4.4 Capital Expenditure Financings

Proceeds of tax exempt bonds are most commonly applied to finance capital costs associated with the acquisition, construction, or improvement of a capital project. For federal income tax purposes, except for cash flow borrowings (described below) and certain other limited situations, proceeds of tax exempt bonds will only be treated as spent when used to finance or reimburse capital expenditures. The federal income tax analysis is based on whether the costs would be treated as capital expenditures (or would be treated as capital expenditures if a proper federal income tax election was made) under general federal income tax principles. In general, costs incurred to acquire, construct, or improve land, buildings, and equipment are capital expenditures. In certain cases, the federal income tax treatment of costs as capital expenditures may differ from the state law or financial accounting treatment of costs.