City of Columbus, Ohio - Page 1

                                   106 T.C. No. 17                                    

                               UNITED STATES TAX COURT                                

                        CITY OF COLUMBUS, OHIO, Petitioner v.                         
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 3301-95B.                     Filed May 14, 1996.           

                    P, a home rule municipal corporation and political                
               subdivision of the State of Ohio, seeks a declaratory                  
               judgment that interest on bonds it proposes to issue                   
               will be exempt from taxation under sec. 103(a), I.R.C.                 
               In 1967, in exchange for the assumption of P's accrued                 
               unfunded pension obligation by a fund established for                  
               that purpose by the State of Ohio, P incurred a long-                  
               term obligation to the State Fund.  In 1994, P made a                  
               lump-sum payment equal to 65 percent of the remaining                  
               principal in satisfaction of the long-term obligation.                 
               Taking into account the 35-percent discount, the yield                 
               to P in making the prepayment, as compared to the                      
               payments it otherwise would have made, is 7.57484                      
               percent.  P proposes to issue long-term obligations,                   
               with an interest rate of 6 percent, to fund the                        
               prepayment to the State Fund.  Pending our decision                    
               herein, P has issued short-term obligations to fund the                
               prepayment.  Held, P entered into the prepayment                       
               transaction with a principal purpose being to profit                   

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