Relevant Laws: Federal Income Tax Law

January 27, 2015 by Enzo Incandela, Associate | James M. Snyder, Partner
Adherence to federal and state laws is a required component of any bond issuance for the borrowing to be binding and legally valid. Below is a sampling of current laws governing the borrowing activities of school districts. 

Federal Income Tax Law. The Internal Revenue Code of 1986, as amended (the “Tax Code”) and the arbitrage and rebate regulations promulgated thereunder (the “Regulations”) govern the tax-exempt status of municipal bonds. Upon issuance of any municipal bond, the school district will covenant to follow certain federal rules and regulations in order to maintain the taxexempt status of the bonds. These covenants include reasonable expectations that the bonds are not private activity bonds, meaning they generally benefit a private entity, nor are they arbitrage bonds, which are issued to profit from the difference between tax-exempt and taxable rates, pursuant to the Tax Code and the Regulations. 

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