private activity bond


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Private Activity Bond

A tax-exempt municipal bond in which a local government entity is seeking to raise money for a private company. A municipality issues a private activity bond when it wishes to attract a business and the jobs it brings to the area, especially when the business may be otherwise unable to obtain financing for the project. The municipality issuing the bond must be able to prove that a public benefit derives from the private activity bond in order to qualify for tax-exempt status. Private activity bonds generally are not guaranteed by the revenue of the municipality.

private activity bond

A type of municipal bond issued when funds are to be used for a nonessential purpose. Private activity bonds pay taxable interest unless specifically exempted by the federal government. Private activities for which tax-exempt bonds may be issued include airports, electric and gas distribution systems, government mass transportation systems, hazardous waste disposal facilities, solid waste disposal facilities, and student loans. Small issues of industrial development revenue bonds and nonprofit college and hospital bonds are also permitted. Except for nonprofit college and hospital bonds, interest from tax-exempt private activity bonds is subject to the alternative minimum tax. Also called nonessential function bond, private purpose municipal bond. Compare essential function bond. See also 501(c)(3) bond, municipal bond, small-issue bond.
References in periodicals archive ?
Like the House proposal, the bill proposed by the Senate preserves the 9 percent credit and 4 percent credit, but unlike the House version, the Senate bill retains tax-exempt multifamily private activity bonds.
Long-term private activity bond issuances increased 20.
would remove issuances of private activity bonds for water and wastewater projects from the annual state volume caps, allowing local communities to leverage private capital markets in combination with other financial mechanisms to finance water and wastewater infrastructure projects.
If a bond issuance passes both of these subparts, it will be considered a private activity bond.
Except in 2009 and 2010 (see below), tax-exempt interest on private activity bonds other than qualified 501(c)(3) bonds is a tax preference item for both the individual and corporate alternative minimum tax (see Q 1440).
Without With AMT Bonds AMT Bonds Taxable Income $83,100 $83,100 Standard Deduction 10,300 10,300 Personal Exemptions 6,600 6,600 Private Activity Bond Int.
Specifically, Code Section 145(a) provides that you will not create a private activity bond if at least 95 percent of the net proceeds are spent for activities which are not part of an unrelated trade or business.
However, the court noted that there is no requirement that the qualified private activity bond finance a typical governmental function, such as highway construction or police protection.
2 percent of all long-term private activity bond proceeds (Figure C).
This report (1) describes recent trends in tax exempt bonds, (2) provides information on the types of facilities financed with tax-exempt bonds, and (3) discusses borrowing costs considering the methods of selling bonds and compares issuance costs paid from bond proceeds for governmental and qualified private activity bonds.
Private Activity Bond Tests, by Sharon Stanton White (Thompson/ West, 2004), is a reference binder/ looseleaf that provides answers on private activity limits on the use of tax-exempt bond finance facilities.