City of Columbus, Ohio - Page 2

               from the discount offered by the State Fund.  Held,                    
               further, to reflect the economic substance of the                      
               transaction, R may characterize the prepayment as the                  
               acquisition of property.  Sec. 1.148-10(e), Income Tax                 
               Regs.  Held, further, the prepayment constitutes                       
               investment-type property, sec. 148(b)(2), I.R.C., with                 
               a materially higher yield than the proposed bonds.                     
               Thus, interest on the proposed bonds will not be                       
               excludable from gross income under sec. 103(a), I.R.C.                 


               David L. Miller, Jerry O. Allen, and David A. Rogers, for              
          petitioner.                                                                 
               Rebecca L. Caldwell-Harrigal, Joel E. Helke, and Richard L.            
          Carlisle, for respondent.                                                   


                                       OPINION                                        

               TANNENWALD, Judge:  This is an action for a declaratory                
          judgment pursuant to section 7478 and Rule 211.1  On June 3,                
          1994, petitioner submitted a ruling request to respondent seeking           
          a determination that interest on certain proposed bonds will be             
          excludable from gross income under section 103(a).  After                   
          administrative review, on December 5, 1994, respondent ruled that           
          interest on the proposed bonds will not be excludable under                 
          section 103(a) on the grounds that the bonds would be arbitrage             
          and/or hedge bonds within the meaning of sections 148 and 149(g),           
          respectively.  All of the jurisdictional requirements for a                 
          declaratory judgment action have been satisfied.  Rule 210(c).              

          All statutory references are to the Internal Revenue Code, and              
          all Rule references are to the Tax Court Rules of Practice and              
          Procedure.                                                                  




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