Your acquisition, construction, reconstruction and/or renovation of non-residential real property within the New York Liberty Zone and, under limited circumstances, elsewhere within The City of New York maybe eligible for Qualified New York Liberty Bonds, making it a tax-exempt facility bond as part of the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147), enacted on March 9, 2002.

The term “Qualified New York Liberty Bond” means any bond issued as part of an issue that meets the following requirements:

1. 95% or more of the net proceeds of such issue are to be used for qualified project costs;
2. such bond is issued by the State of New York or any political subdivision thereof;
3. the Governor of New York or the Mayor designates such bond for purposes of this section; and
4. such bond is issued before January 1, 2005.

The aggregate amount of bonds which can be designated under the act shall not exceed $8 billion (of which half may be designated by the Governor and half may be designated by the Mayor) for projects to acquire, build, rebuild and renovate residential rental, nonresidential real, and public utility property in the Zone, or certain nonresidential real property elsewhere in New York City if specific conditions are met. Volume cap limitations shall not apply to such bonds.

The 147(c) limitation on use for land acquisition shall be determined by reference to the aggregate authorized face amount of all qualified New York Liberty Bonds rather than the net proceeds of each issue. Section 147(d) relating to the restrictions on the acquisition of existing property shall be applied by substituting 50% for 15% each place it appears.

The construction exception to rebate shall also apply to construction proceeds of bonds issued under this section.

The Act also permits an additional advance refunding of certain tax-exempt bonds used to finance facilities within New York City. These bonds include only bonds for which all prior-law refunding authority was exhausted before September 12, 2001, and with respect to which the advance refunding bonds authorized under prior law. The maximum amount of advance refunding bonds that may be issued under the Act is $9 billion (of which half may be designated by the Governor and half may be designated by the Mayor). The provision is effective on the date of enactment and before January 1, 2005.

In addition, this legislation authorized issuance of up to $400 million of qualified zone academy bonds annually in calendar years 2002 and 2003. The provision is effective for obligations after the date of enactment.

Useful links:

Notice 2002-42 provides guidance concerning Qualified New York Liberty Bonds and Liberty Advance Refunding Bonds.

Notice 2002-73 clarifies the circumstances in which a state or local bond is treated as issued by the New York City Municipal Water Finance Authority (NYCMWFA) or the Metropolitan Transportation Authority of the State of New York (MTA) for purposes of IRC section 1400L(e)(2)(B).

Notice 2003-40 sets forth guidance, in a question & answer format, with regard to section IRC 1400L(d).

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