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481, 498 (1994), affd. 70 F.3d 142 (D.C. Cir. 1995); sec. 1.141-
2(c), Income Tax Regs.12
Section 141(b)(1) provides that an issue meets the “private
business use test” if more than 10 percent of the proceeds of the
issue are to be used for any private business use. “Private
business use” means use (directly or indirectly) in a trade or
business carried on by any person other than a governmental unit.
The use of the bond proceeds by all nongovernmental persons is
aggregated to determine whether the private business use test is
met. Sec. 1.141-3(a)(3), Income Tax Regs. However, use as a
member of the general public is not taken into account.13 Sec.
141(b)(6)(A). For purposes of this test, the use of financed
property is treated as the direct use of proceeds. Sec. 1.141-
3(a)(1), Income Tax Regs. Both actual and beneficial use by a
nongovernmental person may be treated as private business use.
Sec. 1.141-3(b)(1), Income Tax Regs. Any use other than a
private business use is considered a government use. Sec.
141(b)(7).
12Bonds are private activity bonds if the issuer reasonably
expects, as of the issue date, that the bonds will meet the
private business tests. Sec. 1.141-2(d)(1), Income Tax Regs.
This inquiry takes into account reasonable expectations about
events and actions over the entire stated term of an issue. Sec.
1.141-2(d)(2), Income Tax Regs.
13Use of financed property by the general public does not
prevent bond proceeds from being used for a private business use
because of other use. Sec. 1.141-3(c)(4), Income Tax Regs.
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Last modified: May 25, 2011