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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