[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(n)-1T]

[Page 393-394]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.103(n)-1T  Limitation on aggregrate amount of private activity bonds (temporary).

    Q-1: What does section 103(n) provide?
    A-1: Interest on an issue of private activity bonds will not be tax 
exempt unless the aggregrate amount of bonds issued pursuant to that 
issue, when added to (i) the aggregate amount of private activity bonds 
previously issued by the issuing authority during the calendar year and 
(ii) the portion of that year's private activity bond limit that the 
issuing authority has elected to carry forward to a future year, does 
not exceed the issuing authority's private activity bond limit for that 
calendar year. See A-4 of Sec. 1.103(n)-4T with respect to private 
activity bonds issued under a carryforward election.
    Q-2: What is the effective date of section 103(n)?
    A-2: In general, section 103(n) applies to private activity bonds 
issued after December 31, 1983. Section 103(n) does not apply to any 
issue of obligations, however, if there was an inducement resolution (or 
other comparable preliminary approval) for the project before June 19, 
1984, and the issue for such project is issued before January 1, 1985. 
An issue of obligations will be considered to be issued for the project 
pursuant to the inducement resolution in existence before June 19, 1984, 
to the extent that the nature, character, and purpose of the facility 
has not changed in any material way, and to the extent that the capacity 
of the facility has not increased materially; in addition, the issue of 
obligations must be for the same or a related initial owner, manager, or 
operator. See Sec. 1.103-10(e) for the definition of related persons. 
See A-16 of Sec. 1.103(n)-3T with respect to certain projects 
preliminarily approved before October 19, 1983. The transitional rules 
provided by section 631(c) of the Tax Reform Act of 1984 do not apply to 
section 103(n). See Sec. 1.103-13(b)(6) for the rules relating to the 
date of issue of obligations.
    Q-3: If an issue of private activity bonds causes the issuer's 
private activity bond limit to be exceeded, what is the effect on that 
issue?

[[Page 394]]

    A-3: If an issue of private activity bonds causes the issuing 
authority's private activity bond limit to be exceeded, no portion of 
that issue will be treated as obligations described in section 103(a), 
and interest paid on the issue will be subject to Federal income 
taxation.
    Q-4: If an issue of private activity bonds causes the issuer's 
private activity bond limit to be exceeded, what is the effect on 
previous issues of private activity bonds that met the requirements of 
section 103(n) when issued?
    A-4: Private activity bonds issued as part of an issue that met the 
private activity bond limit when issued continue to meet the 
requirements of section 103(n) even though a subsequent issue causes the 
aggregate amount of private activity bonds issued by an issuing 
authority to exceed the authority's private activity bond limit for the 
calendar year.
    Example. The following example illustrates the provisions of A-3 and 
A-4 of this Sec. 1.103(n)-1T:

    Example. The State ceiling for State Z for 1986 is $200 million. 
City M, within the State, and State Z itself are authorized to issue 
private activity bonds. Under the allocation formula provided by the 
Governor of State Z, City M has a private activity bond limit of $50 
million; the balance of the State ceiling is allocated to State Z. On 
June 1, 1986, City M issues a $75 activity bonds. On September 1, 1986, 
State Z issues a $150 million issue of private activity bonds. Based on 
these facts, the obligations of City M do not meet the requirements of 
section 103(n) since the aggregate amount of private activity bonds 
issued by City M in 1986 exceeded its private activity bond limit for 
such year; thus, such obligations are not described in section 103(a). 
That the State Z issue caused the aggregate amount of private activity 
bonds issued in the State during 1986 to exceed the State ceiling does 
not cause such obligations to fail to meet the requirements of section 
103(n).

    Q-5: What is the aggregate amount of private activity bonds issued 
as part of an issue?
    A-5: The aggregate amount of private activity bonds issued as part 
of an issue is the face amount of the issue.

(Secs. 103(n) and 7805 of the Internal Revenue Code of 1954 (98 Stat. 
916, 26 U.S.C. 103(n); 68A Stat. 917, 26 U.S.C. 7805))

[T.D. 7981, 49 FR 39316, Oct. 5, 1984]