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January 30, 1996 (the 1995 BAN's). All 1995 BAN proceeds were
expended on January 31, 1995, to discharge the 1994 BAN's.
Petitioner intends to continue to refinance the 1995 BAN's
with short-term BAN's until there is a final court determination
in this matter.3
Petitioner proposes to issue the proposed bonds either on a
tax-exempt or taxable basis, depending on the final determination
in this proceeding, and immediately utilize all proceeds of the
bonds to discharge the then-outstanding BAN's and pay related
expenses on the issue of the proposed bonds. Petitioner
represents that the proposed bonds will be long-term obligations
but did not, in its ruling request or otherwise (until its
original brief, see supra note 2), set forth any terms of payment
of principal. For purposes of its ruling request, petitioner
represented that the proposed bonds would be long-term
obligations, with a term of 25 years or less, and that the yield
should be assumed to be 6 percent compounded semiannually.
Section 103(a) generally excludes interest on State and
local government bonds from taxable income. The exclusion is
The BAN's have been issued on the basis that the interest
thereon was not excludable under sec. 103(a). Petitioner has,
however, sought to preserve the possible tax-exempt status of
such interest by filing Internal Revenue Service Form 8038-G in
respect of the 1994 and 1995 BAN's and Internal Revenue Service
Form 8038-T, along with an arbitrage rebate payment in respect of
the 1994 BAN's based on the differential between the 4.25-percent
interest rate on the City obligation and the yield on such BAN's.
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