Bank-qualified bond definition
Bank-qualified bond means that a financial institution that purchases the bond may obtain more favorable tax treatment of the interest income it receives on the bond than if the bond were not “bank-qualified.” A local governmental issuer (including related entities) generally may not designate more than $10 million of debt in a calendar year as “bank qualified,” and may not designate any debt as bank-qualified in a calendar year if the issuer (including related entities) expects to issue more than $10 million in debt (including tax warrants and lease financings) in the calendar year. The designation permits financial institutions to partially avoid certain tax rules designed to lessen the tax benefits for a financial institution where the funds used to buy the bonds (the interest on which is not included in gross income of the financial institution for federal tax purposes) are traceable to funds the financial institution has received from its depositors (for which the financial institution is already receiving tax benefit by virtue of being able to deduct the interest that it pays to its depositors as a business expense).
Bank-qualified bond means that a financial institution that purchases the bond may obtain more favorable tax treatment of the interest income it receives on the bond than if the bond