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Each owner participant exercised its right under the 1984 bond
indenture agreement to require Mercer County to redeem the 1984
tax-exempt bonds.
Pursuant to the plan detailed in the 1992 amendments, Mercer
County executed the 1995 bond indenture agreement, effective as
of October 1, 1992, which provided that in order to refinance the
1984 tax-exempt bonds Mercer County was to issue new tax-exempt
bonds (i.e., the 1995 tax-exempt bonds) pursuant to the terms of
that indenture agreement. Pursuant to that plan, on January 20,
1993, Mercer County entered into a forward purchase contract with
Morgan Stanley, pursuant to which Morgan Stanley agreed to offer
the 1995 tax-exempt bonds for sale to the public.
19(...continued)
1992 should not be capitalized because according to petitioner:
Basin Electric [petitioner] was under no obligation to
refinance the 1984 [tax-exempt] Bonds. The expendi-
tures that Basin Electric would have avoided had it
decided not to proceed with the refinancing totaled at
least $3,583,005, including the $2,255,000 call premium
paid in 1995 * * * relative to the redemption of the
1984 Bonds. [Citations and fn. ref. omitted.]
On the record before us, we reject petitioner’s argument.
The modified 1985 sale and leaseback granted petitioner the right
to request a refinancing of the 1984 tax-exempt bonds. The 1992
amendments expressly stated that petitioner exercised that right.
Once petitioner exercised that right, the owner participants were
obligated to cooperate in order to ensure that such refinancing
was implemented, and petitioner became obligated under the
modified 1985 sale and leaseback to pay the costs associated with
modifying the 1985 sale and leaseback and effecting the concomi-
tant refinancing of the 1984 tax-exempt bonds. We must determine
the tax treatment of the expenditures at issue based on the facts
as they occurred.
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