[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: 26CFR1.103-16]
[Page 391-393]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
PART 1--INCOME TAXES--Table of Contents
Sec. 1.103-16 Obligations of certain volunteer fire departments.
(a) General rule. An obligation of a volunteer fire department
issued after December 31, 1980, shall be treated as an obligation of a
political subdivision of a State for purposes of section 103(a)(1) if--
(1) The volunteer fire department is a qualified volunteer fire
department within the meaning of paragraph (b) of this section, and
(2) Substantially all of the proceeds of the issue of which the
obligation is a part are to be used for the acquisition, construction,
reconstruction, or improvement of a fire house or fire truck used or to
be used by the qualified volunteer fire department.
An obligation of a volunteer fire department shall not be treated as an
obligation of a political subdivision of a State for purposes of section
103(a)(1) unless both conditions set forth in this paragraph (a) are
satisfied. Thus, for example, if an obligation is issued by an ambulance
and rescue squad that is a qualified volunteer fire department as
required by paragraph (a)(1) of this section, but substantially all of
the proceeds of the issue of which the obligation is a part are to be
used for the furnishing of emergency medical services, rather than for
the purposes specified in paragraph (a)(2) of this section, the
obligation shall not be treated as an obligation of a political
subdivision of a State for purposes of section 103(a)(1).
(b) Definition of qualified volunteer fire department. For purposes
of this section, the term ``qualified volunteer fire department'' means
an organization--
(1) That is organized and operated to provide firefighting services
or emergency medical services in an area within the jurisdiction of a
political subdivision, and
(2) That is required to furnish firefighting services by written
agreement with the political subdivision, and
(3) That serves persons in an area within the jurisdiction of the
political subdivision that is not provided with any other firefighting
services.
The requirement of paragraph (b)(2) of this section that a qualified
volunteer fire department be required to furnish firefighting services
by written agreement with the political subdivision may be satisfied by
an ordinance or statute of the political subdivision that
[[Page 392]]
establishes, regulates, or funds the volunteer fire department. A
volunteer fire department does not fail to satisfy the requirement of
pargraph (b)(3) of this section by furnishing or receiving firefighting
services on an emergency basis, or by cooperative agreement with other
fire departments, to or from areas outside of the area that the
volunteer fire department is organized and operated to serve. The fact
that tax revenues of a political subdivision served by a volunteer fire
department contribute toward the support of the volunteer fire
department in the form of salary, purchase of equipment, or other
defrayment of expenses will not prevent the volunteer fire department
from being a ``qualified volunteer fire department'' within the meaning
of this paragraph (b). Moreover, an obligation of a volunteer fire
department receiving such support may qualify as an obligation of a
political subdivision within the meaning of section 103(a)(1)
independently of section 103(i) and this section if the requirements of
section 103(a)(1) are satisfied. See Sec. 1.103-1(b) for rules relating
to qualification under section 103(a)(1).
(c) ``Substantially all'' test. Substantially all of the proceeds of
an issue are used for the purposes specified in paragraph (a)(2) of this
section if 90 percent or more of the proceeds are so used. Thus, for
example, if more than 10 percent of the proceeds of an obligation issued
by a qualified volunteer fire department are used for the purchase of an
ambulance or for rescue equipment not to be used in providing fire
fighting services, interest on the obligation is not exempt from tax
under section 103(i) and this section. In computing this percentage--
(1) Costs are allocated between providing a firehouse or firetruck
and other uses of the proceeds on a pro rata basis; and
(2) The rules set forth in Sec. 1.103-8(a)(1)(i), relating to
amounts allocable to exempt and nonexempt uses and amounts chargeable to
capital account, apply.
(d) Refunding issues. An obligation which is part of an issue issued
by a qualified volunteer fire department after December 31, 1980, part
or all of the proceeds of which issue are used directly or indirectly to
pay principal, interest, call premium, or reasonable incidental costs of
refunding a prior issue qualifies as an obligation of a political
subdivision under section 103(i) and this section only if--
(1) The prior issue was issued by a qualified volunteer fire
department;
(2) Substantially all of the proceeds of the prior issue were used
for the purposes described in paragraph (a)(2) of this section;
(3) The prior issue was issued after December 31, 1980; and
(4) The refunding issue is issued not more than 180 days before the
date on which the last obligation of the prior issue is discharged
(within the meaning of Sec. 1.103-13)(b)(11)).
(e) Examples. The provisions of this section may be illustrated by
the following examples:
Example (1). The County M Volunteer Fire and Rescue Association
provides firefighting, ambulance, and emergency medical services in
County M. The board of county commissioners of County M contracts with
the County M Volunteer Fire and Rescue Association for these services,
and County M is not served by any other firefighting association. On
August 1, 1981, the Association issues an obligation for funds to
purchase a new fire truck, a new ambulance, and rescue equipment not to
be used for fighting fires. Funds to be used for the purchase of the
ambulance and rescue equipment constitute more than 10 percent of the
proceeds of the obligation. Thus, substantially all of the proceeds of
the obligations are not used for one of the purposes described in
paragraph (a)(2) of this section. Although the County M Volunteer Fire
and Rescue Association is a qualified volunteer fire department under
paragraph (b) of this section because it provides firefighting and
emergency medical services in an area within County M which is not
provided with any other firefighting services and is required to provide
these services by written agreement with County M, the August 1, 1981,
obligation of County M Volunteer Fire and Rescue Association will not be
treated as an obligation of a political subdivision of a State under
section 103(i) and paragraph (a) of this section because substantially
all of the proceeds of the obligation are not to be used for a purpose
described in section 103(i)(l)(B) and paragraph (a)(2) of this section.
Accordingly, interest on the August 1, 1981, obligation of County M
Volunteer Fire and Rescue Association is not exempt from gross income
under section 103(a)(1).
[[Page 393]]
Example (2). County N Volunteer Fire Department provides
firefighting services in County N by contract with the county, which is
not served by any other firefighting association. On June 15, 1982,
County N Volunteer Fire Department issues its obligation for funds to
construct an addition to its firehouse to house a rescue squad, the
rescue squad's vehicle, and rescue equipment not to be used in
firefighting. Although the County N Volunteer Fire Department is a
qualified volunteer fire department under paragraph (b) of this section,
interest on its June 15, 1982, obligation will not be exempt from tax
under section 103(i) and this section because the proceeds of this
obligation will not be used for the purposes described in paragraph (a)
of this section.
Example (3). The County O Volunteer Fire and Rescue Association
provides firefighting, ambulance, and emergency medical services in
County O. The board of county commissioners of County O contracts with
the County O Volunteer Fire and Rescue Association for these services,
and County O is not served by any other firefighting association. On
September 1, 1983, the Association issues its obligations for funds to
construct a new building to house its firefighting, ambulance, and
rescue functions. Although the ambulance and rescue equipment will
occupy space in the projected facility, the cost allocable on a pro rata
basis to providing housing for the ambulance and rescue equipment
represents less than 10 percent of the proceeds of the obligations.
Thus, substantially all of the proceeds of the obligations are used for
one of the purposes described in paragraph (a)(2) of this section. The
County O Volunteer Fire and Rescue Association is a qualified volunteer
fire department under paragraph (b) of this section because it provides
firefighting and emergency medical services in an area within County O
which is not provided with any other firefighting services and is
required to provide these services by written agreement with County O.
The obligations of County O Volunteer Fire and Rescue Association will
be treated as obligations of a political subdivision of a State under
section 103(i) and paragraph (a) of this section because the obligations
are those of a qualified volunteer fire department and because
substantially all of the proceeds of the obligations are to be used for
a purpose described in section 103(i)(1)(B) and paragraph (a)(2) of this
section. Accordingly, interest on the September 1, 1983, issue of
obligations of County O Volunteer Fire and Rescue Association is exempt
from gross income under section 103(a)(1).
[T.D. 7901, 48 FR 32981, July 20, 1983]