City of Santa Rosa, California - Page 13

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          “output facility” is defined as “electric and gas generation,                
          transmission, distribution, and related facilities, and water                
          collection, storage, and distribution facilities.”  Sec. 1.141-              
          1(b), Income Tax Regs.  If the output facility regulations apply,            
          any output contract must be analyzed under section 1.141-7(c),               
          Income Tax Regs., which identifies those contracts that have the             
          effect of transferring substantial benefits of owning the bond-              
          financed facility and substantial burdens of paying the debt                 
          service on bonds used to finance the facility (the benefits and              
          burdens test).  The general regulations under section 141(b)(1)              
          and (2), see secs. 1.141-3 and 1.141-4, Income Tax Regs., then               
          apply to determine whether other types of arrangements for use of            
          an output facility cause an issue to meet the private business               
          tests, sec. 1.141-7(a), Income Tax Regs.                                     
          B.   Private Business Tests                                                  
               We must decide whether the proposed bonds meet the private              
          business use test of section 141(b)(1).  If that test is met, we             
          must then decide whether the proposed bonds meet the private                 
          payment or security test of section 141(b)(2).  Our primary focus            
          is on whether Company’s arrangement with petitioner results in a             












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Last modified: May 25, 2011