This article demonstrates that investors' heterogeneous tax status implies that they value bonds differently at the margin. Due to asymmetric personal taxes, high-risk bonds generate a higher amount of taxable income than low-risk bonds and are, therefore, held by investors in low tax brackets. In such a setting, firms can increase their value by choosing a capital structure that attracts a particular bondholder clientele. The author analyzes how bondholder clienteles change as the uncertainty about a bond's final payoff is resolved over time and shows how tax-clientele effects influence firms' capital structure decisions. Copyright 1990 by the University of Chicago.