The Gulf Opportunity Zone Act of 2005 (the “Act”) added several new sections to the Internal Revenue Code that provide certain tax benefits for affected hurricane disaster areas. Section 1400N(a) authorized the issuance of Qualified Private Activity Bonds (“Qualified Bonds”) to finance the construction and rehabilitation of residential and nonresidential property located in the Gulf Opportunity Zone (“GO Zone”). The Act gave private business owners and corporations the opportunity to borrow capital at favorable tax-exempt rates to acquire, construct, reconstruct or renovate qualified property in the GO Zone. The deadline for the issuance of GO Zone Bonds was extended through the end of 2011. However, the Act did not address the current refunding of Qualified Bonds after the applicable issuance deadline had passed.

In a refunding, an issuer sells bonds and uses the proceeds to redeem outstanding debt that typically has higher interest rates. In a current refunding, the issuer uses the refunding bond proceeds to redeem the outstanding debt within 90 days. On December 23, 2011, the Internal Revenue Service released an advance copy of Notice 2012-3, which provides guidance on current refunding of outstanding prior issues of Qualified Bonds, including GO Zone Bonds and Hurricane Ike Bonds.

A current refunding of Qualified Bonds that meets the conditions of Notice 2012-3 may be issued after the applicable deadline and still be treated as Qualified Bonds. The conditions include that the original Qualified Bonds must have been issued before the deadline for the issuance of such bonds. The issue price of the current refunding issue must be no greater than the outstanding stated principal amount of the refunded bonds. And, the current refunding issue must meet all applicable requirements for the issuance of tax-exempt private activity bonds, including that the average bond maturity must be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced.

Additionally, as long as the original Qualified Bonds satisfied the designation requirement, no further designation or official state or local governmental action is required for a current refunding of such bonds.

Notice 2012-3 will appear in Internal Revenue Bulletin 2012-3, dated January 17, 2012.