representations and certifications of the City pertaining to the use, expenditure, and investment of the proceeds of tile Bonds. These opinions are dependent in part on future compliance by the City with certain post-issuance requirements of the Code, including the arbitrage rebate requirements. Failure to comply with such requirenu:nts may cause the interest on the Bonds to be includable in gross income retroactive to the date of issue. In this COIJDeCtion, various covenants and representations will be made by the City in the documents authorizing the issuance of the Bonds that are designed to provide assurance of compliance with such requirements, and for purposes of its opinions, Bond Counsel will assume compliance by the City therewith. In addition such opinions are based upon representations and certifications of the City pertaining to the use, expenditure and investment of the proceeds of the Bonds. ~ Except as described above, Bond Counsel expresses no opinion with respect to any other federal, state or local tax consequences under present law or proposed legislation resulting trom the receipt or accrual of interest on, or the acquisition, ownership or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of ta.x-exempt obligations such as the Bonds may result in collateral federal ta.x consequence to, among others, financial institutions, certain insurance companies, certain foreign corporations doing business in the United SUites, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, stockholders of corporations receiving or accruing tax-exempt interest and S corporations with subchapter C earnings and profits. Prospective purchase:r3 should consult their own tax advisors as to the applicability to these and other such collateral consequences to their particular circumstances. The form. of Bond Counsel's opinion is set forth in Aooendix B hereto. i Qualified Tax-Exempt Obligations for' Financial Institutions. . . Section 265 of the Code provides, in geneml, tlurt interest . j expense to acquire or carry tax-exempt obligations is oot deductible fi"om. the gross ÌD/.:.ome of the owner of such obligations. In . - addition, Section 265 of the Code completely disallows any deduction for interest expense which is incurred by "financial institutions" described in such section and is allocable, as computed in such section, to tax-exempt interest on obligations acquired after August 7, 1986. Section 265(b) of the Code provides an exception to this rule for interest expense allocable to tax-exempt obligatiOIl3 (other than private activity bonds) which are ~g¡'At""¡ by an issuer, such as the City, as "qualified tax- exempt obligations". An issuer may designate obligations as "qualified tax-exempt obligations" only if the amount of tile issue of which they are a part, when added to the amount of all other tax-exempt obligations (other than private activity bonds) issued or reasonabl:r; anticipated to be issued by the issuer during the same calendar year, does DDt exceed S10,000,000. The City has designated the Bonds as "qualified tax-exempt obligations" and certified its expectation tlurt the above-described $10,000,000 ceiling will not be exceeded. Accordingly, it is anticipated that financial institutions which purchase the bonds will not be subject to the one-hundred percent (100%) disallowance of interest expense allocable to interest on the Bonds under Section 265(b) of the Code. However, twenty percent (20%) of the interest expense incurred by a financial institution which is allocable to the interest on the Bonds will not be deductible pursuant to Section 291 of the Code. Tax Accounting Treatment of Discount Bonds. . . The initial public offering price to be paid for certain Bonds may be less than the principal amount payable on such Bond at maturity (the "Discount Bonds"). An amount equal to the difference between the initial public offering price of the Discount Bond (as-qJ1T11ing that a substantial amount of the Discount Bonds of 25