Home      Login

Abstract: 

Federal tax law makes it difficult to issue long-term debt that is tax exempt under Code Section 103 where the debt will be used to pay a state or local government’s working capital expenditures. However, there are exceptions to these complex rules that can be met in certain circumstances to make it easier. For example, where the expenditures relate to extraordinary events for which a state or local government did not budget and where forcing the government to use short-term debt to finance those expenditures would be crippling, the applicable rules may allow interest on a long-term working capital borrowing to be tax exempt. The IRS recently issued a favorable private letter ruling allowing tax-exempt financing in such a situation, which this article discusses.

Keywords: PLR 202309014; proceeds spent last; long-term working capital; Winter Storm Uri; catastrophe bonds

Affiliations:  1: Nixon Peabody.