School district receives more time to spend clean renewable energy bond proceeds

Plain-English summary

A school district issued new clean renewable energy bonds to buy and install
equipment that would supply electricity at district sites. City approval
problems, a dispute with the contractor, unexpected design changes, and
COVID-19 stay-at-home orders delayed completion and spending of the bond
proceeds. The district asked before the original three-year expenditure period
expired for additional time under former IRC § 54A(d)(2)(B). The IRS found
reasonable cause because the delays were unexpected and beyond the district's
control. It also accepted the district's representation that the remaining
qualified expenditures would proceed with due diligence, and extended the
spending deadline to the redacted requested date.

Ruling snapshot

• Question: May the district extend the three-year period for spending the
  available project proceeds of its new clean renewable energy bonds?
• Outcome: Approved
• Key authorities: Former IRC §§ 54A(d)-(e) and 54C(a), (d)(1)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202042013
Release Date: 10/16/2020
Index Number: 54A.00-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
----------------------, ID No. -------------

Telephone Number:

Refer Reply To:
CC:FIP:5
PLR-110903-20

Date:
July 16, 2020

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Legend

District = -----------------------------------------------------------------------

-----------------------------------------------------------------------------------------------

City = -----------------------------------

State = ------------------------

Bonds = -----------------------------------------------------------------------

------------------------------------------------------------------------

Contractor = -----------------------------------------

Date 1 = ----------------

Date 2 = -------------------

Date 3 = ----------------

Amount 1 = -------------------

Date 4 = -------------------------

PLR-110903-20 2

Dear -----------------:

This is in response to your request on behalf of the District for an extension of the
expenditure period as defined in § 54A(d)(2)(B)(ii)1 of the Internal Revenue Code (the
“Code”)2 for the available project proceeds of the Bonds.

Facts and Representations

You make the following factual representations. The District is a unified school district
organized and existing under the laws of the State and authorized to finance capital
improvements to its facilities. The District issued the Bonds on Date 1 designated as
new clean renewable energy bonds within the meaning of § 54C(a). The Bonds were
issued to finance the purchase and installation of equipment constituting qualified
renewable energy facilities pursuant to § 54C(d)(1) of the Code (the “Equipment”). The
Equipment was to be installed at several sites owned by the District to provide electricity
exclusively for the District.

Contractor was engaged to provide and install the Equipment on the District’s sites.
Subsequent to issuance of the Bonds, Contractor proceeded with due diligence to
provide and install the Equipment. By Date 2, the District had expended Bond proceeds
totaling Amount 1.

However, several events have caused delays in completing the installation of the
Equipment. During installation of the Equipment, the City refused to approve certain
elements associated with the installed Equipment. Approval by the City is necessary to
finish Equipment installation and a necessary milestone prior to payment of the
remaining Bond proceeds. The City claimed that the Equipment, as installed by the
Contractor, created surge issues for the City’s grid and, therefore, would not approve
operation. The District and Contractor are involved in a dispute regarding which party is
responsible for the additional costs associated with the changes necessary to address
the issues raised by the City. In addition, the Equipment has not yet been installed at
the last site because unexpected design changes needed to be made to the site,
delaying construction. Lastly, stay-at-home orders related to the novel coronavirus
disease 2019 have delayed resolution of the dispute with Contractor and installation at
the last site.

1 Public Law No. 115-97, § 13404, 131 Stat. 2138 (2017), repealed the Code provisions related to tax
credit bonds and direct pay bonds effective for bonds issued after December 31, 2017. References in this
revenue procedure to these Code sections refer to those sections as in effect prior to repeal.

PLR-110903-20 3

This unexpected series of events has resulted in unforeseen delays in the spend-down
of the available project proceeds. The original three-year expenditure period for the
Bonds under § 54A(d)(2)(B)(ii) of the Code (“Original Expenditure Period”) expired on
Date 3. The District reasonably expects that issues relating to the Equipment surge and
installation at the last site will be resolved and the remaining available project proceeds
of the Bonds will be expended not later than Date 4.

District submitted its request for this ruling prior to the expiration of the Original
Expenditure Period on Date 3.

Law and Analysis

Section 54A(d)(1) of the Code provides that a new clean renewable energy bond is
treated as a qualified tax credit bond for purposes of Section 54A.

Section 54A(d)(2)(B)(i) of the Code provides in part that to the extent that less than 100
percent of the available proceeds of the issue are expended by the close of the
expenditure period for 1 or more qualified purposes, the issuer shall redeem all of the
nonqualified bonds within 90 days after the end of such period.

Section 54A(d)(2)(B)(ii) of the Code provides that for purposes of this subpart, the term
“expenditure period” means, with respect to any issue, the 3-year period beginning on
the date of issuance. Such term shall include any extension of such period under
clause(iii).

Section 54A(d)(2)(B)(iii) of the Code provides that upon submission of a request prior to
the expiration of the expenditure period (determined without regard to any extension
under this clause), the Secretary may extend such period if the issuer establishes that
the failure to expend the proceeds within the original expenditure period is due to
reasonable cause and the expenditures for qualified purposes will continue to proceed
with due diligence.

Section 54A(e)(4) of the Code defines “available project proceeds” to mean (A) the
excess of (i) the proceeds from the sale of an issue, over (ii) the issuance costs
financed by the issue (to the extent that such costs do not exceed 2 percent of such
proceeds), and (B) the proceeds from any investment of the excess described in
subparagraph (A).

At the time the Bonds were issued, District reasonably expected to spend all available
project proceeds within the Original Expenditure Period. The expected failure to spend
all available project proceeds of the Bonds by the expiration of the Original Expenditure
Period was due to reasonable cause. The expected failure was caused by events that
were not reasonably expected at the time the Bonds were issued and were beyond the
control of District. These events caused a significant delay in committing and spending
the Bond proceeds.

PLR-110903-20 4

District will spend the remaining available project proceeds of the Bonds with due
diligence not later than Date 4.

Conclusion

Under the facts and circumstances of this case, we conclude that District’s failure to
expend the available project proceeds of the Bonds by Date 3 was due to reasonable
cause based on unexpected circumstances and that District’s continued expenditure of
the proceeds for qualified purposes will proceed with due diligence. Therefore, District
is granted an extension of the Original Expenditure Period with respect to the Bonds
until Date 4.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

In accordance with a Power of Attorney on file with this office, a copy of this letter is
being sent to District’s authorized representatives.

The ruling contained in this letter is based upon information and representations
submitted by District and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the materials submitted in
support of the request for a ruling, it is subject to verification upon examination.

Sincerely,

Timothy L. Jones
Senior Counsel, Branch 5
Office of Associate Chief Counsel
(Financial Institutions and Products)