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the source to which the prepayment applied was the acquisition of
the obligation of the State Fund and controls the character of
the transaction. Cf. Woodward v. Commissioner, 397 U.S. 572
(1970) (articulating the "origin of the claim" test). Thus, we
conclude that the prepayment was for property and consequently we
turn to the question whether it was "investment property". On
this point, the parties have locked horns on whether the
prepayment falls within the ambit of "investment-type property"
within the meaning of section 1.148-1(b), Income Tax Regs., supra
p. 12.
Petitioner argues that the prepayment is not investment-type
property because it satisfies the latter of the two exceptions in
the regulations, namely a prepayment is not investment-type
property if prepayments on substantially the same terms are made
by a substantial percentage of persons who are similarly situated
but who are not beneficiaries of tax-exempt financing. The
regulation does not define a substantial percentage.
As of October 20, 1993, when the State Fund offered the
discount for prepayment, there were 224 municipalities with
obligations to the State Fund. As of December 14, 1995, 36
municipalities had prepaid at the 35-percent discount. It is
represented that none of the 35 municipalities, excluding
petitioner, utilized the benefit of tax-exempt financing with
respect to their prepayments. In sum, 36 of 224 municipalities,
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