WASHINGTON -- The Internal Revenue Service has ruled for the first time that a privately owned cogeneration facility can be financed with tax-exempt private-activity bonds because it is considered part of the local utility system that contracted to purchase its power.

Several bond lawyers said the letter ruling, which was published this week without identifying the parties involved, is important because the IRS is going further than it has in the past in saying that a cogeneration facility in and of itself qualifies for tax-exempt financing.

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