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2002-09-25 CC Packet
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2002-09-25 CC Packet
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<br />TAX EXEMPTION <br /> <br />In the opinion of Bond Counsel, under federal and Minnesota laws, regulations, rulings and decisions in effect <br />on the date of issuance of the Bonds, interest on the Bonds is not includable in gross income for federal income <br />tax purposes or in taxable net income of individuals, estates and trusts for Minnesota income tax purposes. <br />Interest on the Bonds is includable in taxable income of corporations and financial institutions for purposes of <br />the Minnesota franchise tax. Certain provisions of the Internal Revenue Code of 1986, as amended (the <br />"Code"), however, impose continuing requirements that must be met after the issuance of the Bonds in order for <br />interest thereon to be and remain not includable in federal gross income and in Minnesota taxable net income. <br />Noncompliance with such requirements by the County may cause the interest on the Bonds to be includable in <br />gross income for purposes of federal income taxation and in taxable net income for purposes of Minnesota in- <br />come taxation, retroactive to the date of issuance of the Bonds, irrespective in some cases ofthe date on which <br />such noncompliance is ascertained. No provision has been made for redemption of or for an increase in the in- <br />terest rate on the Bonds in the event that interest on the Bonds becomes includable in federal gross income or <br />Minnesota taxable income. <br /> <br />Interest on the Bonds is not an item of tax preference includable in alternative minimum taxable income for <br />purposes of the federal alternative minimum tax applicable to all taxpayers or the Minnesota alternativemini- <br />mum tax applicable to individuals, estates and trusts, but is includable in adjusted current earnings in determin- <br />ing the federal alternative minimum taxable income of corporations for purposes of the federal alternative <br />minimum tax. Interest on the Bonds may be includable in the income of a foreign corporation for purposes of <br />the branch profits tax imposed by Section 884 of the Code and is includable in the net investment income of <br />foreign insurance companies for purposes of Section 842(b) of the Code. In the case of an insurance company <br />subject to the tax imposed by Section 831 of the Code, the amount which otherwise would be taken into account <br />as losses incurred under Section 832(b)(5) of the Code must be reduced by an amount equal to fifteen percent of <br />the interest on the Bonds that is received or accrued during the taxable year. Section 86 of the Code requires <br />recipients of certain Social Security and railroad retirement benefits to take into account, in determining the tax- <br />ability of such benefits, receipts or accruals of interest on the Bonds. <br /> <br />Passive Investment Income of S Corporations <br /> <br />Passive investment income, including interest on the Bonds, may be subject to federal income taxation under <br />Section 1375 of the Code for a Subchapter S corporation that has Subchapter C earnings and profits at the close <br />of the taxable year if greater than twenty-five percent of the gross receipts of such Subchapter S corporation is <br />passive investment income. Section 265 of the Code denies a deduction for interest on indebtedness incurred or <br />continued to purchase or carry the Bonds or, in the case of a financial institution, that portion of the holder's <br />interest expense allocated to interest on the Bonds, except with respect to certain financial institutions (within <br />the meaning of Section 265(b) of the Code). <br /> <br />The above is not a comprehensive list of all federal tax consequences which may arise from the receipt of inter- <br />est on the Bonds. The receipt of interest on the Bonds may otherwise affect the federal or State of Minnesota <br />income tax liability of the recipient based on the particular taxes to which the recipient is subject and the par- <br />ticular tax status of other items or deductions. Bond Counsel expresses no opinion regarding any such conse- <br />quences. All prospective purchasers of the Bonds are advised to consult their own tax advisors as to the tax con- <br />sequences of, or tax considerations for, purchasing or holding the Bonds. <br /> <br />Qualified Tax-Exempt Obligations <br /> <br />The Issuer will designate the Bonds as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of <br />the Code relating to the ability of financial institutions to deduct from income for federal income tax purposes, <br />interest expense that is allocable to carrying and acquiring tax-exempt obligations. "Qualified tax-exempt <br />obligations" are treated as acquired by a financial institution before August 8, 1986. Interest allocable to such <br />obligations remains subject to the 20% disallowance under prior law. <br /> <br />I <br />I <br />I <br /> <br />- l4- <br />
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