October 21, 2008

IRS issues new tax-free bond rules

The IRS - not waiting for Friday's Congressional hearings on the matter - has issued its long-awaited revised regulations governing tax-exempt bonds. (PDF here, thanks to Atlantic Yards Report.) In a nutshell: The agency will still outlaw the use of bonds with fixed annual payments, it initially proposed two years ago (and which developers don't like, as it makes their bond payments more pricey); however, it is also grandfathering in the old anything-goes rules for projects that are already underway.

As for what this means for sports teams, the Associated Press reports that this will allow new tax-exempt bonds for the New York Yankees, New York Mets, and New Jersey Nets (actually only the Yanks and Nets are seeking new bonds). I'm less sure, however - the regs' grandfather clause is limited to projects where "significant expenditures were paid or incurred with respect to the project" by October 19, 2006, which may not be the case for the Nets' Atlantic Yards project, depending on how you define "significant." At the very least, the vagueness of the language seems likely to lead to still more lawsuits.

I've gone into a bit more detail in an article for the Village Voice website, but it's not posted just yet, so keep an eye on their blog.