Get Form 8328 (rev. February 1995). Carryforward Election Of Unused Private Activity Bond Volume Cap

The volume cap limit of Section 146 restricts the amount of certain qualified private activity bonds that all issuers within a state may issue during a calendar year. Generally, a state allocates that limit or volume cap among issuers in the state.

"Volume Cap" is the amount of tax-exempt financing available for certain types of private companies or developers in a calendar year. Federal law determines project eligibility. A project must obtain an award of Volume Cap before it can have tax-exempt bonds issued.

Report exempt-interest dividends from a mutual fund or other regulated investment company (RIC) on Form 1099-DIV. For a specified private activity bond with OID, report the tax-exempt OID in box 11 on Form 1099-OID, and the tax-exempt stated interest in boxes 8 and 9 on Form 1099-INT. Exceptions to reporting.

Reporting interest and OID. However, you may choose to report the qualified stated interest on Form 1099-INT and the OID on Form 1099-OID. For a specified private activity bond with OID, report the tax-exempt OID in box 11 on Form 1099-OID and the tax-exempt stated interest in boxes 8 and 9 on Form 1099-INT.

While private-purpose municipal bonds can have some private benefits, private activity bonds are explicitly for projects with significant private sector involvement, which influences their tax-exempt status under federal law.

Banks may choose to buy Bonds, although the I.R.S. rules result in increased rates on bank-held Private Activity Bonds (except some Section 501(c)(3) Bonds) (see “Bond Placement” herein). Bonds may also be sold to institutional investors and mutual funds, and sometimes individuals.

Private Activity Bonds (PABs) are debt instruments authorized by the Secretary of Transportation and issued by a conduit issuer on behalf of a private entity for highway and freight transfer projects, allowing a private project sponsor to benefit from the lower financing costs of tax-exempt municipal bonds.

Interest on a qualified Private Activity Bond is exempt from Federal income taxation (but, except for Bonds for Section 501(c)(3) organizations, is subject to alternative minimum tax) and, usually, income taxation in the state in which the Bonds are issued.