1998-06-10 Packet - Laserfiche WebLink

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TAX EXEMPTION In the opinion of Bond Counsel, under existing statutes, regulations rulings and decisions, interest on the Bonds is not includible in the "gross income" of the owners thereof for purposes of federal income taxation and is not includable in taxable net income of individuals, estates or trusts for purposes of State of Minnesota income taxation, but is subject to State of Minnesota franchise taxes measured by income that are imposed upon corporations, including financial institutions. Noncompliance following the issuance of the Bonds with certain requirements of the Internal Revenue Code of 1986, as amended, (the "Code ") and covenants of the bond resolution may result in the inclusion of interest on the Bonds in gross income (for federal tax purposes) and taxable net income (for State of Minnesota tax purposes) of the owners thereof. No provision has been made for redemption of the Bonds, or for an increase in the interest rate on the Bonds, in the event that interest on the Bonds becomes subject to United States or State of Minnesota income taxation. The Code imposes an alternative minimum tax with respect to individuals and corporations on alternative minimum taxable income. Interest on the Bonds will not be treated as a preference item in calculating alternative minimum taxable income. The Code provides, however, that for taxable years beginning after 1989, a portion of the adjusted current earnings of a corporation not otherwise included in the minimum tax base would be included for purposes of calculating the alternative minimum tax that may be imposed with respect to corporations. Adjusted current earnings include income received that is otherwise exempt from taxation such as interest on the Bonds. The Code provides that in the case of an insurance company subject to the tax imposed by Section 831 of the Code, for taxable years beginning after December 31, 1986 the amount which otherwise would be taken into account as "losses incurred" under Section 832(6)(5) shall be reduced by an amount equal to 15% of the interest on the Bonds that is received or accrued during the taxable year. Interest on the Bonds may be included in the income of a foreign corporation for purposes of the branch profits tax imposed by Section 884 of the Code. Under certain circumstances, interest on the Bonds may be subject to the tax on ., excess net passive income' of Subchapter S corporations imposed by Section 1375 of the Code. The above is not a comprehensive list of all Federal tax consequences which may arise from he receipt of interest on the Bonds. The receipt of interest on the Bonds may otherwise affect the Federal or State 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 Bonds are advised to consult their own tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Bonds. QUALIFIED TAX- EXEMPT OBLIGATIONS Prior to the adoption of the Code, financial institutions were generally permitted to deduct 80% of their interest expenses allocable to tax - exempt bonds . Under the Code, however, financial institutions are generally not entitled to such a deduction for tax - exempt bonds purchased after August 7, 1986. However, the City will designate the Bonds of this issue as qualified tax- exempt obligations pursuant to section 265(b)(3) of the Code which would permit financial institutions to deduct interest expenses allocable to the Bonds to the extent permitted under prior law. 6