March 31, 2019

Tax-Exempt Bonds: An Introduction to Private Business Use of Bond-Financed Utility Facilities


For over a hundred years, tax-exempt bonds have been a critical tool of municipalities, utility districts and other governmental entities (each, an “Issuer”) for financing capital improvements for utilities, such as electric, gas, water and wastewater systems. Issuers generally issue tax-exempt “governmental bonds” that are subject to restrictions on the ownership and use of the bond-financed improvements under Section 141 of the Internal Revenue Code, as amended (the “Code”). Issuers must comply with the restrictions on private use of the financed projects or the bonds may be private activity bonds that do not qualify for tax exemption.

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