04-14-2021 Council Packet - Laserfiche WebLink

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34 The Bonds are not “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Code. Original Issue Discount Series 2021D Bonds may be issued with original issue discount (“OID”). A Series 2021D Bond will be treated as issued with OID (a “Discount Bond”. if its “stated redemption price at maturity” (i.e., the sum of all amounts payable on the Series 2021D Bond other than payments of qualified stated interest) exceeds its issue price. OID on a Discount Bond generally accrues pursuant to a constant-yield method and generally accrues in increasingly greater amounts over the life of the Discount Bond. OID that accrues to a holder of a Discount Bond is excluded from federal gross income and from Minnesota taxable net income of individuals, estates, and trusts to the same extent that stated interest on such Discount Bond would be so excluded. The amount of OID that accrues on a Discount Bond is added to the holder’s federal and Minnesota tax basis. OID is taxable under the Minnesota franchise tax on corporations and financial institutions. If a Discount Bond is purchased for a cost that exceeds the sum of the issue price plus accrued interest and accrued OID, the amount of OID that is deemed to accrue thereafter to the purchaser is reduced by an amount that reflects amortization of such excess over the remaining term of the Discount Bond. If the excess is greater than the amount of remaining OID, the basis reduction rules for amortizable bond premium may result in taxable gain upon sale or other disposition of the Series 2021D Bonds, even if the Series 2021D Bonds are sold, redeemed, or retired for an amount equal to or less than their cost. It is possible under certain state and local income tax laws that original issue discount on a Discount Bond may be taxable in the year of accrual and may be deemed to accrue differently than under federal law. Market Discount If a Series 2021D Bond is purchased for a cost that is less than the Series 2021D Bond’s issue price (plus accrued original issue discount, if any), the purchaser will be treated as having purchased the Series 2021D Bond with market discount (unless a statutory de minimis rule applies). Market discount is treated as ordinary income and generally is recognized on the maturity or earlier disposition of the Series 2021D Bond (to the extent that the gain realized does not exceed the accrued market discount on the Series 2021D Bond). Bond Premium A holder that acquires a Series 2021D Bond for an amount in excess of its stated redemption price at maturity generally must, from time to time, reduce the holder’s federal and Minnesota tax basis for the Series 2021D Bond. Premium ge nerally is amortized for federal income tax purposes and Minnesota income and franchise tax purposes on the basis of a bondholder’s constant yield to maturity or to certain call dates with semiannual compounding. Accordingly, holders who acquire Series 2021D Bonds at a premium might recognize taxable gain upon sale of the Series 2021D Bonds, even if such Series 2021D Bonds are sold for an amount equal to or less than their original cost. Amortized premium is not deductible for federal income tax purposes or for purposes of the Minnesota income tax applicable to individuals, estates and trusts. THE FOREGOING IS NOT INTENDED TO BE AN EXHAUSTIVE DISCUSSION OF COLLATERAL TAX CONSEQUENCES ARISING FROM RECEIPT OF INTEREST ON THE SERIES 2021D BONDS. PROSPECTIVE PURCHASERS OR BOND HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO COLLATERAL TAX CONSEQUENCES, INCLUDING WITHOUT LIMITATION, THE DETERMINATION OF GAIN OR LOSS ON THE SALE OF A SERIES 2021 BOND, THE CALCULATIONS OF ALTERNATIVE MINIMUM TAX LIABILITY, THE INCLUSION OF SOCIAL SECURITY OR OTHER RETIREMENT PAYMENTS IN TAXABLE INCOME, THE DISALLOWANCE OF DEDUCTIONS FOR CERTAIN EXPENSES ATTRIBUTABLE TO THE SERIES 2021D BONDS AND STATE OR LOCAL TAX RULES.