To review a list of known issues we are working on please visit our Workday Finance status page. Have something additional to report? Contact askfinance@virginia.edu
To review a list of known issues we are working on please visit our Workday Finance status page. Have something additional to report? Contact askfinance@virginia.edu
The University finances its capital projects with various sources of funds, including gifts, operating income, state appropriations and debt issued in the form of commercial paper and bonds. IRS regulations permit nonprofit and governmental entities to issue tax-exempt debt contingent upon use of the facilities for the issuer's charitable nonprofit or governmental purposes. The University has established policies governing the issuance of debt and post-issuance tax compliance.
Any use of tax-exempt funded facilities by or for the benefit of private parties is referred to as “private business use.” IRS regulations set strict limits on the amount of private use permitted in tax-exempt funded facilities: 10% for government-issued debt and 5% for debt issued by nongovernmental nonprofits. In governmental facilities, use by another state agency is generally not considered private use. As an agency of the Commonwealth of Virginia, the University primarily issues governmental debt. However, where the funded facility will be used primarily by a University-related foundation, the University sometimes will issue debt under the nongovernmental nonprofit rules.
Private use is measured over the life of the debt instrument, meaning that the IRS will look to the average yearly private use to determine whether the University has complied with its tax-exempt debt covenants. To calculate the yearly private use for a given facility, IRS regulations require the University to consider the amount of use in terms of both time and space used. For instance, if 10% of a given property is used by a private party during half of the year, the IRS would calculate the private use of the facility to be 5%.
In a public university setting, most private use arises from the following arrangements:
A lease or rental of bond-financed facility by a nongovernmental party constitutes private use. However, the IRS regulation provide certain exceptions:
Management contracts include dining services contracts or arena/stadium management agreements but do not include arrangements incidental to the exempt uses of the facility, such as janitorial services, office equipment repair, or elevator maintenance. IRS Revenue Procedure 2016-44 also provides certain safe harbors for management contracts. In general, the compensation terms of the contract must not be based on a share of net profits from the facility and the agreement must meet certain limitations with respect to duration and amount of variable compensation. Because of the complexity of these rules and to ensure that the contract meets the safe harbors, most University management contracts are reviewed by outside bond counsel.
Sponsored research that grants project intellectual property rights to the sponsor will constitute private use unless the terms of the sponsorship agreement meet one of the safe harbors established in IRS Revenue Procedure 2007-47:
Unrelated business taxable income (UBTI) does not constitute private use for a governmental entity. In contrast, UBTI activities will give rise to private use in facilities funded with 501(c)(3) debt.
Naming a bond-financed facility, or a portion thereof, for a for-profit business will give rise to private use under certain circumstances. Please contact this office if a naming arrangement is being considered.
Unusual fact patterns not described above may give rise to private use if the bond-financed property provides a substantial economic benefit to a private party or if the private party has a special legal entitlement to the property. Please contact this office for more information.
The University’s Treasury Management unit is primarily responsible for debt issuance and post-issuance tax compliance. Financial Operations is responsible for analyzing private use and for internal tracking of debt expenditures.
To ensure compliance with IRS private use rules, Financial Operations has established a policy on the use of buildings financed with tax-exempt debt. Prior to issuance of tax-exempt debt, Financial Operations reviews each project slated for inclusion to determine its impact on the private use limits.
To ensure on-going compliance, each October Financial Operations distributes a private use questionnaire to the fiscal officers responsible for each project funded by tax-exempt debt. The questionnaire can be completed on-line using the on-line private use survey. This office reviews the data reported in the questionnaire and combines the results into an annual Private Use Report. The report lists the private use percentage for each tax exempt bond issuance for that year and identifies any developing private use concerns.
University of Virginia Financial Operations
P.O. Box 400194
Charlottesville, VA 22904-4194
University of Virginia Financial Operations
1001 Emmet Street N.
Charlottesville, VA 22903