Firms and municipal entities can raise money by issuing official "ious" which they have to repay at face value on the maturity date. one advantage of this type of financing is that the interest paid to the holder is tax deductible. this iou is called

The "IOUs" issued by firms and municipal entities that the question references are bonds. Bonds are one of the principal ways in which these entities raise funds - by going to the debt markets and issuing these instruments to individuals and institutions, who lend the entities money up front with the promise of higher returns later. Bonds do have the additional benefit, as noted, of their interest issued being tax deductible.