26 U.S.C. § 147 — Other requirements applicable to certain private activity bonds

(a) Substantial user requirement. A private activity bond isn't a "qualified bond" for any period a "substantial user" of the financed facilities holds it, or a person related to that user holds it (except as allowed under subsection (h)). The law spells out who counts as "related": people whose relationship would block a loss deduction under sections 267 or 707(b); two or more corporations in the same controlled group, using "more than 50 percent" common ownership instead of the usual 80 percent; a partnership and each of its partners (plus their spouses and minor children); and an S corporation and each of its shareholders (plus their spouses and minor children). (b) Maturity may not exceed 120 percent of economic life. Except as allowed under subsection (h), a private activity bond isn't qualified if the average maturity of the bonds in its issue is longer than 120 percent of the average economic life the financed facilities are expected to have. Average maturity is weighted by each bond's issue price; average economic life is weighted by each facility's cost. Economic life is measured starting from whichever is later: the date the bonds are issued, or the date the facility is placed in service. Land normally isn't counted in this economic-life math, unless 25 percent or more of the issue's proceeds pay for land — then the land counts and is treated as having a 30-year economic life. There's a special election for pooled financing of 501(c)(3) organizations: a qualified 501(c)(3) bond can still meet this maturity test if 95 percent or more of the issue's proceeds fund loans to two or more 501(c)(3) organizations or governments buying property, each loan separately satisfies the maturity test, a demand survey done before issuance shows demand for more than 120 percent of the loanable proceeds, and 95 percent or more of proceeds are loaned out within one year (with any leftover money used to redeem bonds within 18 months). No bond in such an issue can mature more than 30 years after issuance (or, for a refunding, after the original bond's issuance). There's also an exception for certain FHA-insured mortgage bonds, when the FHA's approved loan term plus the maximum maturity of FHA debentures runs longer than this section's normal limit. (c) Limitation on use for land acquisition. Except as allowed under subsection (h), a private activity bond isn't qualified if 25 percent or more of its issue's net proceeds buy land, or if any proceeds buy land for farming. There's an exception for first-time farmers: up to $450,000 (adjusted for inflation after 2008, rounded to the nearest $100) can finance farmland for someone who is a first-time farmer, will be the main user of the land, and will materially and substantially help run the farm. A "first-time farmer" is someone who has never owned or materially participated in "substantial farmland," and whose financing under this rule (combined with earlier financing under it) doesn't exceed the dollar cap; a spouse's or minor child's ownership, participation, or financing counts too. Farmland lost while the owner was insolvent is disregarded if section 108 applied to that debt. "Farm" has the meaning given in section 6420(c)(2). "Substantial farmland" means any parcel unless it's smaller than 30 percent of the county's median farm size. Financing for used farm equipment under this exception is capped at $62,500, with the same spouse/child aggregation rule. Buying land or equipment from a related person doesn't count as buying from a "related person" if the price is fair market value and the seller keeps no financial interest in the farm afterward. Separately, land a government buys for an airport, mass transit, high-speed rail, dock, or wharf doesn't count against the 25 percent land limit if it's bought for noise abatement, wetland preservation, or future use for one of those facilities, and there's no other significant use of the land. (d) Acquisition of existing property not permitted. Except as allowed under subsection (h), a private activity bond isn't qualified if any of its issue's net proceeds buy property unless the buyer's use is the property's first use. There's an exception for rehabilitated buildings: rehab spending must equal or exceed 15 percent of the acquisition cost financed by the issue (for structures other than buildings, the threshold is 100 percent instead of 15 percent). "Rehabilitation expenditures" generally means capital costs the buyer incurs to rehab the building, including rehabbing or replacing existing equipment with equipment that does the same job; costs incurred by a successor buyer or by the seller under a sales contract also count. It does not include costs described in section 47(c)(2)(B). It also doesn't include costs incurred more than two years after the later of the purchase date or the bond issuance date. Projects with two or more buildings are judged on a project-wide basis. (e) No portion of bonds may be issued for skyboxes, airplanes, gambling establishments, etc. A private activity bond isn't qualified if any of its issue's proceeds fund an airplane, a skybox or other private luxury box, a health club facility, a facility mainly used for gambling, or a store mainly selling alcoholic beverages for off-site drinking. This ban doesn't apply to fixed-wing aircraft built and used only for acute-care emergency medical services. (f) Public approval required for private activity bonds. A private activity bond isn't qualified unless its issue was approved both by the government that issued it (or on whose behalf it was issued) and by every other government with jurisdiction over the area where the financed facility sits (only one government needs to approve if more than one shares full jurisdiction). A government approves an issue either through its applicable elected representative, after a public hearing with reasonable public notice, or through a voter referendum. If a financing plan for a facility was already publicly approved, that approval covers any issue under the plan that's issued within three years of the first issue, as long as all or almost all of its proceeds finance that facility or refund earlier financing under the plan. Refunding bonds don't need new approval, unless the refunding issue's average maturity date is later than the maturity date of the bonds being refunded (measured the same way as in subsection (b)). "Applicable elected representative" means an elected legislative body, or the chief elected executive, chief elected state legal officer, or another elected official the chief executive or state law designates; someone properly appointed and confirmed to fill a vacated elected office is treated as that elected official for the rest of the term. If a government truly has no applicable elected representative, the representative of the next higher government that has one (and from which the lower government's authority comes) fills in. For airports or high-speed rail facilities, the government that owns or operates the facility is treated as the only government with jurisdiction over it. There are also special rules treating certain governments as the "issuing on behalf of" government for scholarship funding bonds and volunteer fire department bonds that meet the requirements of sections 150(d) and 150(e). (g) Restriction on issuance costs financed by issue. A private activity bond isn't qualified if issuance costs financed by its issue exceed 2 percent of the issue's proceeds. For small issues of qualified mortgage bonds or qualified veterans' mortgage bonds — $20,000,000 or less in proceeds — the limit rises to 3.5 percent. (h) Certain rules not to apply to certain bonds. Subsections (a), (b), (c), and (d) don't apply to qualified mortgage bonds, qualified veterans' mortgage bonds, or qualified student loan bonds. Subsections (a), (c), and (d) don't apply to qualified 501(c)(3) bonds, and for those bonds subsection (e)'s ban is applied as if it didn't mention "health club facility." Subsection (c) doesn't apply to exempt facility bonds issued as part of an issue described in section 142(a)(13), covering qualified public-private educational facilities.