(1) Agents.
Use of proceeds by nongovernmental persons solely in their capacity as agents of a governmental person is not private business use. For example, use by a nongovernmental person that issues obligations on behalf of a governmental person is not private business use to the extent the nongovernmental person’s use of proceeds is in its capacity as an agent of the governmental person.
(2) Use incidental to financing arrangements.
Use by a nongovernmental person that is solely incidental to a financing arrangement is not private business use. A use is solely incidental to a financing arrangement only if the nongovernmental person has no substantial rights to use bond proceeds or financed property other than as an agent of the bondholders. For example, a nongovernmental person that acts solely as an owner of title in a sale and leaseback financing transaction with a city generally is not a private business user of the property leased to the city, provided that the nongovernmental person has assigned all of its rights to use the leased facility to the trustee for the bondholders upon default by the city. Similarly, bond trustees, servicers, and guarantors are generally not treated as private business users.
(3) Exceptions for arrangements other than arrangements resulting in ownership of financed property by a nongovernmental person --
(i) Arrangements not available for use on the same basis by a natural persons not engaged in a trade or business.
Use by a nongovernmental person pursuant to an arrangement, other than an arrangement resulting in ownership of financed property by a nongovernmental person, is not private business use if--
(A) The term of the use under the arrangement, including all renewal options, is not longer than 90 days;
(B) The arrangement would be treated as general public use, except that it is not available for use on the same basis by natural persons not engaged in a trade or business because generally applicable and uniformly applied rates are not reasonably available to natural persons not engaged in a trade or business; and
(C) The property is not financed for a principal purpose of providing that property for use by that nongovernmental person.
(ii) Negotiated arm‘s-length arrangements.
Use by a nongovernmental person pursuant to an arrangement, other than an arrangement resulting in ownership of financed property by a nongovernmental person, is not private business use if--
(A) The term of the use under the arrangement, including all renewal options, is not longer than 30 days;
(B) The arrangement is a negotiated arm’s-length arrangement, and compensation under the arrangement is at fair market value; and
(C) The property is not financed for a principal purpose of providing that property for use by that nongovernmental person.
(4) Temporary use by developers.
Use during an initial development period by a developer of an improvement that carries out an essential governmental function is not private business use if the issuer and the developer reasonably expect on the issue date to proceed with all reasonable speed to develop the improvement and property benefited by that improvement and to transfer the improvement to a governmental person, and if the improvement is in fact transferred to a governmental person promptly after the property benefited by the improvement is developed.
(5) Incidental use --
(i) General rule.
Incidental uses of a financed facility are disregarded, to the extent that those uses do not exceed 2.5 percent of the proceeds of the issue used to finance the facility. A use of a facility by a nongovernmental person is incidental if --
(A) Except for vending machines, pay telephones, kiosks, and similar uses, the use does not involve the transfer to the nongovernmental person of possession and control of space that is separated from other areas of the facility by walls, partitions, or other physical barriers, such as a night gate affixed to a structural component of a building (a nonpossessory use);
(B) The nonpossessory use is not functionally related to any other use of the facility by the same person (other than a different nonpossessory use); and
(C) All nonpossessory uses of the facility do not, in the aggregate, involve the use of more than 2.5 percent of the facility.
(ii) Illustrations.
Incidental uses may include pay telephones, vending machines, advertising displays, and use for television cameras, but incidental uses may not include output purchases.
(6) Qualified improvements.
Proceeds that provide a governmentally owned improvement to a governmentally owned building (including its structural components and land functionally related and subordinate to the building) are not used for a private business use if --
(i) The building was placed in service more than 1 year before the construction or acquisition of the improvement is begun;
(ii) The improvement is not an enlargement of the building or an improvement of interior space occupied exclusively for any private business use;
(iii) No portion of the improved building or any payments in respect of the improved building are taken into account under section 141(b)(2)(A) (the private security test); and
(iv) No more than 15 percent of the improved building is used for a private business use.