04-14-2021 Council Packet - Laserfiche WebLink

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22 judicial or administrative interpretation thereof or certain actions of the Corporation could result in the revocation by the IRS of such determination and loss of the tax-exempt status of the Corporation. Certain of the Corporation’s activities qualify as “charitable” within the meaning of Section 501(c)(3) of the Code by virtue of their adherence to the requirements of relevant IRS Revenue Rulings specifically concerning the provision of residential services to the elderly. Revenue Ruling 72-124 states that an otherwise qualified organization will qualify for charitable status for purposes of the Code if it operates in a manner designed to satisfy the needs of elderly persons for housing, health care and financial security. The need for housing is generally met if the organization provides residential facilities specifically designed to meet some combination of the physical, emotional, recreational, social, religious and similar needs of elderly persons. The need for health care is generally met if the organization directly provides some form of health care or, in the alternative, makes such care available through continuing arrangements with other organizations, facilities or health personnel. The need for financial security is generally met if two conditions are satisfied: (1) the organization must be committed to an established policy of maintaining in residence any persons who become unable to pay their regular charges, and (2) the organization must operate so as to provide its services to the elderly at the lowest feasible cost, taking into account such expenses as the payment of indebtedness, maintenance of adequate reserves, and reserves for physical expansion. Revenue Ruling 79-18 states that a charitable organization providing residential services to the elderly may admit only those tenants who are able to pay full rental charges, provided that those rental charges are set at a level that is within the financial reach of a significant segment of the community’s elderly persons. Although the IRS has addressed various other activities of senior living providers in non-binding private letter rulings, many such activities have not been addressed in any binding opinion, interpretation or policy issued by the IRS. Any failure by the Corporation to remain qualified as tax-exempt under Section 501(c)(3) of the Code could affect the amount of funds available to the Corporation to pay debt service on the Series 2021D Bonds or could lead to a determination that the interest on the Series 2021D Bonds is taxable. The Corporation’s or the Issuer’s failure to continuously comply with certain covenants contained in the Indenture and the Loan Agreement after delivery of the Series 2021D Bonds could result in the loss of the exclusion from gross income of interest on the Series 2021D Bonds by the owners thereof for federal income tax purposes. Tax-exempt organizations are subject to scrutiny from and face the potential for sanctions and monetary penalties imposed by the IRS. If a tax-exempt entity is engaged in private inurement or impermissible private benefit, the IRS may revoke its tax-exempt status. Less onerous sanctions, referred to generally as “intermediate sanctions,” have been enacted, which sanctions focus enforcement on private persons who transact business with a tax-exempt organization rather than the tax-exempt organization itself, but these sanctions do not replace the other remedies available to the IRS mentioned above. Possible Consequence of Tax Compliance Audit The IRS has established a general audit program to determine whether issuers of tax-exempt obligations, such as the Series 2021D Bonds, are in compliance with requirements of the Code that must be satisfied in order for the interest of those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. It cannot be predicted whether the IRS will commence an audit of the Series 2021D Bonds. Depending on all the facts and circumstances and the type of audit involved, it is possible that commencement of an audit of the Series 2021D Bonds could adversely affect the market value and liquidity of the Series 2021D Bonds until the audit is concluded, regardless of its ultimate outcome. Environmental Conditions The Project will be subject to risks arising out of environmental law considerations generally associated with ownership of real estate. Such risks include, in general, a decline in the property value of the Project resulting from possible violations of applicable federal or state environmental laws and regulations, including, but not limited to, the Comprehensive Environmental Compensation and Liability Act of 1980 and the Resource Conservation and Recovery Act of 1976. These risks may be associated with contamination of the Project from hazardous substances located in, on, around or in the vicinity of the Project. Specific environmental risks that can arise in connection with real estate investments, include, without limitation: (1) areas of on-site and off-site environmental contamination; (2) past, present, or future violations of environmental laws; (3) adequacy of waste handling procedures; and (4) potential environmental restrictions on future uses of property. The Project, like other types of commercial real estate, may be