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Fund's obligation to finance the City's original unfunded pension
obligations in a manner which produces the equivalent of a
7.57484-percent return, i.e., yield, on such investment. Under
the circumstances herein, irrespective of the technicalities of
the arbitrage regulations under section 148, respondent was
entitled to make the adjustment of the yield calculation to take
the 35-percent discount into account and to reject petitioner's
application for ruling under section 1.148-10(e), Income Tax
Regs., on the ground that the economic substance of the
transaction clearly revealed a materially higher yield within the
meaning of section 148(a) and (b) and the regulations thereunder.
Consequently, the interest on the proposed bonds will not be
exempt under section 103(a).
In view of the foregoing, we find it unnecessary to consider
the other arguments of the parties.
Decision will be entered
for respondent.
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