The QPABs are bonds where the user of the proceeds is a nongovernmental body. In the United States, in order to qualify for the tax-exempt status of government bonds, the activities on which the proceeds are spent must be specifically authorized by Congress and meet the IRS tests.
For many years, these bonds have been authorized to finance some infrastructure-such as water treatment and port development-but it was not until 2005 that the exemption was extended to encompass surface transportation, including roads and bridges.
These bonds are technically issued by a conduit vehicle, but the investor credit risk resides with the underlying private entity.
Historically, interest earned on QPABs has fallen within the United States' alternative minimum tax (AMT) rules. These rules, in effect, put a floor on the amount of tax deductions an individual can claim.
However, recent tax rule changes have removed QPABs from the AMT rules, making them a more attractive investment option. These bonds have also sought to create a more diverse investor base to attract sovereign and foreign investors.