Both houses of Congress have passed tax reform legislation in the form of H.R. 1. The final tax law in its enrolled version is available online here. The House and Senate conference committee report describing each provision of the bill as originally introduced was published December 15, 2017, as previously reported by us online here. The President signed the bill into law on December 22, 2017.

The Kutak Rock public finance tax group is reviewing the bill to evaluate its impact for public finance clients. The bill largely retains all of the bond provisions of the tax code as we know them other than advance refundings, though certain segments of the market will be affected. The following are highlights of the tax law:

• Tax-exempt qualified private activity bonds have been preserved in their entirety. This includes, among other things, bonds for airports, docks and wharves, sewage and solid waste facilities and multifamily housing (which are frequently issued alongside 4% low income housing tax credit structures), single family housing bonds, small issue manufacturing bonds, student loan bonds and qualified 501(c)(3) bonds. Tax exempt private activity bonds can still be issued as draw-down bonds.
• Advance refundings are prohibited after 2017. Current refundings are still allowed. We would be happy to advise on structuring alternatives to advance refundings.
• Qualified tax credit bonds cannot be issued after 2017. Qualified tax credit bonds include (1) qualified forestry conservation bonds, (2) new clean renewable energy bonds (NCREBs), (3) qualified energy conservation bonds (QECBs), (4) qualified zone academy bonds (QZABs) and (5) qualified school construction bonds. Most recently, only NCREBs, QECBs and QZABs have been issued with any frequency. Tax credits and subsidy payments for existing qualified tax credit bonds issued before 2018 are not intended to be impacted by the bill, though subsidy payments are still subject to federal sequestration that began in 2013 and may be affected by any additional PAYGO sequestration that could arise as a result of the deficits caused by H.R. 1.
• The 9% low income housing tax credit (LIHTC), the 4% LIHTC and New Markets Tax Credits (NMTC) are preserved.
• Mortgage credit certificates are retained. Qualified governmental units can still elect to exchange all or a portion of their qualified mortgage bond authority for authority to issue mortgage credit certificates.
• Corporate AMT (alternative minimum tax) is repealed, and the exemption amount for the individual AMT is increased. These changes will affect “tax matters” disclosure for bonds the interest on which is to be included in AMT calculations.
• No changes to the volume cap provisions. Contrary to speculations in the days preceding passage of the tax law, Congress did not adopt limits to volume cap provisions, including provisions affecting carry forward cap where permitted.
• The corporate tax rate is reduced from 35% to 21% starting in 2018. The top individual rate is reduced to 37%. The reduction in the corporate tax rate to 21% may impact the interest rate or yield maintenance fee calculations with respect to certain outstanding obligations, particularly bank loans or direct purchase bonds that have adjustments built into the interest rates based on corporate tax levels. The impact of those changes will need to be reviewed by those involved with that type of obligation, and any proposed waiver or deferral of those changes by the parties will need to be reviewed on a case-by-case basis for possible reissuance consequences.

For more information about the new tax legislation and its effect, please contact any member of the Kutak Rock public finance tax department.