Tax-exempt bonds; private activity restrictions | KPMG | QA

Regulations: Tax-exempt bonds; private activity restrictions

Tax-exempt bonds; private activity restrictions

The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9741) concerning the allocation and accounting rules for purposes of the “private activity bond” restrictions under section 141 that apply to tax-exempt bonds issued by state and local governments.


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These final regulations [PDF 242 KB] will appear in the Federal Register on October 27, 2015.


In general, interest on state and local government bonds is excludable from gross income under section 103, if certain requirements are satisfied. Interest on a private activity bond (other than a qualified private activity bond as defined by section 141) is not excludable under section 103. Section 141 provides certain tests to determine if the state or local bond is a private activity bond. 

In 1997, final regulations provided guidance on most aspects of the private activity bond restrictions but reserved most of the general application and accounting rules. In 2006, proposed regulations were issued regarding the allocation and accounting rules for tax-exempt bond proceeds, including special rules for mixed-use projects and rules regarding the treatment of partnerships for purposes of section. Today’s final regulations adopt the final rules on these topics. However, certain provisions of the proposed regulations are not being finalized, but are being withdrawn.

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