WASHINGTON -- A private, nonprofit college does not have to count student loan bonds issued before 1986 toward the $150 million limit on the tax-exempt 501(c)(3) bonds it may have outstanding, the Internal Revenue Service has ruled.

The private letter ruling, which was published by the IRS last week without identifying the parties involved, takes a broad view on the amount of tax-exempt bonds that private colleges may have outstanding standing by relying on the intent Congress used in writing the Tax Reform Act of 1986, rathen than on the actual language of the law, several lawyers said this week.

The 1986 Tax Reform Act imposed a $150 million limit on tax-exempt 501(c)(3) bonds that private not-for-profit organizations could have outstanding at any time, but it excepted qualified hospital bonds from that limit.

But the IRS ruled that Congress did not intend to sweep student loan bonds under that limit. IRS reached its conclusion despite provisions included in the 1986 law that could be read to say such bonds are subject to the limit, the lawyers said.

"It's a very helpful ruling," said William Loafman, a lawyer with Christian & Loafman in Washington. "The IRS is stretching to get a result that makes sense from a policy standpoint," he said.

"It's good news," said Robert W. Buck, a lawyer with Palmer & Dodge in Boston. "And as a matter of policy, it's the right decision," he said.

The private letter ruling involved a nonprofit college that issued tax-exempt bonds and a nonprofit corporation, controlled by the college, that issued tax-exempts to finance student loans.

The college feared that the tax law might require it to count the bonds issued by the corporation before 1986 to determine whether the school had reached its $150 million limit on outstanding qualified 501(c)(3) bonds.

The concern stemmed from Section 145(b)(2)(B)(ii) of the tax law, which defines the kinds of bonds that are subject to, and excluded from, the limit.

"The problem is that section 145 was drafted in a way that didn't include student loan bonds" among those bonds that are expected from the limit, said R. Todd Greenwalt, a lawyer with Vinson & Elkins in Houston. "It only excepted tax-exempt private activity bonds, industrial park bonds, and small-issue industrial development bonds," he said.

That section of the tax law also states that the $150 million limit applies to any bond that would have been an industrial development bond if the 501(c)(3) organization that issued or benefited from it was not a tax-exempt organization. It was not clear if student loan bonds would be considered taxable industrial development bonds under that test, the lawyers said.

But the IRS ruled that Congress intended, according to the conference report on the 1986 Tax Reform Act, that the $150 million limit apply to those pre-1986 bonds that, if issued after 1986, would be or would be very similar to tax-exempt 501(c)(3) bonds as defined by the 1986 act. If student loan bonds issued after 1986 are not subject to the $150 million limit, then such bonds issued before that date should not be subject to the limit either, the IRS reasoned.

"If you read the language carefully, you might have to count these bonds toward the $150 million limit," said Mr. Loafman. "But the IRS leaned very heavily on the legislative history to say, forget what the statute says, you don't have to count these bonds under the limit.

"It's a very interesting ruling for that reason," he said.

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