IRS Relaxes Restrictions On Management Contracts For Bond-Financed Facilities

The IRS on August 22, 2016 released long-anticipated Revenue Procedure 2016-44 (Rev. Proc. 2016-44), which substantially increases flexibility in, and provides a less formulaic approach to, the ability of a tax-exempt bond issuer or 501(c)(3) conduit borrower to contract with private parties without jeopardizing the tax-exemption of bonds that financed the facilities at which the applicable services are provided. Under the revised guidance, the term of the contract can be up to 30 years, but not in excess of 80% of the weighted average reasonably expected economic life of the managed property, and there are no restrictions on the percentage of compensation that can be variable, so long as none of the compensation constitutes a share of net profits.