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Public Finance Stimulus Legislation Changes: New “Bank Qualified” Limits and Changes to AMT Treatment

Public Finance Update Elizabeth S. Blutstein, Julianna Ebert, Brian G. Lanser, Ann M. Murphy, Jeff Peelen, Jennifer V. Powers, Michael L. Roshar, Rebecca A. Speckhard, Bridgette DeToro, Allison M. Buchanan

Yesterday President Obama signed into law widely publicized economic stimulus legislation, the American Recovery and Reinvestment Act of 2009 (the "Stimulus Legislation").

Among the Stimulus Legislation's public finance provisions, ones which will have an immediate impact on issuers and borrowers are (i) changes to the "bank qualified" provisions of Section 265 of the Code, and (ii) changes regarding treatment of interest on tax-exempt bonds and private activity bonds for purposes of the alternative minimum tax ("AMT").

The bank qualified provisions of the Code govern the deductibility by banks and other financial institutions of interest expense allocable to tax-exempt bonds. The Stimulus Legislation raises from $10 million to $30 million the annual "bank qualified" limit for tax-exempt bonds issued during 2009 and 2010. The Stimulus Legislation also adds a special provision for qualified 501(c)(3) bonds issued during 2009 and 2010. For those bonds, the Stimulus Legislation applies the bank qualified limits to individual 501(c)(3) borrowers rather than to issuers. This provision will allow conduit issuers to issue bank qualified bonds for multiple 501(c)(3) borrowers of up to $30 million per borrower during 2009 and 2010.

The Stimulus Legislation's new AMT provisions provide that interest on private activity bonds is no longer treated as a preference item for purposes of AMT and also is not included in the current earnings adjustment under the corporate AMT; provided, however, that this new exclusion does not apply to refunding bonds if the corresponding refunded bonds (or the original bonds in a case of a series of refundings) were issued before January 1, 2004. The Stimulus Legislation also provides that interest on tax-exempt bonds issued during 2009 and 2010 is no longer included in adjusted current earnings of corporations. Again, however, this new treatment does not apply to refunding bonds if the corresponding refunded bonds (or the original bonds in a case of a series of refundings) were issued before January 1, 2004. In applicable situations, issuers and borrowers can expect to see revisions to the tax sections of offering documents and revisions to the tax language in bond counsel opinions reflecting these changes.

The above-described Stimulus Legislation changes became effective immediately upon the President's signing the legislation into law. However, it should be re-emphasized that these changes are effective only for bonds issued during 2009 and 2010.

For more information on these changes under the Stimulus Legislation, please contact Jeff Peelen at 414-277-5773 / jdp@quarles.com, Brian Lanser at 414/277-5775 / bgl@quarles.com, or any member of the Quarles & Brady Public Finance Practice Group. Additional information regarding these changes as well as other provisions of the Stimulus Legislation is also available from the National Association of Bond Lawyers, whose paper entitled "Summary of Tax Exempt Bond Provisions in American Recovery and Investment Act of 2009" is attached to this update.