Private Activity Bonds (PABs) are securities that are issued by a local government or on behalf of a local government. Unlike most government bonds, Private Activity Bonds are intended to provide funding for a project that will be undertaken by a private entity or private user. Although the government issues the bond, it generally does not pledge its credit or guarantee payment of the bonded debt. Private Activity Bonds can result in reduced financing costs, but there are limited projects for which PABs may be used.
The Internal Revenue Service (IRS) has strict regulations in place that must be followed when PABs are issued, and the Securities and Exchange Commission (SEC) may also impose certain requirements on recipients of Private Activity Bonds. Lotzar Law Firm, P.C. has extensive experience representing clients in securing a Private Activity Bond in Phoenix and in complying with all requirements once the Bond is issued. Call or contact us today to speak with a member of our legal team and to learn more about how we can help.
Private Activity Bonds
Private Activity Bonds may bear tax-exempt interest for certain projects including:
- Facilities designed for providing water or for furnishing gas or electricity
- Airports
- Mass commuting facilities
- Intercity high speed rail facilities
- Docks
- Sewage facilities
- Solid waste disposal treatment plants or qualified hazardous waste facilities
- Residential rental construction
- Heating facilities or cooling facilities for local districts
- Enhancing hydroelectric-generating facilities
Mortgage Revenue Bonds, Student Loan Bonds, Qualified Development Bonds and Qualified 501(c)(3) Bonds may also be eligible for tax-exempt interest. Finally, Qualified Small Issue Bonds limited to $20 million may be available for manufacturing facilities. Payments on Private Activity Bonds are typically paid back solely by the private user who is doing the project that the bonds have financed. When Private Activity Bonds are issued, interest on the bonds is not subject to federal taxation. This can result in a significant savings. However, the IRS has imposed both requirements and limitations on PABs.
For example, for the bonds to be tax-exempt, 95 percent or more of the net proceeds from the bonds must be used for an exempt facility or exempt purpose. Under revised securities laws, the SEC also requires most entities obligated to pay back Private Activity Bonds to provide annual operational and financial data. This data is kept in repositories that the S.E.C. has sanctioned.
Other requirements exist depending upon the type of bond issued. An experienced attorney can help you to determine if your project may be financed by a Private Activity Bond and can help you with all legal matters related to securing and repaying a Private Activity Bond in Phoenix. To learn more, call or contact Lotzar Law Firm, P.C. today to speak with a member of our legal team.
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