Zero coupon bonds pay no coupon interest and provide only one cash flow: payment of their par value upon maturity. Treasury bills are a form of zero coupon debt. An investor purchases a T-bill at a price below par and receives no interest or other cash flows until maturity. At that time, the investor receives the par value of the T-bill. The return on the security is the difference between its discount price and its par value. The primary reason for the popularity of zero coupon bonds is that investors do not face any reinvestment rate risk. As these bonds provide no cash flows to reinvest, investors effectively lock in a given yield to maturity. However, under IRS regulations, investors must pay yearly taxes on the implicit interest paid by the bonds; the IRS has special rules for determining this value. In essence, investors must pay taxes on income they have not received. Thus, zero coupon bonds are mainly purchased by tax-exempt investors who pay no tax on their investment returns, such as pension funds. Issuing a zero coupon bond also helps to lower borrowing costs for the firm. The original discount can be expensed for tax purposes on a straight-line basis over the life of the bond. Thus, rather than cash outflows from coupon interest payments, the issuing firm receives annual cash inflows from tax savings. However, the issuer must plan for a large capital requirement at the maturity of these bonds.