December 09, 2008 - 3:00 PM - 3:30 PM

Legal Quick Hit: "Tax-Exempt Bond Financing for Nonprofits"

This event has already occurred.

Walter Calvert spoke to the Association of Corporate Counsel Nonprofit Organizations Committee. He discussed the approaches being taken to gear up for enhanced post-issuance compliance in his session "Tax-Exempt Financing: Worth Considering in a Challenging Economy, But Be Aware of New Tax Compliance Burdens."

A benefit of 501(c)(3) tax-exempt status is the ability to borrow at tax-exempt interest rates. In this tough economy with increased pressures on operating budgets, a beneficial financial planning tool available to 501(c)(3) organizations is the use of tax-exempt financing to fund capital assets. In lieu of funding capital costs entirely from current revenues, an organization could, for example, fund new equipment purchases with a one-time bank loan structured as a tax-exempt lease-purchase agreement, or put in place a tax-exempt commercial paper program to fund periodic capital cost needs on an ongoing basis.

In weighing the costs and benefits of tax-exempt financing, one "cost" factor to consider is the ongoing responsibilities related to post-issuance tax law compliance. Recently, the expansion of Schedule K in the Form 990 implements the IRS's ever-increasing emphasis on post-issuance compliance by requiring extensive reporting on an exempt organization's outstanding tax-exempt debt.