SIE practice questionhardMunicipal Bonds — Industrial Development Revenue Bonds
An industrial development revenue bond (IDRB) is a municipal bond that:
- AIs backed by the full faith and credit of the municipality
- BPays interest that is always subject to federal income tax
- CCan only be issued by state governments, not local municipalities
- DIs issued by a municipality but backed by the credit of a private corporation using the facility✓ Correct answer
Explanation
Why D — Is issued by a municipality but backed by the credit of a private corporation using the facility
IDRBs (also called private activity bonds) are issued by a municipality on behalf of a private corporation. The corporation uses the proceeds for a facility and is responsible for debt service — the municipality's taxing power does NOT back the bond. The credit quality depends on the private corporation. Some IDRBs may be subject to the AMT (alternative minimum tax).
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