Post-Issuance Compliance for Tax-Exempt Bonds Policy

Responsible Unit: Finance | Executive lead: CFO 
Created: 6/2013 | Reviewed/Revised: 9/2019; 1/27/2023 | Effective: 1/27/2023 
Compliance:NWCCU 2.E.1, 2.E.2, 2.E.3
Approving Body: BOT | Classification: Institution-wide 

Policy:  
In connection with the issuance of tax-exempt bonds for the benefit of PNWU, the University agrees that it will do and perform such actions as are permitted by law that are necessary to satisfy continuing requirements of the Code relating to qualification of the interest on such bonds for exclusion from gross income for purposes of the regular federal income tax. Continued access to tax-exempt bond financing is important to PNWU’s ability to fund its capital projects at a reasonable cost. To comply with its existing and future undertakings with respect to tax-exempt bonds, and to ensure continued access to bond markets, it is important that the University comply with the requirements of the Code that must be satisfied with respect to tax-exempt bonds issued for its benefit.  

Pacific Northwest University of Health Sciences (“PNWU” or “the University”) is a Washington nonprofit corporation and, as evidenced by a determination letter received from the Internal Revenue Service (the “IRS”), (a) is an organization that is exempt from the regular federal income tax under Section 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”), other than the tax on unrelated business income imposed by section 511 of the Code, as an organization described in Section 501(c)(3) of the Code, and (b) is not a private foundation under Section 509(a) of the Code.  PNWU borrows the proceeds of tax-exempt qualified 501(c)(3) bonds issued by governmental issuers (sometimes collectively referred to herein as “bonds” or “tax-exempt bonds”) to finance and refinance its capital projects.  The purpose of this Policy is to ensure that the University is in compliance with requirements of the Code and any other statutory, regulatory or contractual requirements with respect to such bonds (including refunded bonds, as applicable) after the bonds are issued. 
  
RESPONSIBILITY FOR MONITORING POST-ISSUANCE COMPLIANCE 
  
Subject to appropriate oversight by its Board of Trustees and Chief Executive Office, the Chief Financial Officer of PNWU shall be responsible for monitoring compliance with post issuance federal tax requirements for bonds issued for the benefit of PNWU, and for the administration of this Policy. 
  
ARBITRAGE YIELD RESTRICTION AND REBATE REQUIREMENTS 
  
The Chief Financial Officer shall maintain or cause to be maintained records of: 
  
a)     purchases and sales of investments made with tax-exempt bond proceeds (including amounts treated as “gross proceeds” of tax-exempt bonds under section 148 of the Code) and receipts of earnings on those investments; 
  
b)    expenditures made with tax-exempt bond proceeds (including investment earnings on bond proceeds) in a timely and diligent manner for the exempt purpose of the bonds, such as for the costs of purchasing, constructing and/or renovating property and facilities; 
  
c)     calculations that will be sufficient to demonstrate to the Internal Revenue Service (the “IRS”) upon an audit of a bond issue that, where applicable, PNWU has complied with an available spending exception to the arbitrage rebate requirement in respect of that bond issue; 
  
d)    calculations that will be sufficient to demonstrate to the IRS upon an audit of a bond issue for which no exception to the arbitrage rebate requirement was applicable, that the rebate amount, if any, that was payable to the United States of America in respect of investments made with gross proceeds of that bond issue was calculated and timely paid with Form 8038-T timely filed with the IRS; and 
  
e)     information and records showing that investments held in yield-restricted advance refunding or defeasance escrows for bonds, and investments made with unspent bond proceeds after the expiration of the applicable temporary period, were not invested in higher-yielding investments. 
  
RESTRICTIONS ON PRIVATE BUSINESS USE 
  
The Chief Financial Officer shall adopt appropriate procedures to monitor the use of the land, buildings, facilities and equipment (“property”) which are financed with the proceeds of the tax-exempt bonds, including procedures to educate and inform the principal operating officials of those departments of PNWU that use the property (the “users”) about the restrictions on private business use that apply to that property after the bonds have been issued. 
  
In particular, the Chief Financial Officer shall confer at least annually with personnel responsible for bond-financed assets to identify and discuss any existing or planned use of such assets, to ensure that those uses are consistent with all covenants and restrictions relating to tax exemption of the bonds.  In addition, the Chief Financial Officer shall provide to the users of the property a copy of this Compliance Policy and other appropriate written guidance advising that: 
  
a)     for this purpose, “private business use” may include:  (1) any unrelated trade or business use under Section 513 of the Code, (2) use of tax-exempt bond proceeds to pay costs of issuance, and (3) any use of the facilities financed or refinanced with tax-exempt bond proceeds (including any substitution of prospective assets) pursuant to a lease, management contract, research agreement, joint venture agreement, incentive payment contract, output contract or any other agreement which conveys special legal entitlements for beneficial use except for (A) any contracts providing for use of not more than 50 days, (B) management contracts that meet the safe harbors set forth in IRS Rev. Proc. 97-13 (or any successor safe harbor guidelines issued by the IRS for qualified research contracts); 
  
b)    under section 145 of the Code, no more than 5% of the net proceeds of any tax-exempt bond issue issued as a qualified 501(c)(3) bond under that section of the Code may be used for a private business use; 
  
c)     before entering into any special arrangement that involved the use of bond-financed property, the user must consult with the Chief Financial Officer, provide the Chief Financial Officer with a description of the proposed use arrangement, and determine whether that use arrangement, if put into effect, will be consistent with the restrictions on private business use of the bond-financed property; 
  
d)    in connection with the evaluation of any proposed use arrangement, the Chief Financial Officer shall consult with general counsel and, if appropriate, nationally recognized bond counsel, to obtain federal tax advice on whether that use arrangement, if put into effect, will be consistent with the restrictions on private business use of the bond-financed property, and, if not, whether any “remedial action” permitted by the Code may be taken as a means of enabling the use arrangement to be put into effect without adversely affected the tax-exempt status of the bonds that financed the property, and 
  
e)     the Chief Financial Officer shall maintain records of such private business use, if any, of bond-financed property, including copies of the pertinent leases, contracts or other documents, and the related determination that those private business uses are not inconsistent with the tax-exempt status of the bonds that financed the property. 
  
RECORDS TO BE MAINTAINED FOR TAX-EXEMPT BONDS 
  
It is the policy of PNWU that, unless otherwise permitted by future IRS regulations or other guidance, written records (which may be in electronic form) will be maintained with respect to each bond issue for as long as those bonds remain outstanding, plus three years.  For this purpose, the bonds include refunding bonds that refund the original bonds and thereby refinance the property that was financed by the original bonds. 
  
The records to be maintained are to include: 
  
a)     the official Transcript of Proceedings for the original issuance of the bonds; 
  
b)    records showing how the bond proceeds were invested, as described in (a) under “ARBITRAGE YIELD RESTRICTION AND REBATE REQUIREMENTS” above; 
  
c)     records showing the bonds proceeds were spent, as described in (b) under “ARBITRAGE YIELD RESTRICTION AND REBATE REQUIREMENTS” above, including purchase contracts, construction contract, requisition forms, progress payment requests, invoices, cancelled checks, payment of bond issuance costs, and records of “allocations” of bond proceeds to make reimbursement for project expenditures made before the bonds were actually issued; 
  
d)    records identifying the assets or portion of assets that are financed or refinanced with proceeds of each issue of Bonds, including a final allocation of Bond proceeds; 
  
e)     information, records and calculations showing that, with respect to each bond issue, the issue was eligible for one of the spending exceptions to the arbitrage rebate requirement or, if not, that the rebate amount, if any, that was payable to the United States of America in respect of investments made with gross proceeds of that bond issue was calculated and timely paid; and 
  
f)records showing that special use arrangement, if any affected bond-financed property, are consistent with applicable restrictions on private business use of property financed with proceeds of tax-exempt bonds. 
  
The basic purpose of the foregoing record retention policy with respect to tax-exempt bonds issued for the benefit of PNWU is to enable the University to readily demonstrate to the IRS upon an audit of any tax-exempt bond issue that the University has fully complied with all federal tax requirements that must be satisfied after the issue date of the bonds so that those bonds continue to be eligible for tax-exemption under the Code. 
   
IDENTIFICATION AND REMEDIATION OF POTENTIAL VIOLATIONS OF FEDERAL TAX REQUIREMENTS FOR TAX-EXEMPT BONDS 
  
If at any time during the life of an issue of tax-exempt bonds, PNWU discovers that a violation of the federal tax requirements applicable to that issue may have occurred, the Chief Financial Officer will advise and consult with general counsel and if appropriate, nationally recognized bond counsel, to determine whether any such violation has actually occurred and, if so, take prompt action to accomplish an available remedial action under the Internal Revenue Service regulations or to enter into a closing agreement with the Internal Revenue Service under the Voluntary Closing Agreement Program described in Notice 2008-31 or other future published guidance. 

EDUCATION POLICY WITH RESPECT TO FEDERAL TAX REQUIREMENTS FOR TAX-EXEMPT BONDS 
  
It is the policy of PNWU that its Chief Financial Officer and all finance department staff, as well as the principal operating officials of those departments of PNWU for which property is financed with the proceeds of tax-exempt bonds should be provided with appropriate education and training on federal tax requirements applicable to tax-exempt bonds.  PNWU enables and encourages appropriate personnel to attend and participate in educational and training programs with regard to the federal tax requirements applicable to tax-exempt bonds. 

Definitions: 
N/A 

Procedure: 
N/A 
 

Related documents: 
Investment Policy 

Policy Resources

For assistance with policies and procedures contact:

Lori Fulton
lfulton@pnwu.edu