10-24-2016 Council Packet - Laserfiche WebLink

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- 9 - RELATED TAX CONSIDERATIONS - SERIES 2016A BONDS AND SERIES 2016C BONDS Interest on the Series 2016A Bonds and the Series 2016C Bonds is not an item of tax preference includable in alternative minimum taxable income for purposes of the federal alternative minimum tax applicable to all taxpayers or the Minnesota alternative minimum tax applicable to individuals, estates and trusts, but is includable in adjusted current earnings in determining the federal alternative minimum taxable income of corporations for purposes of the federal alternative minimum tax. Interest on the Series 2016A Bonds and the Series 2016C Bonds may be includable in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code and is includable in the net investment income of foreign insurance companies for purposes of Section 842(b) of the Code. In the case of an insurance company subject to the tax imposed by Section 831 of the Code, the amount which otherwise would be taken into account as losses incurred under Section 832(b)(5) of the Code must be reduced by an amount equal to fifteen percent of the interest on the Series 2016A Bonds and the Series 2016C Bonds that is received or accrued during the taxable year. Section 86 of the Code requires recipients of certain Social Security and railroad retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Series 2016A Bonds and the Series 2016C Bonds. Passive investment income, including interest on the Series 2016A Bonds and the Series 2016C Bonds, may be subject to federal income taxation under Section 1375 of the Code for a Subchapter S corporation that has Subchapter C earnings and profits at the close of the taxable year if greater than twenty-five percent of the gross receipts of such Subchapter S corporation is passive investment income. Section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series 2016A Bonds and the Series 2016C Bonds or, in the case of a financial institution, that portion of the holder’s interest expense allocated to interest on the Series 2016A Bonds and the Series 2016C Bonds, except with respect to certain financial institutions (within the meaning of Section 265(b) of the Code). The above is not a comprehensive list of all federal tax consequences that may arise from the receipt of interest on the Series 2016A Bonds and the Series 2016C Bonds. The receipt of interest on the Series 2016A Bonds and the Series 2016C Bonds may otherwise affect the federal or State of Minnesota income tax liability of the recipient based on the particular taxes to which the recipient is subject and the particular tax status of other items or deductions. Bond Counsel expresses no opinion regarding any such consequences. All prospective purchasers of the Series 2016A Bonds and the Series 2016C Bonds are advised to consult their own tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Series 2016A Bonds and the Series 2016C Bonds. Original Issue Premium Certain maturities of the Series 2016A Bonds or the Series 2016C Bonds (collectively, the “Premium Bonds”) may be sold to the public at an amount in excess of the stated redemption price at maturity. Such excess of the purchase price of such Premium Bonds over the stated redemption price at maturity constitutes original issue premium with respect to such Premium Bonds. A purchaser of a Premium Bond must amortize any original issue premium over the term of such Premium Bond using constant yield principles, based on the purchaser’s yield to maturity. As original issue premium is amortized, the purchaser’s basis in such Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or a decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser’s basis is reduced, no federal income tax deduction is allowed. Purchasers of any Premium Bonds at a premium, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Premium Bonds.