Automatic Exemption Revocation for Non-Filing: Automatically Revoked 501(c)(3) Organization Not Qualified as Borrower of Tax-Exempt Bond Proceeds
What effect will automatic revocation have on an organization’s ability to be the borrower of tax-exempt qualified 501(c)(3) bond proceeds?
The borrower of the proceeds of qualified 501(c)(3) bonds must be a section 501(c)(3) organization. The interest on qualified 501(c)(3) bonds is treated as tax-exempt when two principal requirements are met. 1) The property financed by the bonds must be owned by either an organization exempt under section 501(c)(3) or a state or local government entity. 2) The property financed by the bonds must be used almost exclusively by either organizations exempt under section 501(c)(3) or state or local government entities. Also, the use by exempt 501(c)(3) organizations must not constitute unrelated business use. After revocation, an organization would not meet the required criteria to be an owner or primary user of the bond-financed property. For additional information, see Publication 4077, Tax-Exempt Bonds for 501(c)(3) Charitable Organizations.
Revocation of an organization’s section 501(c)(3) status may not have an effect on the organization’s ability to borrow proceeds of certain other types of tax-exempt qualified private activity bonds (such as those for qualified residential rental projects) that qualify for tax-exempt treatment by virtue of criteria not dependent on a user’s 501(c)(3) status.
