[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.103-1]

[Page 351]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.103-1  Interest upon obligations of a State, territory, etc.

    (a) Interest upon obligations of a State, territory, a possession of 
the United States, the District of Columbia, or any political 
subdivision thereof (hereinafter collectively or individually referred 
to as ``State or local governmental unit'') is not includable in gross 
income, except as provided under section 103 (c) and (d) and the 
regulations thereunder.
    (b) Obligations issued by or on behalf of any State or local 
governmental unit by constituted authorities empowered to issue such 
obligations are the obligations of such a unit. However, section 
103(a)(1) and this section do not apply to industrial development bonds 
except as otherwise provided in section 103(c). See section 103(c) and 
Secs. 1.103-7 through 1.103-12 for the rules concerning interest paid on 
industrial development bonds. See section 103(d) for rules concerning 
interest paid on arbitrage bonds. Certificates issued by a political 
subdivision for public improvements (such as sewers, sidewalks, streets, 
etc.) which are evidence of special assessments against specific 
property, which assessments become a lien against such property and 
which the political subdivision is required to enforce, are, for 
purposes of this section, obligations of the political subdivision even 
though the obligations are to be satisfied out of special funds and not 
out of general funds or taxes. The term ``political subdivision'', for 
purposes of this section denotes any division of any State or local 
governmental unit which is a municipal corporation or which has been 
delegated the right to exercise part of the sovereign power of the unit. 
As thus defined, a political subdivision of any State or local 
governmental unit may or may not, for purposes of this section, include 
special assessment districts so created, such as road, water, sewer, 
gas, light, reclamation, drainage, irrigation, levee, school, harbor, 
port improvement, and similar districts and divisions of any such unit.

[T.D. 7199, 37 FR 15486, Aug. 3, 1972]