[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.103-1]

[Page 369]
 
                       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 
Sec. Sec. 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]