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Treasury Issues Final Regulations Regarding Prepayments Financed With Tax-Exempt Bonds

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Today the Treasury Department and the Internal Revenue Service issued final regulations that specify the types of prepayments for property or services that are eligible for tax-exempt financing.

Regulations promulgated in 1993 limit the availability of tax-exempt financing for prepayments. On April 17, 2002, proposed amendments to the existing regulations were published in the Federal Register. Under the new final regulations, the categories of prepayments eligible for tax-exempt financing include not only certain prepayments for natural gas, as provided in the 2002 proposed regulations, but also certain prepayments for electricity. The natural gas and electricity prepayment provisions in the new final regulations generally permit interest exclusion if at least 90 percent of the natural gas or electricity is furnished to retail customers in the service area of the municipal utility. These new provisions will assist municipal utilities in securing long-term supplies of natural gas and electricity at reasonable prices, and will support initiatives to restructure energy markets.

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