26 U.S.C. § 145 — Qualified 501(c)(3) bond

(a) In general. A "qualified 501(c)(3) bond^*" is a private activity bond^* — normally a taxable kind of bond — that instead gets special tax-exempt^* treatment if: (1) everything bought with the bond's net proceeds^* will be owned by a 501(c)(3) organization^* (a tax-exempt charity or nonprofit) or a government unit, and (2) the bond would not count as a regular "private activity bond" if 501(c)(3) organizations were treated like governments for their non-business activities, and if certain percentage limits in section 141(b) were changed from 10 percent to 5 percent.

(b) $150,000,000 limit on bonds other than hospital bonds. A bond that is not a "qualified hospital bond" does not count as a qualified 501(c)(3) bond if the total face amount of bonds issued for one nonprofit organization — including bonds from earlier issues still outstanding — goes over $150,000,000. The section explains in detail how to count those earlier "outstanding tax-exempt nonhospital bonds," including that only the part of a bond not used for a hospital counts, and that two or more organizations under shared management or control are treated as one organization for this limit. This $150,000,000 cap stops applying to bonds issued after a certain enactment date, if 95 percent or more of the bond's proceeds go toward capital costs paid after that date.

(c) Qualified hospital bond. A "qualified hospital bond" is a bond where 95 percent or more of the proceeds go toward hospital use. Hospital bonds are not subject to the $150,000,000 cap in (b).

(d) Restrictions on bonds used for residential rental housing for families. Generally, a bond cannot be a qualified 501(c)(3) bond if any of its proceeds go, directly or indirectly, toward residential rental property for families. There are exceptions: the bond can still qualify if the proceeds go toward rental property being used for the first time under this bond, toward a "qualified residential rental project" as defined in section 142(d), or toward property being substantially rehabilitated within a set two-year window. The section also has detailed rules for figuring out whether a property's "first use" counts as happening under tax-exempt financing (even if taxable financing came first and was expected to be, and was, replaced by tax-exempt financing), and for what counts as "substantial rehabilitation," generally following the rules in section 47(c)(1)(B), with the Secretary of the Treasury^* able to extend the 24-month rehabilitation window for reasons outside the owner's control.

(e) Election out. This whole section does not apply to a bond issue if the issuer chooses not to use it, and the issue is instead an exempt facility bond^* or qualified redevelopment bond^* covered by section 146.