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HomeMy WebLinkAboutBack-Up from Law DeptPart III. Administrative, Procedural, and Miscellaneous 26 CFR 601.601: Rules and regulations. (Also Part I, §st' 103, 141, 145; 1.141-3, 1.145-2) Rev. Proc. 97-13 SECTION 1. PURPOSE The purpose of this revenue proce- dure is to set forth conditions under which a management contract does not result in private business use under § 141(b) of the Internal Revenue Code of 1986. This revenue procedure also applies to determinations of whether a management contract causes the test in § 145(a)(2)(B) of the 1986 Code to be met for qualified 501(c)(3) bonds. SECTION 2. BACKGROUND .01 Private Business Use. (1) Under § 103(a) of the 1986 Code, gross income does not include interest on any state or local bond. Under § 103(b)(1) of the 1986 Code, however, § 103(a) of the 1986 Code does not apply to a private activity bond, unless it is a qualified bond under § 141(e) of the 1986 Code. Section 141(a)(1) of the 1986 Code defines "private activity bond" as any bond issued as part of an issue that meets both the private business use and the private security or payment tests. Under § 141(b)(1) of the 1986 Code, an issue generally meets the private business use test if more than 10 percent of the proceeds of the issue are to be used for any private business use. Under § 141(b)(6)(A) of the 1986 Code, pri- vate business use means direct or indi- rect use in a trade or business carried on by any person other than a governmen- tal unit. Section 145(a) of the 1986 Code also applies the private business use test of § 141(b)(1) of the 1986 Code, with certain modifications. (2) Corresponding provisions of the Internal Revenue Code of 1954 set forth the requirements for the exclusion from gross income of the interest on state or local bonds. For purposes of this revenue procedure, any reference to a 1986 Code provision includes a refer- ence to the corresponding provision, if any, under the 1954 Code. (3) Private business use can arise by ownership, actual or beneficial use of property pursuant to a lease, a manage- ment or incentive payment contract, or certain other arrangements. The Confer- ence Report for the Tax Reform Act of 1986, provides as follows: The conference agreement generally retains the present -law rules under which use by persons other than governmental units is determined for purposes of the trade or business use test. Thus, as under present law, the use of bond - financed property is treated as a use of bond proceeds. As under present law, a person may be a user of bond proceeds and bond - financed property as a result of (1) ownership or (2) actual or benefi- cial use of property pursuant to a lease, a management or incentive payment contract, or (3) any other arrangement such as a take -or -pay or other output -type contract. 2 H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-687-688, (1986) 1986-3 (Vol. 4) C.B. 687-688 (footnote omit- ted). (4) A management contract that gives a nongovernmental service pro- vider an ownership or leasehold interest in financed property is not the only situation in which a contract may result in private business use. (5) Section 1.141-3(b)(4)(i) of the Income Tax Regulations provides, in general, that a management contract (within the meaning of § 1.141- 3(b)(4)(ii)) with respect to financed property may result in private business use of that property, based on all the facts and circumstances. (6) Section 1.141-3(b)(4)(i) pro- vides that a management contract with respect to financed property generally results in private business use of that property if the contract provides for compensation for services rendered with compensation based, in whole or in part, on a share of net profits from the operation of the facility. (7) Section 1.141-3(b)(4)(iii), in general, provides that certain arrange- ments generally are not treated as man- agement contracts that may give rise to private business use. These are — (a) Contracts for services that are solely incidental to the primary governmental function or functions of a financed facility (for example, contracts for janitorial, office equipment repair, hospital billing or similar services); (b) The mere granting of admit- ting privileges by a hospital to a doctor, even if those privileges are conditioned on the provision of de minimis services, if those privileges are available to all qualified physicians in the area, consis- tent with the size and nature of its facilities; (c) A contract to provide for the operation of a facility or system of facilities that consists predominantly of public utility property (as defined in § 168(i)(10) of the 1986 Code), if the only compensation is the reimbursement of actual and direct expenses of the service provider and reasonable adminis- trative overhead expenses of the service provider; and (d) A contract to provide for services, if the only compensation is the reimbursement of the service provider for actual and direct expenses paid by the service provider to unrelated parties. (8) Section 1.145-2(a) provides generally that §§ 1.141-0 through 1.141-15 apply to § 145(a) of the 1986 Code. (9) Section 1,145-2(b)(1) provides that in applying §§ 1,141-0 through 1.141-15 to § 145(a) of the 1986 Code, references to governmental persons in- clude section 501(c)(3) organizations with respect to their activities that do not constitute unrelated trades or busi- nesses under § 513(a) of the 1986 Code. .02 Existing Advance Ruling Guide- lines. Rev. Proc. 93-19, 1993-1 C.B. 526, contains advance ruling guidelines for determining whether a management contract results in private business use under § 141(b) of the 1986 Code. SECTION 3. DEFINITIONS .01 Adjusted gross revenues means gross revenues of all or a portion of a facility, less allowances for bad debts and contractual and similar allowances. .02 Capitation fee means a fixed peri- odic amount for each person for whom the service provider or the qualified user assumes the responsibility to provide all needed services for a specified period so long as the quantity and type of services actually provided to covered persons varies substantially. For example,a capi- tation fee includes a fixed dollar amount payable per month to a medical service provider for each member of a health maintenance organization plan for whom the provider agrees to provide all needed medical services for a specified period. A capitation fee may include a variable component of up to 20 percent of the total capitation fee designed to 18 protect the service provider against risks such as catastrophic loss. .03 Management contract means a management, service, or incentive pay- ment contract between a qualified user and a service provider under which the service provider provides services in- volving all, a portion of, or ally function of, a facility. For example, a contract for the provision of management services for an entire hospital, a contract for management services for a specific de- partment of a hospital, and an incentive payment contract for physician services to patients of a hospital are each treated as a management contract. See §§ 1.141-3(b)(4)(ii) and 1.145-2. . 04 Penalties for terminating a con- tract include a limitation on the quali- fied user's right to compete with the service provider; a requirement that the qualified user purchase equipment, goods, or services from the service provider; and a requirement that the qualified user pay liquidated damages for cancellation of the contract. In con- trast, a requirement effective on cancel- lation that the qualified user reimburse the service provider for ordinary and necessary expenses or a restriction on the qualified user against hiring key personnel of the service provider is generally not a contract termination pen- alty. Another contract between the ser- vice provider and the qualified user, such as a loan or guarantee by the service provider, is treated as creating a contract termination penalty if that con- tract contains terms that are not custom- ary or arm's- length that could operate to prevent the qualified user from termi- nating the contract (for example, provi- sions under which the contract termi- nates if the management contract is terminated or that place substantial re- strictions on the selection of a substitute service provider). .05 Periodic fixed fee means a stated dollar amount for services rendered for a specified period of time. For example, a stated dollar amount per month is a periodic fixed fee. The stated dollar amount may automatically increase ac- cording to a specified, objective, exter- nal standard that is not linked to the output or efficiency of a facility. For example, the Consumer Price Index and similar external indices that track in- creases in prices in an area or increases in revenues or costs in an industry are objective external standards. Capitation fees and per -unit fees are not periodic fixed fees. .06 Per -unit fee means a fee based on a unit of service provided specified in the contract or otherwise specifically determined by an independent third party, such as the administrator of the Medicare program, or the qualified user. For example, a stated dollar amount for each specified medical procedure per- formed, car parked, or passenger mile is a per -unit fee. Separate billing arrange- ments between physicians and hospitals generally are treated as per -unit fee arrangements. .07 Qualified user means any state or local governrnental unit as defined in § 1.103-1 or any instrumentality thereof. The term also includes a section 501(c)(3) organization if the financed property is not used in an unrelated trade or business under § 513(a) of the 1986 Code. The term does not include the United States or any agency or instrumentality thereof. .08 Renewal option means a provi- sion under which the service provider has a legally enforceable right to renew the contract. Thus, for example, a provi- sion under which a contract is automati- cally renewed for one-year periods ab- sent cancellation by either party is not a renewal option (even if it is expected to be renewed), .09 Service provider means any per- son other than a qualified user that provides services under a contract to, or for the benefit of, a qualified user. SECTION 4. SCOPE This revenue procedure applies when, under a management contract, a service provider provides management or other services involving property financed with proceeds of an issue of state or local bonds subject to § 141 or § 145(a)(2)(B) of the 1986 Code. SECTION 5. OPERATING GUIDELINES FOR MANAGEMENT CONTRACTS .01 In general. If the requirements of section 5 of this revenue procedure are satisfied, the management contract does not itself result in private business use. In addition, the use of financed property, pursuant to a management contract meeting the requirements of section 5 of this revenue procedure, is not private business use if that use is functionally related and subordinate to that manage- ment contract and that use is not, in substance, a separate contractual agree- ment (for example, a separate lease of a portion of the financed property). Thus, for example, exclusive use of storage areas by the manager for equipment that is necessary for it to perform activities required under a management contract that meets the requirements of section 5 of this revenue procedure, is not private business use, .02 General compensation require- ments. (1) In general. The contract must provide for reasonable compensation for services rendered with no compensation based, in whole or in part, on a share of net profits from the operation of the facility. Reimbursement of the service provider for actual and direct expenses paid by the service provider to unrelated parties is not by itself treated as com- pensation. (2) Arrangements that generally are not treated as net profits arrange- ments. For purposes of § 1.141- 3(b)(4)(i) and this revenue procedure, compensation based on — (a) A percentage of gross rev- enues (or adjusted gross revenues) of a facility or a percentage of expenses from a facility, but not both; (b) A capitation fee; or (c) A per -unit fee is generally not considered to be based on a share of net profits. (3) Productivity reward. For pur- poses of § 1.141-3(b)(4)(i) and this rev- enue procedure, a productivity reward equal to a stated dollar amount based on increases or decreases in gross revenues (or adjusted gross revenues), or reduc- tions in total expenses (but not both increases in gross revenues (or adjusted gross revenues) and reductions in total expenses) in any annual period during the term of the contract, generally does not cause the compensation to be based on a share of net profits. (4) Revision of compensation ar- rangements, In general, if the compensa- tion arrangements of a management con- tract are materially revised, the requirements for compensation arrange- ments under section 5 of this revenue procedure are retested as of the date of the material revision, and the manage- ment contract is treated as one that was newly entered into as of the date of the material revision. .03 Permissible Arrangements. The management contract must be described in section 5.03(1), (2), (3), (4), (5), or (6) of this revenue procedure. (1) 95 percent periodic fixed fee arrangements. At least 95 percent of the compensation for services for each an- nual period during the term of the 19 contract is based on a periodic fixed fee. The term of the contract, including all renewal options, must not exceed the lesser of 80 percent of the reasonably expected useful life of the financed property and 15 years. For purposes of this section 5.03(1), a fee does not fail to qualify as a periodic fixed fee as a result of a one-time incentive award during the term of the contract under which compensation automatically in- creases when a gross revenue or ex- pense target (but not both) is reached if that award is equal to a single, stated dollar amount. (2) 80 percent periodic fixed fee arrangements. At least 80 percent of the compensation for services for each an- nual period during the term of the contract is based on a periodic fixed fee. The term of the contract, including all renewal options, must not exceed the lesser of 80 percent of the reasonably expected useful life of the financed property and 10 years. For purposes of this section 5.03(2), a fee does not fail to qualify as a periodic fixed fee as a result of a one-time incentive award during the term of the contract under which compensation automatically in- creases when a gross revenue or ex- pense target (but not both) is reached if that award is equal to a single, stated dollar amount. (3) Special rule for public utility property. If all of the financed property subject to the contract is a facility or system of facilities consisting of pre- dominantly public utility property (as defined in § 168(i)(10) of the 1986 Code), then "20 years" is substituted — (a) For "15 years" in applying section 5.03(1) of this revenue proce- dure; and (b) For "10 years" in applying section 5,03(2) of this revenue proce- dure. (4) 50 percent periodic fixed fee arrangements. Either at least 50 percent of the compensation for services for each annual period during the term of the contract is based on a periodic fixed fee or all of the compensation for services is based on a capitation fee or a combination of a capitation fee and a periodic fixed fee. The term of the contract, including all renewal options, must not exceed 5 years. The contract must be terminable by the qualified user on reasonable notice, without penalty or cause, at the end of the third year of the contract term. (5) Per -unit fee arrangements in certain 3-year contracts. All of the compensation for services is based on a per -unit fee or a combination of a per -unit fee and a periodic fixed fee. The term of the contract, including all renewal options, must not exceed 3 years. The contract must be terminable by the qualified user on reasonable notice, without penalty or cause, at the end of the second year of the contract term. (6) Percentage of revenue or ex- pense fee arrangements in certain 2-year contracts. All the compensation for services is based on a percentage of fees charged or a combination of a per -unit fee and a percentage of revenue or expense fee. During the start-up pe- riod, however, compensation may be based on a percentage of either gross revenues, adjusted gross revenues, or expenses of a facility. The term of the contract, including renewal options, must not exceed 2 years. The contract must be terminable by the qualified user on reasonable notice, without penalty or cause, at the end of the first year of the contract term. This section 5.03(6) ap- plies only to — (a) Contracts under which the service provider primarily provides ser- vices to third parties (for example, radi- ology services to patients); and (b) Management contracts in- volving a facility during an initial start-up period for which there have been insufficient operations to establish a reasonable estimate of the amount of the annual gross revenues and expenses (for example, a contract for general management services for the first year of operations). .04 No Circumstances Substantially Limiting Exercise of Rights. (1) In general. The service pro- vider must not have any role or relation- ship with the qualified user that, in effect, substantially limits the qualified user's ability to exercise its rights, in- cluding cancellation rights, under the contract, based on all the facts and circumstances. (2) Safe harbor This requirement is satisfied if (a) Not more than 20 percent of the voting power of the governing body of the qualified user in the aggregate is vested in the service provider and its directors, officers, shareholders, and em- ployees; (b) Overlapping board members do not include the chief executive offic- ers of the service provider or its govern- ing body or the qualified user or its governing body; and (c) The qualified user and the service provider under the contract are not related parties, as defined in § 1.150-1(b). SECTION 6. EFFECT ON OTHER DOCUMENTS Rev. Proc. 93-19, 1993-1 C.B. 526, is made obsolete on the effective date of this revenue procedure. SECTION 7. EFFECTIVE DATE This revenue procedure is effective for any management contract entered into, materially modified, or extended (other than pursuant to a renewal op- tion) on or after May 16, 1997. In addition, an issuer may apply this rev- enue procedure to any management con- tract entered into prior to May 16, 1997. DRAFTING INFORMATION The principal author of this revenue procedure is Loretta J. Finger of the Office of Assistant Chief Counsel (Fi- nancial Institutions and Products). For further information regarding this rev- enue procedure contact Loretta J. Finger on (202) 622-3980 (not a toll -free call). 26 CFR 601.601: Rules and regulations. (Also Part I,, se,s3 103, 141, 145; 1,141-3, 1.145-2 ) Rev. Proc. 97-14 SECTION 1. PURPOSE The purpose of this revenue proce- dure is to set forth conditions under which a research agreement does not result in private business use under § 141(b) of the Internal Revenue Code of 1986. This revenue procedure also applies to determinations of whether a research agreement causes the test in § 145(a)(2)(B) of the 1986 Code to be met for qualified 501(c)(3) bonds. SECTION 2. BACKGROUND .01 Private Business Use. (1) Under § 103(a) of the 1986 Code, gross income does not include interest on any state or local bond. Under § 103(b)(1) of the 1986 Code, however, § 103(a) of the 1986 Code does not apply to a private activity bond, unless it is a qualified bond under § 141(e) of the 1986 Code. Section 141(a)(1) of the 1986 Code defines "private activity bond" as any bond issued as part of an issue that meets both the private business use and the private security or payment tests, Under 20 Miami, FL Code of Ordinances Page 1 of 2 Sec. 29-B. - City -owned property sale or lease —Generally. Notwithstanding any provision to the contrary contained in this Charter or the City Code, and except as provided below, the city commission is prohibited from favorably considering any sale or lease of property owned by the city unless there is a return to the city of fair market value under such proposed sale or lease. The city commission is also prohibited from favorably considering any sale or lease of city -owned property unless (a) there shall have been, prior to the date of the city commission's consideration of such sale or lease, an advertisement soliciting proposals for said sale or lease published in a daily newspaper of general paid circulation in the city, allowing not less than ninety (90) days for the city's receipt of proposals from prospective purchasers or lessees, said advertisement to be no less than one-fourth (1/4) page and the headline in the advertisement to be in a type no smaller than 18-point and, (b) except as provided below, there shall have been at least three (3) written proposals received from prospective purchasers or lessees; however, if there are less than three (3) such proposals received and if the guaranteed return under the proposal whose acceptance is being considered is equal to fair market value the city commission determines that the contemplated sale or lease will be in the city's best interest then, subject to the approval of a majority of the votes cast by the electorate at a referendum, the sale or lease may be consummated. Any lease for the development of improvements of city -owned property which has been approved by voter referendum shall require additional voter referendum approval for a development on City -owned property where the developer has not obtained the necessary building permits within four (4) years of the effective date of the lease. Such section shall not be applicable when the delay in the performance of any obligation is as a result of force majeure, or litigation that questions the validity of the vote, or the City Commission action to place the question for referendum, then the performance of such obligation shall be extended by the length of the delay. In the case of city -owned property which is not waterfront, when the value of such property to be sold or leased (individual leaseholds within a single city -owned property shall not be considered as a single parcel of property for such valuation purposes) is five hundred thousand dollars ($500,000) or less, based on an appraisal performed by a state -certified appraiser, the city commission, by a 4/5ths affirmative vote, may sell or lease said city -owned property after compliance with the advertisement requirements set forth above but without the necessity of a referendum. The above provisions and any other city requirements for competitive bidding shall not apply when: (a) conveying property to implement housing programs or projects which are intended to benefit persons or households with low and/or moderate income, the criteria of which to be provided for by federal and/or state law or by the city commission; (b) conveying property to implement projects authorized under the Florida Community Redevelopment Act of 1969, as amended; (c) conveying property to implement projects of any governmental agency or instrumentality; (d) disposing of property acquired as a result of foreclosure; (e) disposing of property acquired in connection with delinquent taxes which properties were conveyed to the city by the Miami -Dade board of county commissioners under the provisions of Section 197.592 Florida Statutes, as amended; and about:blank 11/2/2015 Miami, FL Code of Ordinances Page 2 of 2 (f) disposing of non -waterfront property to the owner of an adjacent property when the subject property is 7,500 square feet or less or the subject non -waterfront property is non -buildable. Notwithstanding anything herein to the contrary, the city commission, by a 4/5ths affirmative vote, may: (a) grant a lessee of city -owned property a one-time extension during the last five years of its lease, without the necessity of a referendum, for the purpose of funding additional capital improvements. The extended term shall not exceed twenty-five percent of the original term or ten years, whichever is less. The granting of such an extension is subject to the lessee paying fair market rent as determined by the city at the time of such extension and not being in default of its lease with the city nor in arrearage of any monies due the city; and (b) amend the Lease Agreement between the City of Miami and Biscayne Bay Restaurant Corp., d/b/a Rusty Pelican, dated February 13, 1970, as amended, to (i) extend the lease for an additional term of fifteen (15) years, with the option to renew for two (2) additional five (5) year periods, (ii) increase the amount of the minimum guarantee to the City to at least $360,000 per lease year effective upon execution of the lease amendment, and (iii) require Rusty Pelican to complete capital improvements to the property, including a public baywalk, in the amount of not less than $3 Million, within twenty-four (24) months of the effective date of the lease amendment. Notwithstanding anything in this Charter to the contrary, the City may enter into leases or management agreements, for any City -owned submerged lands, with entities having a possessory or ownership interest in the abutting riparian uplands for building marinas, docks or like facilities, using methods adopted by ordinance on the condition that such leases or management agreements result in a return to the City of at least fair market value. (Res. No. 87-678, § 2(a), 7-9-87/11-3-87; Res. No. 01-841, § 2, 8-9-01; Res, No. 01-843, § 2, 8-9-01; Res. No. 03-855, § 2, 7-24-03; Res. No. 14-0184, § 1, 5-8-14; Res. No. 14-0225, § 1, 6-12-14) about:blank 11/2/2015