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.
A recovery zone exempt facility bond must be a qualified private activity bond under IRC Section 142, the proceeds of which may be used to finance certain "recovery zone property." Recovery zone exempt facility bonds are allocated under a $15-billion national bond volume cap.
If one looks back to the section 103(a) and section 103(b) provisions, however, the tax-exempt treatment of interest on state and local loans occurs only if the private activity bond qualifies.
Interest on certain categories of private purpose bonds is tax-exempt, although tax-exempt interest on some private activity bonds is a tax preference item for both the individual and corporate alternative minimum tax (see Q 1124, 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.
Statutory Overview: Tax-Exempt Qualified Private Activity Bonds
Figures D and E present long-term, tax-exempt bond proceeds, by selected purpose, as well as type of issue for both governmental and private activity bond issues.
Robert Menendez (D-N.J.) 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.
Tax-exempt bond data presented here are based on the populations of Forms 8038, Information Return for Tax-Exempt Private Activity Bond Issues, and Forms 8038-G, Information Return for Tax-Exempt Governmental Obligations, filed with the Internal Revenue Service (IRS) for bonds issued during 2010.
* Efforts to ease the credit crunch, including incentives for banks to purchase municipal bonds by allowing them to deduct the interest paid and a provision to exclude private activity bond interest from the alternative minimum tax.