In general, a private activity bond is a bond issued by or on behalf of a local or state government for the purpose of financing the project of a private user.

Application within the United States

Section 141(a) of the

Internal Revenue Code The Internal Revenue Code of 1986 (IRC), is the domestic portion of federal statutory tax law in the United States. It is codified in statute as Title 26 of the United States Code. The IRC is organized topically into subtitles and sections, co ...

provides that the term private activity bond means any bond issued as part of an issue which meets: ::(1) the private business use test of section 141(b)(1) and the private security or payment test of section 141(b)(2), or ::(2) the private loan financing test of § 141(c). Under Treasury Regulation section 1.141-2, an interest on a private activity bond is not excludable from gross income under section 103(a) of the Internal Revenue Code unless the bond is a ''qualified'' bond. Interest from private activity bonds became subject to the Alternative Minimum Tax after the

Tax Reform Act of 1986 The Tax Reform Act of 1986 (TRA) was passed by the 99th United States Congress and signed into law by President Ronald Reagan on October 22, 1986. The Tax Reform Act of 1986 was the top domestic priority of President Reagan's second term. The ...

. All things equal, yields on private activity bonds are higher due to this tax treatment.

References

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External links

Council of Development Finance Agencies

Municipal Securities Rulemaking Board
Bonds (finance)