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<br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br /> <br />II. <br /> <br />III. <br /> <br />IV. <br /> <br />LEGAL ASPECTS OF PUBLIC AND PRIVATE FINANCING <br />OF WATER PROJECTS - FEDERAL TAX LAW CONSIDERATIONS <br /> <br />Dennis R. Deveney <br />Mudge Rose Guthrie & Alexander <br /> <br />I. <br /> <br />Two methods of achieving tax-exempt status for bonds issued <br />to finance water facilities <br /> <br />A. Non-industrial development bonds <br /> <br />B. Tax-exempt industrial development bonds qualifying under <br />Section 103 (b) (4) (G) <br /> <br />Industrial development bond tests <br /> <br />A. Trade or business test <br /> <br />B. Security interest test <br /> <br />C. Subparagraph (5) output rules <br /> <br />1. Rules are a special application of the general trade or <br />business and security interest tests <br /> <br />2. "Front loading" and "back loading" possibilities <br /> <br />3. 3 percent exception <br /> <br />4. Financing more than 25 percent of the beneficial <br />interest in the water project for a taxable entity <br />through the use of the "maximum capacity" concept <br /> <br />5. Application of rules to facilities other than reser- <br />voirs <br /> <br />D. Effect of management contracts <br /> <br />Exemption available for industr ial development bonds under <br />Section 103 (b) (4) (G) <br /> <br />A. 90 percent test <br />B. Types of facilities eligible for financing <br /> <br />C. Facility must be operated by a governmental unit or a <br />regulated public utility <br /> <br />D. Public use requirement <br /> <br />General overview of arbitrage restrictions <br />