Idle Facility and Tax-Exempt Debt

Idle Facility and Tax-Exempt Debt

November 11, 1998 | By Keith Martin in Washington, DC

Letting a facility that was financed with tax-exempt debt sit idle may cause loss of the tax exemption on the debt.

A cement company used tax-exempt financing for a recycling plant for disposing of waste paints and solvents. It eventually shut down the equipment because the plant was outmoded technologically. The company then worked out a remediation plan with the US Environmental Protection Agency that required demolishing the equipment altogether.

The IRS said in a private ruling recently that this was okay. The tax-exempt debt could remain outstanding. The ruling discussed whether there was a “change in use” of the plant much earlier when it shut down, but said there was not because the owner “kept the components in a condition so that they could be reactivated and used for the qualifying purpose for which the bonds were issued.”

A change in use would have required that the bonds be repaid within 90 days (or the funds set aside in escrow).