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Advance Refunding Bonds

A type of bond issued by state or local governments to pay off an existing bond issue before its scheduled maturity date, usually to obtain a lower interest rate or change other terms. The new bonds are issued well in advance of the old bonds being paid off.

Internal Revenue Code of 1986

The main body of federal tax law in the United States, which outlines all rules and regulations related to taxation.

Private Activity Bond

A type of municipal bond where a significant portion of the proceeds is used for the benefit of a private business or entity, rather than purely public purposes. Interest on these bonds is often taxable unless specific conditions are met.

Qualified 501(c)(3) Bond

A specific type of tax-exempt private activity bond issued by or on behalf of a 501(c)(3) organization (a non-profit charity) to finance facilities used by that organization.

Arbitrage

In the context of bonds, this refers to making a profit by investing the proceeds from a low-interest bond (like a tax-exempt municipal bond) in higher-yielding investments. Tax laws often try to limit this practice to ensure bonds are issued for public purposes, not just investment profit.

Debt Service Savings

The reduction in the total amount of money a government has to pay back over time for its debt, primarily through lower interest payments, as a result of refinancing or restructuring bonds.