August 8, 2019

Tax-Exempt Bonds: A Quick Guide to Private Business Use

When a governmental entity issues tax-exempt bonds or other debt (referred to herein as “bonds”) to finance capital expenditures (a “Project”), there are a variety of rules and regulations that apply to use of the bond proceeds. One of those rules is that, unless the bond is specially qualified, a tax-exempt bond cannot be a “private activity bond.” A bond is a private activity bond if the issuer of the bond reasonably expects on the issue date that the bond issue will meet either (a) both private business tests (the “Private Business Tests”) or (b) the private loan test (the “Private Loan Test”).

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