SECTION 3. BACKGROUND

3.01. Gulf Opportunity Zone Bonds

Section 1400N(a)(1) provides that any qualified Gulf Opportunity Zone Bond described in § 1400N(a)(2)(A)(i) shall be treated as an exempt facility bond and any qualified Gulf Opportunity Zone Bond described in § 1400N(a)(2)(A)(ii) shall be treated as a qualified mortgage bond.

Section 1400N(a)(2) defines a qualified Gulf Opportunity Zone Bond as any bond issued as part of an issue if (1) 95 percent or more of the net proceeds (as defined in § 150(a)(3)) of such issue are to be used for qualified project costs, or such issue meets the requirements of a qualified mortgage issue, except as otherwise provided in § 1400N(a); (2) such bond is issued by the State of Alabama, Louisiana or Mississippi or any political subdivision thereof; (3) such bond is designated for purposes of § 1400N(a) either by the Governor of such State, or in the case of a bond which is required under State law to be approved by the bond commission of such state, by such bond commission; (4) the bond is issued after December 21, 2005, and before January 1, 2011; and (5) no portion of the proceeds of such issue is to be used to provide any property described in § 144(c)(6)(B). Section 144(c)(6)(B) states that no portion of the proceeds of such issue is to be used to provide (including the

provision of land for) any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.

Section 1400N(a)(4) defines qualified project costs as the cost of any qualified residential rental project (as defined in § 142(d)) located in the GO Zone, the cost of acquisition, construction, reconstruction and renovation of nonresidential real property (including fixed improvements associated with such property) located in the GO Zone, and the cost of acquisition, construction, reconstruction and renovation of public utility property (as defined in § 168(i)(10)) located in the GO Zone.

Section 1400N(a)(3)(B) provides that Gulf Opportunity Zone Bonds shall not be used for movable fixtures and equipment.

Section 1400N(d)(2)(B)(ii) provides that the special depreciation allowance (or “bonus depreciation”) provided for under § 1400N(d)(1) is not available for Qualified Gulf Opportunity Zone property (as defined in § 1400N(d)(2)) if any portion of such property is financed with the proceeds of any obligation, including Gulf Opportunity Zone Bonds, the interest on which is exempt from tax under § 103.

3.02. Gulf Opportunity Zone Advance Refunding Bonds

Section 1400N(b)(1) permits the issuance of Gulf Opportunity Zone Advance Refunding Bonds to provide one additional advance refunding of bonds described in § 1400N(b)(3) under the applicable rules of § 149(d) between December 21, 2005, and January 1, 2011, if the Governor of the State designates the Gulf Opportunity Zone Advance Refunding Bonds for purposes of § 1400N(b) and the requirements of § 1400N(b)(5) are met. A bond is described under § 1400N(b)(3) if such bond was outstanding on August 28, 2005, and is issued by the State of Alabama, Louisiana, or Mississippi or a political subdivision thereof.

Section 1400N(b)(2) provides that with respect to bonds described in § 1400N(b)(3) that are exempt facility bonds described in paragraph (1) or (2) of § 142(a), Gulf Opportunity Zone Advance Refunding Bonds may be issued

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Section 1400N(l)(4)(A) provides that a Gulf Tax Credit Bond means any bond issued as part of an issue if: (1) the bond is issued by the State of Alabama, Louisiana or Mississippi; (2) 95 percent or more of the proceeds of the issue are to be used to pay principal, interest, or premiums on qualified bonds issued by such State or any political subdivision of such State, or to make a loan to any political subdivision of such State to pay principal, interest or premiums on qualified bonds issued by such subdivision; (3) the Governor of such State designates such bond for purposes of §1400N(l); (4) the bond is a general obligation of such State and is in registered form (within the meaning of § 149(a)); (5) the maturity of such bond does not exceed 2 years; and (6) the bond is issued after December 31, 2005, and before January 1, 2007. Section 1400N(l)(4)(D) provides that a bond that is part of an issue of Gulf Tax Credit Bonds shall not be treated as a Gulf Tax Credit Bond unless, with respect to the issue of which the bond is a part, the issuer satisfies the arbitrage requirements of § 148 with respect to the proceeds of the issue and any loans made with such proceeds.

Section 1400N(l)(5)(A) provides that the term qualified bond for purposes of § 1400N(l) means any obligation of a State or political subdivision thereof which was outstanding on August 28, 2005. Sections 1400N(l)(5)(B), (C), and (D) further provide that such term does not include any private activity bond, any bond with respect to which there is any outstanding refunded or refunding bond during the period in which a Gulf Tax Credit Bond is outstanding with respect to such bond, or any bond issued as part of an issue if any portion of the proceeds of such issue was (or is to be) used to provide any property described in § 144(c)(6)(B).

Section 1400N(l)(6) provides that the amount of credit allowed to a taxpayer under § 1400N(l) (determined without regard to § 1400N(l)(3)) shall be treated as interest and included in the gross income of the taxpayer.

Section 1400N(l)(7)(D) requires issuers of Gulf Tax Credit Bonds to submit reports similar to the reports required under § 149(e) for tax-exempt State or local bonds. Section 149(e) generally requires issuers of tax exempt bonds to file an infor

mation return with the Secretary not later than the 15 ^th day of the 2 ^nd calendar month after the close of the calendar quarter in which the bond is issued.