Section 147. Other requirements applicable to certain private activity bonds
(a) Substantial user requirement.
(1) In general. Except as provided in subsection (h), a private activity bond shall not be a qualified bond for any period during which it is held by a person who is a substantial user of the facilities or by a related person of such a substantial user.
(2) Related person. For purposes of paragraph (1), the following shall be treated as related persons
(A) 2 or more persons if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b),
(B) 2 or more persons which are members of the same controlled group of corporations (as defined in section 1563(a), except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein),
(C) a partnership and each of its partners (and their spouses and minor children), and
(D) an S corporation and each of its shareholders (and their spouses and minor children).
(b) Maturity may not exceed 120 percent of economic life.
(1) General rule. Except as provided in subsection (h), a private activity bond shall not be qualified bond if it is issued as part of an issue and
(A) the average maturity of the bonds issued as part of such issue, exceeds
(B) 120 percent of the average reasonably expected economic life of the facilities being financed with the net proceeds of such issue.
(2) Determination of average. For purposes of paragraph (1)-
(A) the average maturity of any issue shall be determined by taking into account the respective issue prices of the bonds issued as part of such issue, and
(B) the average reasonably expected economic life of the facilities being financed with any issue shall be determined by taking into account the respective cost of such facilities.
(3) Special rules.
(A) Determination of economic life. For purposes of this subsection, the reasonably expected economic life of any facility shall be determined as of the later of-
(i) the date on which the bonds are issued, or
(ii) the date on which the facility is placed in service (or expected to be placed in service).
(B) Treatment of land.
(i) Land not taken into account. Except as provided in clause (ii), land shall not be taken into account under paragraph (1)(B).
(ii) Issues where 25 percent or more of proceeds used to finance land. If 25 percent of more of the net proceeds of any issue is to be used to finance land, such land shall be taken into account under paragraph (1)(B) and shall be treated as having an economic life of 30 years.
(4) Special rule for pooled financing of 501(c)(3) organization.
(A) In general. At the election of the issuer, a qualified 501(c)(3) bond shall be treated as meeting the requirements of paragraph (1) if such bond meets the requirements of subparagraph (B).
(B) Requirements. A qualified 501(c)(3) bond meets the requirements of this subparagraph if-
(i) 95 percent or more of the net proceeds of the issue of which such bond is a part are to be used to make or finance loans to 2 or more 501(c)(3) organizations or governmental units for acquisition of property to be used by such organizations,
(ii) each loan described in clause (i) satisfies the requirements of paragraph (1) (determined by treating each loan as a separate issue),
(iii) before such bond is issued, a demand survey was conducted which shows a demand for financing greater than an amount equal to 120 percent of the lendable proceeds of such issue, and
(iv) 95 percent or more of the net proceeds of such issue are to be loaned to 501(c)(3) organizations or governmental units within 1 year of issuance and, to the extent there are any unspent proceeds after such 1-year period, bonds issued as part of such issue are to be redeemed as soon as possible thereafter (and in no event later than 18 months after issuance).
A bond shall not meet the requirements of this subparagraph if the maturity date of any bond issued as part of such issue is more than 30 years after the date on which the bond was issued (or, in the case of refunding or series of refundings, the date on which the original bond was issued).
(5) Special rule for certain FHA insured loans. Paragraph (1) shall not apply to any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to finance mortgage loans insured under FHA 242 or under a similar Federal Housing Administration program (as in effect on the date of the enactment of the Tax Reform Act of 1986) where the loan term approved by such Administration plus the maximum maturity of debentures which could be issued by such Administration in satisfaction of its obligations exceeds the term permitted under paragraph (1).
(c) Limitation on use for land acquisition.
(1) In general. Except as provided in subsection (h), a private activity bond shall not be a qualified bond if-
(A) it is issued as part of an issue and 25 percent or more of the net proceeds of such issue are to be used (directly or indirectly) for the acquisition of land (or an interest therein), or
(B) any portion of the proceeds of such issue is to be used (directly or indirectly) for the acquisition of land (or an interest therein) to be used for farming purposes.
(2) Exception for first-time farmers.
(A) In general. If the requirements of subparagraph (B) are met with respect to any land, paragraph (1) shall not apply to such land, and subsection (d) shall not apply to property to be used thereon for farming purposes, but only to the extent of expenditures (financed with the proceeds of the issue) not in excess of $250,000.
(B) Acquisition by first-time farmers. The requirements of this subparagraph are met with respect to any land if-
(i) such land is to be used for farming purposes, and
(ii) such land is to be acquired by an individual who is a first-time farmer, who will be the principal user of such land, and who will materially and substantially participate on the farm of which such land is a part in the operation of such farm.
(C) First-time farmer. For purposes of this paragraph-
(i) In general. The term "first-time farmer" means any individual if such individual-
(I) has not at any time had any direct or indirect ownership interest in substantial farmland in the operation of which such individual materially participated, and
(II) has not received financing under this paragraph in an amount which, when added to the financing to be provided under this paragraph, exceeds $250,000.
(ii) Aggregation rules. Any ownership or material participation, or financing received, by an individual's spouse or minor child shall be treated as ownership and material participation, or financing received, by the individual.
(iii) Insolvent farmer. For purposes of clause (i), farmland which was previously owned by the individual and was disposed of while such individual was insolvent shall be disregarded if section 108 applied to indebtedness with respect to such farmland.
(D) Farm. For purposes of this paragraph, the term "farm" has the meaning given such term by section 6420(c)(2).
(E) Substantial farmland. For purposes of this paragraph, the term "substantial farmland" means any parcel of land unless-
(i) such parcel is smaller than 15 percent of the median size of a farm in the county in which such parcel is located, and
(ii) the fair market value of the land does not at any time while held by the individual exceed $125,000.
(F) Used equipment limitation. For purposes of this paragraph, in no event may the amount of financing provided by reason of the paragraph to a first-time farmer for personal property-
(i) of a character subject to the allowance for depreciation.
(ii) the original use of which does not begin with such farmer, and
(iii) which is to be used for farming purposes.
exceed $62,500. A rule similar to the rule of subparagraph (C)(ii) shall apply for purposes of the preceding sentence.
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