(1) In general.
An issue is an issue of private activity bonds if the issuer reasonably expects, as of the issue date, that the issue will meet either the private business tests or the private loan financing test. An issue is also an issue of private activity bonds if the issuer takes a deliberate action, subsequent to the issue date, that causes the conditions of either the private business tests or the private loan financing test to be met.
(2) Reasonable expectations test. --
(i) In general.
In general, the reasonable expectations test must take into account reasonable expectations about events and actions over the entire stated term of an issue.
(ii) Special rule for issues and mandatory redemption provisions.
An action that isreasonably expected, as of the issue date, to occur after the issue date and to cause either the private business tests or the private loan financing test to be met may be disregarded for purposes of those tests if --
(A) The issuer reasonably expects, as of the issue date, that the financed property will be used for a governmental purpose for a substantial period before the action;
(B) The issuer is required to redeem all nonqualifying bonds (regardless of the amount of disposition proceeds actually received) within 6 months of the date of the action;
(C) The issuer does not enter into any arrangement with a nongovernmental person, as of the issue date, with respect to that specific action; and
(D) The mandatory redemption of bonds meets all of the conditions for remedial action under section 1.141-12(a).
(3) Deliberate action defined --
(i) In general.
Except as otherwise provided in this paragraph (d)(3), a deliberate action is any action taken by the issuer that is within its control. An intent to violate the requirements of section 141 is not necessary for an action to be deliberate.
(ii) Safe harbor exceptions.
An action is not treated as a deliberate action if --
(A) It would be treated as an involuntary or compulsory conversion under section 1033; or
(B) It is taken in response to a regulatory directive made by the federal government. See section 1.141-7T(f)(5).
(4) Special rule for dispositions of personal property in the ordinary course of an established governmental program --
(i) In general.
Dispositions of personal property in the ordinary course of an established governmental program are not treated as deliberate actions if --
(A) The weighted average maturity of the bonds financing that personal property is not greater than 120 percent of the reasonably expected actual use of that property for governmental purposes;
(B) The issuer reasonably expects on the issue date that the fair market value of that property on the date of disposition will be not greater than 25 percent of its cost; and
(C) The property is no longer suitable for its governmental purposes on the date of disposition.
(ii) Reasonable expectations test.
The reasonable expectation that a disposition described in paragraph (d)(4)(i) of this section may occur in the ordinary course while the bonds are outstanding will not cause the issue to meet the private activity bond tests if the issuer is required to deposit amounts received from the disposition in a commingled fund with substantial tax or other governmental revenues and the issuer reasonably expects to spend the amounts on governmental programs within 6 months from the date of commingling.
(iii) Separate issue treatment.
An issuer may treat the bonds properly allocable to the personal property eligible for this exception as a separate issue under section 1.150-1(c)(3).
(5) Special rule for general obligation bond programs that finance a large number of separate purposes.
The determination of whether bonds of an issue are private activity bonds may be based solely on the issuer‘s reasonable expectations as of the issue date if all of the requirements of paragraphs (d)(5)(i) through (vii) of this section are met.
(i) The issue is an issue of general obligation bonds of a general purpose governmental unit that finances at least 25 separate purposes (as defined in section 1.150-1(c)(3)) and does not predominantly finance fewer than 4 separate purposes.
(ii) The issuer has adopted a fund method of accounting for its general governmental purposes that makes tracing the bond proceeds to specific expenditures unreasonably burdensome.
(iii) The issuer reasonably expects on the issue date to allocate all of the net proceeds of the issue to capital expenditures within 6 months of the issue date and adopts reasonable procedures to verify that net proceeds are in fact so expended. A program to randomly spot check that 10 percent of the net proceeds were so expended generally is a reasonable verification procedure for this purpose.
(iv) The issuer reasonably expects on the issue date to expend all of the net proceeds of the issue before expending proceeds of a subsequent issue of similar general obligation bonds.
(v) The issuer reasonably expects on the issue date that it will not make any loans to nongovernmental persons with the proceeds of the issue.
(vi) The issuer reasonably expects on the issue date that the capital expenditures that it could make during the 6-month period beginning on the issue date with the net proceeds of the issue that would not meet the private business tests are not less than 125 percent of the capital expenditures to be financed with the net proceeds of the issue.
(vii) The issuer reasonably expects on the issue date that the weighted average maturity of the issue is not greater than 120 percent of the weighted average reasonably expected economic life of the capital expenditures financed with the issue. To determine reasonably expected economic life for this purpose an issuer may use reasonable estimates based on the type of expenditures made from a fund.