2002-09-25 CC Packet - Laserfiche WebLink

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TAX EXEMPTION In the opinion of Bond Counsel, under federal and Minnesota laws, regulations, rulings and decisions in effect on the date of issuance of the Bonds, interest on the Bonds is not includable in gross income for federal income tax purposes or in taxable net income of individuals, estates and trusts for Minnesota income tax purposes. Interest on the Bonds is includable in taxable income of corporations and financial institutions for purposes of the Minnesota franchise tax. Certain provisions of the Internal Revenue Code of 1986, as amended (the "Code"), however, impose continuing requirements that must be met after the issuance of the Bonds in order for interest thereon to be and remain not includable in federal gross income and in Minnesota taxable net income. Noncompliance with such requirements by the County may cause the interest on the Bonds to be includable in gross income for purposes of federal income taxation and in taxable net income for purposes of Minnesota in- come taxation, retroactive to the date of issuance of the Bonds, irrespective in some cases ofthe date on which such noncompliance is ascertained. No provision has been made for redemption of or for an increase in the in- terest rate on the Bonds in the event that interest on the Bonds becomes includable in federal gross income or Minnesota taxable income. Interest on the 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 alternativemini- mum tax applicable to individuals, estates and trusts, but is includable in adjusted current earnings in determin- ing the federal alternative minimum taxable income of corporations for purposes of the federal alternative minimum tax. Interest on the 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 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 tax- ability of such benefits, receipts or accruals of interest on the Bonds. Passive Investment Income of S Corporations Passive investment income, including interest on the 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 Bonds or, in the case of a financial institution, that portion of the holder's interest expense allocated to interest on the 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 which may arise from the receipt of inter- est on the Bonds. The receipt of interest on the 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 par- ticular tax status of other items or deductions. Bond Counsel expresses no opinion regarding any such conse- quences. All prospective purchasers of the Bonds are advised to consult their own tax advisors as to the tax con- sequences of, or tax considerations for, purchasing or holding the Bonds. Qualified Tax-Exempt Obligations The Issuer will designate the Bonds as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Code relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. "Qualified tax-exempt obligations" are treated as acquired by a financial institution before August 8, 1986. Interest allocable to such obligations remains subject to the 20% disallowance under prior law. I I I - l4-