The Senate and House conference committee released its long-awaited tax reform conference report this afternoon. A copy of the report is available online at http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf. The first half of the report includes a final version of the tax reform bill which is expected to be voted on by each chamber of Congress next week. The second half, starting on page 510, includes a joint explanatory statement of the conference committee, describing each provision of the bill.

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, which is a relief, though certain segments of the market will be affected. The following are highlights of the bill and the tax group’s initial impressions:

• Tax exempt qualified private activity bonds are not repealed. This is good news for, e.g., exempt facility bonds (such as bonds for airports, docks and wharves, sewage and solid waste facilities and multifamily housing, including multifamily housing bonds that 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. The bill does not affect tax exempt private activity bonds issued as draw-down bonds and does not prohibit tax exempt current refundings of private activity bonds.
• Advance refundings are prohibited for bonds issued after 2017. Current refundings are still allowed. We anticipate that there may be increased questions from clients on how to structure 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. These types of bonds could be issued either as bonds that provide tax credits to bondholders or bonds that provide federal subsidy payments (direct payments) to issuers. 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 appear to still be subject to federal sequestration.
• The 9% low income housing tax credit (LIHTC) and the 4% LIHTC are retained, and New Markets Tax Credits (NMTC) are preserved. The Kutak Rock LIHTC and NMTC groups will have more insight regarding specific provisions of the bill affecting these credits.
• 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 past week, the conference committee 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 fee calculations with respect to certain outstanding variable rate obligations, particularly bank loans or placements. The impact of those changes or any proposed waiver or deferral of those changes by the parties will need to be reviewed on a case-by-case basis.
• State and local tax deductions are scaled back, as is the mortgage deduction for first and second homes.
• The public finance tax group will review suggested tax matters disclosure over the coming days to determine what changes to make in light of the bill, once the bill is signed into law.

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

This memorandum was prepared for the general informational use of the clients and attorneys of Kutak Rock LLP and reflects our understanding of the matters set forth herein as of the time of its release. The views on the topics presented may change as our experience with the matters discussed herein deepens. Therefore, this memorandum is not intended as tax advice for any specific transaction and is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter described or addressed herein. This communication may be considered advertising in some jurisdictions. The choice of a lawyer is an important decision and should not be based solely upon advertising.