Private Activity Bond

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In general, a private activity bond is a bond issued by or on behalf of local or state government for the purpose of financing the project of a private user.

Section 141(a) of the Internal Revenue Code provides that the term private activity bond means any bond issued as part of an issue which meets:

(1) the private business use test of section 141(b)(1) and the private security or payment test of section 141(b)(2), or

(2) the private loan financing test of § 141(c).

Under Treasury Regulation section 1.141-2, an interest on a private activity bond is not excludable from gross income under section 103(a) of the Internal Revenue Code unless the bond is a qualified bond.