# Prop. Treas. Reg. § 1.141-2: Private activity bond tests. Proposed regulation, not in force. FI-72-88, 94-31430, published 1994-12-30 . Interprets 26 U.S.C. § 141. Par. 4. Sections 1.141-0 through 1.141-16 are added to read as follows: (a) Overview. Interest on a private activity bond is not excludable from gross income under section 103(a) unless the bond is a qualified bond. The purpose of the private activity bond tests of section 141 is to limit the volume of tax-exempt bonds that finance the activities of nongovernmental persons, without regard to whether a financing actually transfers benefits of tax-exempt financing to a nongovernmental person. The private activity bond tests serve to identify arrangements that have the potential to transfer the benefits of tax-exempt financing, as well as arrangements that actually transfer these benefits. The regulations under section 141 may not be applied in a manner that is inconsistent with these purposes. (b) Scope. Sections 1.141-1 through 1.141-16 apply generally for purposes of the private activity bond limitations under section 141. In addition, as specifically provided, certain provisions of Secs. 1.141-1 through 1.141-16 apply for purposes of other limitations on tax-exempt bonds under sections 142 through 150. (c) General definition of private activity bond. Under section 141, bonds are private activity bonds if they meet either (1) the private business use and private payment or security tests of section 141(b) or (2) the private loan financing test of section 141(c). The private business use and private security or payment tests are described in Secs. 1.141-3 and 1.141-4. The private loan financing test is described in Sec. 1.141-5. (d) Reasonable expectations and deliberate actions--(1) In general. An issue is an issue of private activity bonds if the issuer reasonably expects, as of the issue date, that the issue will meet either (i) the private business tests, or (ii) the private loan financing test. An issue is also an issue of private activity bonds if the issuer takes a deliberate action, subsequent to the issue date, that causes the conditions of either the private business tests or the private loan financing test to be met. (2) Deliberate actions defined. In general, a deliberate action is any action taken by the issuer that is within its control. An intent to violate the requirements of section 141 is not necessary for an action to be deliberate. Except as otherwise provided in the next sentence of this paragraph (d)(2), an action that would be treated as involuntary under section 1033 is not a deliberate action. Any action is treated as a deliberate action if the financed facility was designed differently, sized larger, built sooner, or constructed in a more costly manner than is reasonably necessary for the governmental purposes of the issuer. A deliberate action occurs on the earlier of the date the parties agree on the consideration for the new use or the date on which the new use occurs. (3) Certain remedial actions. See Sec. 1.141-13 for certain remedial actions that prevent a deliberate action from causing the related bonds to cease to be treated as tax-exempt bonds. (4) Examples. The following examples illustrate the application of this section: Example 1. City B issues bonds to finance the purchase of land. On the issue date, B reasonably expects that it will be the sole user of the land for the entire term of the bonds. Subsequently, the federal government acquires the land in a condemnation action. B sets aside the condemnation proceeds to pay debt service on the bonds but does not redeem them on their first call date. The bonds are not private activity bonds because B has not taken a deliberate action after the issue date. Example 2. The facts are the same as in Example 1, except that B uses all the condemnation proceeds to make a loan to Corporation T, a nongovernmental person. The bonds are private activity bonds because B has taken a deliberate action after the issue date.