4.7.1.7 Qualified 501(c)(3) Bonds

Qualified 501(c)(3) bonds are bonds the proceeds of which are used to finance facilities owned by an exempt organization described in Section 501(c)(3) of the Tax Code. The most common use of these bonds is to finance health care and higher education facilities. Qualified 501(c)(3) bonds also are used to finance low income housing projects and various other charitable facilities. The primary requirements for qualified 501(c)(3) bonds are that any financed facilities must be owned by a public agency or a 501(c)(3) organization and the Private Business Tests must not be satisfied. The following apply for purposes of the Private Business Tests in connection with 501(c)(3) bonds:

501(c)(3) organizations are treated as governmental units to the extent their use of the financed facilities is not an “unrelated trade or business” activity.
The allowable amount of private business use or private payments or security is limited to 5% rather than 10%.

See Section 3.3.9.3, Health Care and Section 3.3.9.4, Education.