Healthcare Facilities

Section 501(c)(3) Healthcare Bonds
General Rules for Qualified IRC

  • 100% of the project financed must be owned by IRC Section 501(c)(3) organization.
  • No more than 5% of the net proceeds may be used in private trade or business.
  • Must have a TEFRA hearing.
  • No prohibited facilities (skybox, retail liquor, gambling, etc.).
  • Weighted average maturity of Bonds may not exceed 120% of useful life of assets financed (ignore land; life of working capital equals zero).
  • No more than 2% of tax-exempt proceeds may pay costs of issuance.
  • Arbitrage and rebate rules apply.

Management Contract Rules under Revenue Procedure 97-13

  • For-profit manager can be paid expenses and reasonable fee for services.
  • No part of manager’s fee may be based on net revenues.
  • Formulaic approach to permitted duration—15 years if 95% of fee is fixed; 10 years if 80% of fee is fixed; 5 years if 50% of fee is fixed. With 50% fixed fee, contract must be terminable by the 501(c)(3) at year 3 without penalty.

(St. Joes Hospital, Phoenix, Arizona)

Benefits of Qualified IRC Section 501(c)(3) Bonds

  • No Private Activity Bond cap allocation required.
  • No prohibition on advance refundings.
  • No limit on land purchase. No “substantial user/related party” problem.
  • No restriction on acquisition of used property (existing assets).
  • No Alternative Minimum Tax (“AMT”).