Private Business Use (Use of Buildings Financed with Tax-Exempt Debt)

I. Scope  

Where tax-exempt debt is used to finance a facility, the University must comply with IRS laws and regulations applicable to Private Business Use. Pursuant to the Private Business Use test set forth at 26 USC §141, the tax-exempt status of a bond issuance is jeopardized if more than 10% of the tax-exempt bond proceeds are used for Private Business Use.

II. Policy Statement

The University’s debt financing program will comply with all IRS laws and regulations applicable to Private Business Use in tax-exempt financed facilities. The Private Business Use in the facility will remain below the applicable limit for as long as the tax-exempt debt (including any refundings) remains outstanding.

III. Compliance

The University’s Senior Vice President for Administration and Finance is responsible that facilities financed with tax-exempt debt do not exceed the legal tax limits for Private Business Use.

IV. Types of Private Business Use

Most Private Business Use in a tax-exempt financed facility arises from the following arrangements:

A. Leases: Any arrangement that is properly characterized for federal income tax purposes as a lease to a Non-Governmental Person. (IRC §1.141-3)

B. Management Contracts: A Management Contract is any arrangement whereby a Non-Governmental Person actively manages the operations of a facility. Management Contracts include, for example, contracts for dining services, facility management, or vivarium services (management of an animal facility).

However, there are exceptions for certain Management Contracts meeting the Safe Harbors set forth in IRS Revenue Procedure 2017-13. In order to meet the Safe Harbors, the Management Contract must provide for reasonable compensation to the Non-Governmental Person for services rendered with no compensation based in whole or in part on a share of net profits. Arrangements that generally are not treated as net profit arrangements and therefore satisfy the Safe Harbor requirements include contracts for a percentage of gross revenues or expenses (but not both), or a per person or per unit fee.

C. Research Agreements: Sponsored research by a Non-Governmental Person (including the federal government and its agencies) may result in Private Business Use unless the terms of the sponsorship agreement meet the Safe Harbors set forth in IRS Revenue Procedure 2007-47. In general, sponsored research will not result in Private Business Use if: (i) the research in question is properly characterized as Basic Research; (ii) the University’s licensing of the resulting technology to the sponsor is on terms no more favorable than those the University would extend to an unrelated, non-sponsoring party; and (iii) the price paid for that license is determined at the time the resulting technology is available for use. Additional exceptions (as described in IRS Revenue Procedure 2007-47) apply for federally sponsored research and industry-sponsored cooperative research agreements.

D. Ownership: A sale or transfer of ownership to a Non-Governmental Person of tax-exempt financed property. Ownership is determined under federal income tax principles.

E. Other Actual or Beneficial Use: Any other arrangement that conveys special legal entitlements to a Non-Governmental Person for beneficial use of tax-exempt financed property. Examples of such “special legal entitlements” include summer camps having the exclusive right to use a facility, specially designed courses open only to one company, signage on an athletic facility or use of a parking garage for a private event. All event and facility use agreements that take place in a tax-exempt financed facility shall be limited to fifty (50) days.

V. Definitions

Basic Research:  Any original investigation for the advancement of scientific knowledge not having a specific commercial objective (see IRS Rev. Proc. 2007-47).

Non-Governmental Person:  A person other than a governmental person. A governmental person means a state or local government or any instrumentality of such entity. Governmental persons do not include the United States or any agency or instrumentality of the United States.

Private Business Use:  Use in a trade or business carried on by or for the benefit of any Non-Governmental Person. Private Business Use does not include use of a facility by a member of the general public where the facility is open to the public and the user has no special legal entitlement to use of the facility.

Safe Harbor: A provision that shields a party from liability under the law provided that certain conditions are met. IRS revenue procedures contain several Safe Harbors relating to activities which could generate Private Business Use, the most important of which pertain to management contracts and research contracts.

VI.       Dates:

A. Effective Date:   

This policy will become effective upon the date of approval by the Senior Vice President for Administration and Finance and the Provost and Executive Vice President.

B. Timetable for Review

This policy, and any related procedures, shall be reviewed every three years or more frequently as needed.

IX.    Signatures



Senior Vice President for Administration and Finance                


Provost and Executive Vice President

Date approved: January 30, 2014

Revision approved: June 22, 2020