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Understanding Plain Par Bond [Internal Revenue]: A Comprehensive Guide
Definition & Meaning
A Plain Par Bond is a specific type of bond defined by the Internal Revenue Service. It is characterized by several key features that ensure it meets certain criteria for tax exemption. Essentially, a Plain Par Bond is a bond that:
Has a minimal amount of original issue discount or premium.
Is issued at a price that excludes accrued interest, except for any interest that accrued before the bond was issued.
Bears interest at a fixed rate or a variable rate that is clearly stated and is payable at least once a year.
Has a redemption price that is at least equal to its principal amount.
Table of content
Legal Use & context
Plain Par Bonds are primarily used in the context of municipal finance and tax law. These bonds are often issued by state and local governments to fund public projects. Understanding the characteristics of Plain Par Bonds is essential for tax professionals, investors, and legal practitioners involved in municipal finance. Users can manage related legal documents using templates available through US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A city issues a Plain Par Bond to finance the construction of a new public library. The bond is sold at its face value, has a fixed interest rate of 5%, and pays interest annually.
Example 2: A state issues a Plain Par Bond for a highway improvement project. The bond is structured to ensure that the redemption price is equal to its principal amount, and it pays interest at a variable rate.
Relevant laws & statutes
Pursuant to 26 CFR 1.148-1 (b), the definition and requirements for Plain Par Bonds are outlined. This regulation is part of the Internal Revenue Code, which governs the tax treatment of municipal bonds.
Comparison with related terms
Term
Definition
Key Differences
Qualified Tender Bond
A bond that allows the holder to tender it back to the issuer at specified times.
Plain Par Bonds do not have this tender feature.
Variable Rate Bond
A bond that pays interest based on a variable interest rate.
Plain Par Bonds can be fixed or variable but must meet specific criteria to qualify.
Common misunderstandings
What to do if this term applies to you
If you are considering investing in or issuing a Plain Par Bond, it's important to understand the specific requirements and implications. You may want to consult with a tax professional or legal advisor. Additionally, you can explore ready-to-use legal form templates through US Legal Forms to assist with the necessary documentation.
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Accrued Interest: Excludes all but pre-issuance accrued interest
Original Issue Discount: Must be de minimis
Key takeaways
Frequently asked questions
A Plain Par Bond is a type of bond that meets specific IRS criteria for tax exemption, including having minimal original issue discount and a fixed or variable interest rate.
It differs mainly in its tax treatment and specific requirements, such as the exclusion of accrued interest and the redemption price being equal to the principal amount.
Yes, if you meet the necessary criteria set forth by the IRS, you can issue a Plain Par Bond for funding public projects.