Summary of ARRTA Provisions
ARRTA Section and Description
De minimis safe harbor exception for tax-exempt interest expense of financial institutions.
Provides new incentives for banks to purchase all types of tax-exempt bonds. Since 1986, banks have been able to deduct only the carrying costs of bank-qualified bonds. ARRTA allows banks to deduct 80% of the carrying costs of purchasing all types of newly issued bonds in 2009 and 2010; to the extent investment in the bonds does not exceed 2% of the bank's total assets.
Modification of small issuer exception to tax-exempt interest expense allocation rules for financial institutions
Increases the small issuer exception to $30 million from its current $10 million level. This will allow smaller governments to place their debt directly with community or other banks who in turn can deduct 80% of the purchasing costs for bonds issued in 2009 and 2010. 501(c)(3) organizations can be treated as "qualified small issuers".
Temporary modification of alternative minimum tax limitations on tax-exempt bonds
Eliminates application of the AMT on private activity and governmental bonds. The interest on certain private activity bonds is not deductible for individuals and corporations who must pay the alternative minimum tax (AMT). The ARRTA eliminates the application of the AMT on all bonds issued in 2009 and 2010, including refunding of bonds that were initially issued after 2003.
Regulated investment companies allowed to pass-thru tax credit bond credits
Permits mutual funds to pass through tax credit bond credits (established or increased by ARRTA) to mutual fund owners/investors. Intended to increase marketability.
Information provided by the Executive Office for Administration and Finance