On August 22, 2016, the Internal Revenue Service (IRS) issued a new safe haven for management contracts related to entities funded by exempt bonds. The management procedure 2016-44 (Rev. Proc. 2016-44) has generally replaced existing management contract guidelines with a new secure port, which has allowed for significantly greater flexibility and fewer compensation restrictions. During rev. Proc. However, in 2016-44, it added a series of new requirements that did not exist in previous safe ports. On January 17, 2017, the IRS released the 2017-13 Income Procedure (Rev. Proc. 2017-13), rev. Proc, in response to comments and questions about the new rules.
2016-44 modified, strengthened and replaced. Below is a summary of Rev`s rules. Proc. 2017-13. On August 22, the IRS issued Regulation Procedure 2016-44, which constitutes a substantial revision of safe ports, in which a management contract will not result in the private use of tax-exempt real estate financed by bonds. This new guide replaces the safe ports described in Income Procedure 97-13 as amended by the 2001-39 income procedure and reinforced by the 2014-67 IRS communication. Definition of the „project“: it is important to note that the „project“ is not limited to loan-financed facilities, particularly for the purpose of assessing the duration of use. A „project“ is defined as „all investment facilities or projects financed in whole or in part by the proceeds of a single loan issue.“ In its borrowing documents, an issuer can identify as a single project all real estate that will be financed by the proceeds of a single bond issue.
Therefore, when borrowing revenues are used to finance short-lived appliances (for example. B 8 years or less) being part of a construction project with a total lifespan of 40 years and subject to the management contract, the management contract can have a duration of 30 years and is not limited to 80% of the duration of use of the funded equipment (six years). It can also be useful if only the land that relates to a larger project is financed by loans. Previous IRS guidelines have developed safe ports to provide qualified users with clear rules to avoid over-reliedating on management contracts with service providers, but these Safe Harbor rules have often been criticized for not allowing flexibility in business transactions.