Rev. Proc. 80-1

Section 1. Purpose

The purpose of this revenue procedure is to set forth procedures for submission of requests for ruling to the Internal Revenue Service to which section 103(c) of the Internal Revenue Code and sections 1.103-13, 1.103-14, and 1.103-15 of the Income Tax Regulations apply, in those instances in which the requester of the ruling is other than the issuer of the prospective obligations.

Sec. 2. Background

.01 Section 103(a) of the Code provides that gross income does not include interest on 1) the obligations of a state or political subdivision therof, and 2) qualified scholarship funding bonds. Section 103(c)(1) provides that, with certain exceptions, any arbitrage bond will not be treated as an obligation described in section 103(a)(1) or (2). An arbitrage bond is any obligation that is part of an issue all or a major portion (more than 15 percent) of the proceeds of which are reasonably expected to be used to acquire securities that will produce a yield over the term of the issue that is materially higher than the yield on such issue.

.02 Sections 1.103-13, 1.103-14, and 1.103-15 of the regulations provide rules relating to whether bonds are arbitrage bonds as defined in section 103(c)(2) of the Code. Certain provisions of those regulations describe conditions under which an issuer of prospective obligations must obtain a ruling that such obligations will not be arbitrage bonds if certain actions proposed by the issuer are taken. For example, section 1.103-13(c)(1)(ii), relating to computation of yield, provides that in the case of governmental obligations, the computation must be made separately for each issue of obligations issued by a governmental unit, except that a single computation may be made for two or more issues if, before the issuance of the last issue, the issuer establishes to the satisfaction of the Commissioner that the single computation will not distort yield or otherwise tend to defeat the purposes of section 103(c).

There are also other situations, in addition to the example described above, under which an issuer must request a ruling pursuant to provisions of sections 1.103-13, 1.103-14 and 1.103-15 of the regulations that prospective obligations are not arbitrage bonds as defined in section 103(c)(2) of the Code.

.03 Rev. Proc. 79-4, 1979-1 C.B. 483, sets forth procedures that preclude the issuance of a ruling to an issuer of prospective obligations unless the issuer has submitted a statement of facts, reasons, and legal authority, together with supporting documents that address all issues pertaining to whether the prospective obligations are described in section 103(a) of the Code. The reason for the requirements set forth in Rev. Proc. 79-4 is that, under section 7478, the issuer (and only the issuer) of the prospective obligations may ultimately petition the United States Tax Court to determine whether the prospective obligations are described in section 103(a).

.04 Rev. Proc. 79-12, 1979-1 C.B. 492, amplifies Rev. Proc. 79-4 and sets forth the procedures for submitting requests for ruling to which section 103 of the Code applies in those instances in which the requester is other than the issuer of the prospective obligations. Rev. Proc. 79-12 permits parties with a material financial interest in the prospective obligations to obtain rulings that address a specific issue pertaining to whether the prospective obligations are described in section 103(a). The Service also will issue rulings to such requesters that the prospective obligations are described in section 103(a).

Sec. 3. Application

.01 In the case of requests for rulings made by a person, other than the issuer, that has a material financial interest in the issuance of governmental obligations, the Service will issue rulings whether such obligations are arbitrage bonds as defined in section 103(c)(2) of the Code in situations referred to in section 2.02 of this revenue procedure. Thus, for example, a party that has a material financial interest in the issue may request a ruling that a single computation of yield may be made pursuant to section 1.103-13(c)(1)(ii) of the regulations. Such requests will be processed under Rev. Proc. 79-12 rather than Rev. Proc. 79-4.

.02 The requester must comply with the requirements of any other applicable revenue procedures, other than Rev. Proc. 79-4, that relate to submission to the Service of requests for ruling.

Sec. 4. Inquiries

Inquiries with respect to this revenue procedure should refer to its number and should be addressed to the Commissioner of Internal Revenue, Attention: T:I:I or T:C:E, 1111 Constitution Avenue, N.W., Washington, D.C. 20224.

Sec. 5. Effect on Other Documents

This revenue procedure amplifies Rev. Proc. 79-12.