Industrial Revenue Bond Rules
General Eligibility

The definition of Industrial Revenue Bonds (IRB) (Private Activity Bonds) are any bond where:

more than 10% of the proceeds are used for a private business use, and
principal or interest on more than 10% of the proceeds of such issue
     are used directly or indirectly to secure property used or to be used
     in private business.
Industrial revenue bonds are considered a form of private activity bonds.

Industrial Revenue Bonds - Industrial revenue bonds may be issued to finance the acquisition, construction, improvement, reconstruction or equipping of a manufacturing facility. 95% or more of bond proceeds must be used to finance property of a character subject to the allowance for depreciation.

Manufacturing Facility - The Internal Revenue Code defines manufacturing facility as any facility, which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property).

Maximum Size - An industrial revenue bond financing cannot exceed $10 million per issue and $10 million per jurisdiction. The $10 million limitation applies to capital expenditures in a jurisdiction for 3 years before and 3 years after a bond issue. However, amounts in excess of $10 million at any facility may be financed using a operating lease. No borrower may issue more than $40 million of industrial revenue bonds in the aggregate. Because this limitation was imposed in 1986, many borrowers have in excess of $40 million of industrial revenue bonds outstanding. These bonds may be refinanced, but no new industrial revenue bonds may be issued for the benefit of a borrower or any related party unless the total amount of industrial revenue bonds outstanding for that borrower is less than $40 million.

Depreciation Rule - Property financed with the proceeds of an industrial revenue bond must be depreciated under the Alternative Depreciation System of Section 168 (g) of the Internal Revenue Code. Generally, this requires using the straight line method over a recovery period equal to the property's Class Life Asset Depreciation Range mid-point life. Personal property with no class life is to be recovered over 12 years, and real property is to be recovered over 40 years.

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