What is the tax treatment of the purchaser of qualified zone academy bonds?
The purchaser of a QZAB is eligible for an annual tax credit in an amount described above. That credit effectively makes the bond purchaser whole, as though it purchased a taxable bond. The tax credit can offset both regular and Alternative Minimum Tax federal income tax liabilities. The temporary regulations treat that credit as if it were taxable interest for all purposes of the tax law. In addition, any premium or discount on the bond will be treated as premium or discount on a taxable obligation.
