New Management Contract Rules Affect Tax-Exempt Bond-Financed Projects

Beginning August 19, all newly entered or materially modified management contracts will be subject to the Internal Revenue Service's new safe harbor guidelines for determining whether such management contracts result in private business use of property financed with tax-exempt obligations. Revenue Procedure 2017-13, which modifies Revenue Procedure 2016-44, supersedes and replaces the safe harbors provided under prior IRS guidance. A determination that a management contract results in private business use may have an adverse impact on the ability to finance the property with tax-exempt bonds or impact the tax exemption of previously issued bonds. The following is a summary of the new safe harbor conditions.