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Investment-type property includes any property,
other than property described in section 148(b)(2)(A),
(B), (C), * * * that is held principally as a passive
vehicle for the production of income. Except as
otherwise provided, a prepayment for property or
services is investment-type property if a principal
purpose for prepaying is to receive an investment
return from the time the prepayment is made until the
time payment otherwise would be made. A prepayment is
not investment-type property if--
(1) The prepayment is made for a substantial
business purpose other than investment return and
the issuer has no commercially reasonable
alternative to the prepayment, or
(2) Prepayments on substantially the same
terms are made by a substantial percentage of
persons who are similarly situated to the issuer
but who are not beneficiaries of tax-exempt
financing.
The parties have presented us with a welter of arguments
many of which are devoted to a semantical analysis of the
foregoing statutory provision and of other provisions of the
regulations under sections 148 and 150 dealing with the extent to
which the regulations in respect of the refunding of prior issues
apply to the proposed bond issue and the BAN's. In particular,
petitioner argues that the proposed bonds constitute a refunding
issue of the BAN's and through them of the City Obligation and
that the specific tracing methods of the regulations4 preempt any
prepayment analysis. Respondent agrees that the proposed bonds
are a refunding issue of the BAN's, so that we may treat the
See secs. 1.148-9, 1.150-1(d)(1), (5), Income Tax Regs.
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