SECTION 2. BACKGROUND

Section 1400N(a) of the Code permits certain tax-exempt bond financing in a Gulf Opportunity Zone, which includes areas in the States of Alabama, Louisiana and Mississippi affected by Hurricane Katrina.

The Act authorizes certain tax-exempt bond financing in a Midwestern disaster area as defined under § 702(b) of the Act which includes certain counties in certain Midwestern States affected by severe storms, tornados, or flooding (Midwestern Disaster Area), and in a Hurricane Ike disaster area as defined under § 704(c) of the Act which includes certain counties in Texas and parishes in Louisiana affected by Hurricane Ike (Hurricane Ike Disaster Area). These disasters are sometimes referred to in this Notice as “Midwestern Disaster” and “Hurricane Ike,” respectively.

Sections 702 and 704 of the Act provide generally that the special provisions for tax-exempt bond financing in the Gulf Opportunity Zone under § 1400N(a) of the Code apply with certain modifications to tax-exempt bond financing in the Midwestern and Hurricane Ike Disaster

Areas. Tax-exempt bonds that meet these modified requirements are referred to as “Qualified Midwestern Disaster Area Bonds” or “Qualified Hurricane Ike Disaster Area Bonds” in relevant provisions of § 1400N(a), as modified by the Act.

Previously, in Notice 2008–109, 2008–50 I.R.B. 1282 (December 15, 2008), the Internal Revenue Service (IRS) provided guidance on the counties included within the Midwestern and Hurricane Ike Disaster Areas and the relevant State population information needed to determine the State volume caps applicable to these disaster area bonds.

Sections 702(d)(1)(A)(i) and 704(a)(1)(A) of the Act generally provide a modified definition of qualified project costs under § 1400N(a)(2)(A)(i) that may be financed with Qualified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Disaster Area Bonds that treat costs as qualified project costs only if: (1) in the case of a project involving a private business use (as defined in § 141(b)(6)), either the person using the property suffered a loss in a trade or business attributable to a Midwestern Disaster or Hurricane Ike or is a person designated for purposes of this section by the Governor of the State in which the project is located as a person carrying on a trade or business replacing a trade or business with respect to which another person suffered such a loss, and, (2) in the case of a project relating to public utility property, the project involves repair or reconstruction of public utility property damaged by a Midwestern Disaster or Hurricane Ike.

Sections 702(d)(1)(C) and 704(a)(3) of the Act modify § 1400N(a)(2)(C) to require that Qualified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Disaster Area Bonds be “designated” for volume cap allocation purposes on the basis of providing assistance to areas in the order in which such assistance is most needed.

Certain interpretive questions have arisen under the Act regarding determinations of qualified project costs, designations of areas of greatest need, the scope of gubernatorial discretion on these matters, and the scope of eligible financing by public utilities with Qualified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Disaster Area Bonds. In addition, certain interpretive questions have arisen

January 19, 2010 299 2010–3 I.R.B.

the case of Qualified Midwestern Disaster Area Bonds, Hurricane Ike Disaster Area Bonds, and Gulf Opportunity Zone Bonds, the maximum reimbursement period under § 1.150–2(d)(2) is treated as ending no earlier than December 31, 2010.