26 U.S.C. § 144 — Qualified small issue bond; qualified student loan bond; qualified redevelopment bond

(a) Qualified small issue bond In general, a "qualified small issue bond" is a bond in an issue with a total authorized face amount of $1,000,000 or less, where at least 95 percent of net proceeds are used either to acquire, build, rebuild, or improve depreciable business property, or to redeem part or all of an earlier issue that itself qualified for this same reason. Certain prior issues count against the limit. When two or more issues (even from different issuers) mainly fund facilities in the same city, or the same county outside any city, and share the same "principal user" (or related principal users), and each would otherwise qualify, then figuring a later issue's face amount for the $1,000,000 test must include the face amount of all such earlier issues still outstanding (not counting bonds about to be redeemed, other than through advance refunding, from that later issue's proceeds). Two people count as "related" if the loss-disallowance rules of section 267 or 707(b) would apply between them, or if they're in the same controlled corporate group under section 1563(a), using a "more than 50 percent" ownership threshold instead of the usual 80 percent. $10,000,000 limit election. An issuer can elect to raise the cap for a given issue to $10 million instead of $1 million. Making this election also means the issuer must count, toward the face-amount test, capital spending on related facilities made during the 6-year window from 3 years before to 3 years after the bond's issue date (as long as it wasn't already paid for out of proceeds already counted), as if that spending were itself a prior outstanding issue. The related facilities counted this way are ones in the same city or county sharing the same principal user(s), determined as of the issue date. Some capital spending doesn't count toward this total: replacing property destroyed by fire, storm, or casualty (only up to the destroyed property's fair market value); spending required by a law, ordinance, or regulation change made after the issue date; spending required by circumstances that couldn't reasonably have been foreseen, or by a legal or factual mistake (capped at $1,000,000 total per issue); or certain research spending described in section 41(b)(2)(A)(i)-(ii) for which a section 174A(a) deduction was taken. A bond already issued doesn't lose its "qualified small issue" status because of later capital spending until the date that spending is actually paid or incurred. For a refunding issue, the $10 million election is available only if every prior issue being redeemed itself qualified, and capital spending is counted only to check whether those earlier issues qualified. Where an issue funds facilities tied to an urban development action grant under Housing and Community Development Act of 1974 section 119, up to $10,000,000 of capital spending is excluded from the count (this exclusion doesn't apply to bonds issued after 2006). For bonds issued after 2006, an additional up-to-$10,000,000 of capital spending is excluded, on top of the exclusions above. This subsection does not apply to a bond in an issue where 5 percent or more of net proceeds go, directly or indirectly, to residential real property for family housing. Limits on treating bonds as one issue. Separate lots of bonds are treated as separate issues — even if they'd otherwise count as one — unless their proceeds fund facilities that are either in more than one state, or that share the same principal user(s). A non-governmental person counts as a "principal user" of a facility for this rule if they help arrange, guarantee, or pay for issuing a bond funding it, and also provide property, or a franchise, trademark, or trade name (as defined in section 1253) used at that facility. This subsection does not apply to a bond in an issue (other than one using the $10 million election) if any other bond in that same issue has interest excluded from income under some other tax-exemption provision. Restricted facilities. This subsection does not apply to an issue if more than 25 percent of net proceeds fund a facility whose main purpose is retail food or drink service, car sales or service, or recreation or entertainment — or if any proceeds fund a private or commercial golf course, country club, massage parlor, tennis club, skating facility, racquet-sports facility, hot tub facility, tanning facility, or racetrack. Two or more issues that fund a single building, an enclosed mall, or a strip of offices, stores, or warehouses sharing substantial common facilities are treated as one issue, and anyone who is a principal user of any of those issues is a principal user of the combined issue. $40,000,000 per-taxpayer cap. This subsection does not apply to an issue if the face amount allocated to any single "test-period beneficiary" — added to that beneficiary's other outstanding tax-exempt facility-related bonds — exceeds $40,000,000. "Outstanding tax-exempt facility-related bonds" means the beneficiary's share of exempt facility bonds, qualified small issue bonds, qualified redevelopment bonds, and certain pre-1986 industrial development bonds, that are allocated to them and still outstanding. Face amount is allocated to each beneficiary, other than an owner, in proportion to the share of the facility they use, and to an owner-beneficiary in proportion to the share of the facility they own, except as regulations otherwise provide. A "test-period beneficiary" is anyone who owns or is a principal user of the financed facility at any time in the 3 years starting when the facility was placed in service or the issue date, whichever is later. All related persons are treated as a single person for this cap. This subsection does not apply to an issue if more than $250,000 of net proceeds go toward depreciable farm property (property used in a farming trade or business) with the same principal user(s); prior issues used for the same purpose count toward this cap too. End dates. In general, this subsection does not apply to bonds issued after December 31, 1986, or to refunding bonds for a pre-1987 bond unless: the refunding issue's average maturity is no later than the refunded bonds' average maturity (figured under section 147(b)(2)(A)); the refunding bond's amount doesn't exceed the outstanding refunded amount; and the refunding proceeds redeem the refunded bond within 90 days of the refunding bond's issuance. This end-date rule doesn't apply to bonds where 95 percent or more of net proceeds fund a manufacturing facility, or land or property under section 147(c)(2). A "manufacturing facility" is one used to manufacture or produce tangible personal property (including processing that changes the property's condition), following rules similar to section 142(b)(2); it also includes facilities directly related and secondary to a manufacturing facility, if they're on the same site and no more than 25 percent of the issue's net proceeds fund them. For issues made after a specified 2009 enactment date and before 2011, that 25-percent-and-same-site test is replaced: proceeds count as funding a manufacturing facility if used for a facility that creates or produces certain intangible property described in section 197(d)(1)(C)(iii), or a facility that is functionally related and secondary to a manufacturing facility and on the same site. (b) Qualified student loan bond In general, a "qualified student loan bond" is a bond where the "applicable percentage" (defined below) or more of net proceeds fund student loans, either: (A) under a program that follows the Higher Education Act of 1965, where the program caps how much any student can owe and what interest rate applies, the loans are federally guaranteed, the program isn't legally limited to only tax-exempt bond funding, and special allowance payments under Higher Education Act section 438 either are or would be authorized for these loans if they weren't bond-financed; or (B) under a state-approved general program where no loan exceeds the gap between the full cost of attendance and other student aid the student qualifies for (not counting parent loans under Higher Education Act section 428B(a)(1) or certain Public Health Service Act student assistance) — a program only counts under (B) if it doesn't already qualify under (A). A bond does not count as a qualified student loan bond if its issue meets the private-business tests in section 141(b)(1) and (2), treating 501(c)(3) organizations like governments for activities that aren't unrelated businesses under section 513(a). The applicable percentage is 90 percent for programs under (1)(A), and 95 percent for programs under (1)(B). A loan only counts under this subsection if the student is either a resident of the state that provided the bond volume allocation under section 146, or is enrolled at a school in that state. A program does not qualify under (1)(A) if it discriminates based on where in the United States the student's school is located. (c) Qualified redevelopment bond In general, a "qualified redevelopment bond" is a bond where 95 percent or more of net proceeds fund one or more "redevelopment purposes" (defined below) in a "designated blighted area" (also defined below). Additional requirements. A bond only qualifies if: the issue is authorized both by a state law allowing such bonds for blighted-area redevelopment, and by a redevelopment plan adopted before issuance by the governing body that designated the area; repayment is primarily secured either by general-purpose taxes of a general-purpose government, or by increased property-tax revenue from the redevelopment reserved for debt service (capped at the actual debt service amount); every piece of real property that a government buys with the proceeds and later transfers to a non-government party is sold at fair market value; the financed area meets the "no additional charge" requirements described below; and the use of proceeds meets the requirements described below. "Redevelopment purposes" means, for a designated blighted area: a government with eminent-domain power acquiring real property there; clearing and preparing acquired land for redevelopment; rehabilitating acquired real property; and relocating people who lived on that property. It does not include new construction, other than rehabilitation, or enlarging an existing building. A "designated blighted area" is an area a local government's governing body designates as blighted. "Blighted area" means one the governing body finds blighted based substantially on factors such as excess vacant land where buildings once stood, abandoned or vacant buildings, substandard structures, vacancies, and unpaid property taxes. A government cannot designate an area as blighted if doing so would push the combined "designation percentage" of all its blighted areas over 20 percent — "designation percentage" being a given area's share of the government's total assessed real-property value, measured when designated. A previously designated area doesn't count toward the 20 percent cap once no qualified redevelopment bond, or similar bond, is or will be outstanding for it. A designated blighted area generally must be contiguous, compact, and at least 100 acres — except the minimum drops to 10 acres if no more than 25 percent of the financed area goes to any one person, treating all related persons as one person and not counting short-term interim use by a developer. "No additional charge" requirements: while any bond from the issue is outstanding, owners or users of property in the financed area cannot be charged fees that similarly situated owners or users of comparable property outside the area don't face, and the property-tax assessment method or rate inside the area can't differ from that for comparable property outside it. "Comparable property" means property of the same type, located within the same designating government's jurisdiction. Use-of-proceeds requirements: no more than 25 percent of net proceeds may fund facilities described in subsection (a)(8) or section 147(e) — the restricted-facility list, such as golf courses and entertainment venues — including land for them; and none of the proceeds may fund, including land for, a private or commercial golf course, country club, massage parlor, hot tub facility, tanning facility, racetrack or other gambling facility, or a store mainly selling alcohol for off-site consumption. "Financed area" means the part of the designated blighted area that the issue's proceeds are actually used for. The land-acquisition restriction in section 147(c) — except its paragraphs (1)(B) and (2) — does not apply to a qualified redevelopment bond.