Special Purpose IRS 63-20 Alternative Project Delivery

Public sector agencies in the United States may finance capital projects by issuing tax-exempt debt, often making it more cost-effective for public project sponsors to issue debt than their private sector partners. Using this type of debt keeps interest costs low and generates attractive opportunities for both private and corporate investors. One method of reducing the borrowing costs to the private partner is to issue debt through a nonprofit public benefit corporation pursuant to Internal Revenue Service (IRS) Rule 63-20 and Revenue Proclamation 82-26. The nonprofit corporation is able to issue tax-exempt debt on behalf of private project developers.

In general, to facilitate the financing needs of a third party, state and local governments can issue tax-exempt revenue bonds either through established conduit issuers or creation of nonprofit corporations pursuant to IRS Revenue Ruling 63-20. While governments normally prefer to utilize an established entity for conduit issues, such as a state finance authority, IRS Revenue Ruling 63-20 provides a viable alternative and has been used to finance several highway and transit projects around the country.

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