IRS rules on long-term tax-exempt financing for extraordinary working capital expenditures in a natural disaster John Hutchinson
By: Hutchinson, John W
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Material type: 
ArticleSubject(s): IMPUESTOS | GASTO PUBLICO | CATASTROFES NATURALES | ESTADOS UNIDOS
In:
Journal of Taxation of Investments v. 40, n. 4, Summer 2023, p. 71-87Summary: 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.
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Resumen.
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.
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