[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: 26CFR1.150-1]

[Page 745-749]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.150-1  Definitions.

    (a) Scope and effective date--(1) In general. Except as otherwise 
provided, the definitions in this section apply for all purposes of 
sections 103 and 141 through 150.
    (2) Effective date--(i) In general. Except as otherwise provided in 
this paragraph (a)(2), this section applies to issues issued after June 
30, 1993 to which Sec. Sec. 1.148-1 through 1.148-11 apply. In 
addition, this section (other than paragraph (c)(3) of this section) 
applies to any issue to which the election described in Sec. 1.148-
11(b)(1) is made.
    (ii) Special effective date for paragraphs (c)(1), (c)(4)(iii), and 
(c)(6). Paragraphs (c)(1), (c)(4)(iii), and (c)(6) of this section apply 
to bonds sold on or after July 8, 1997 and to any issue to which the 
election described in Sec. 1.148-11(b)(1) is made. See Sec. 1.148-
11A(i) for rules relating to certain bonds sold before July 8, 1997.
    (3) Exception to general effective date. See Sec. 1.141-15 for the 
effective date of the definition of bond documents contained in 
paragraph (b) of this section.
    (b) Certain general definitions. The following definitions apply:
    Bond means any obligation of a State or political subdivision 
thereof under section 103(c)(1).
    Bond documents means the bond indenture or resolution, transcript of 
proceedings, and any related documents.
    Capital expenditure means any cost of a type that is properly 
chargeable to capital account (or would be so chargeable with a proper 
election or with the application of the definition of placed in service 
under Sec. 1.150-2(c)) under general Federal income tax principles. For 
example, costs incurred to acquire, construct, or improve land, 
buildings, and equipment generally are capital expenditures. Whether an 
expenditure is a capital expenditure is determined at the time the 
expenditure is paid with respect to the property. Future changes in law 
do not affect whether an expenditure is a capital expenditure.
    Conduit borrower means the obligor on a purpose investment (as 
defined in

[[Page 746]]

Sec. 1.148-1). For example, if an issuer invests proceeds in a purpose 
investment in the form of a loan, lease, installment sale obligation, or 
similar obligation to another entity and the obligor uses the proceeds 
to carry out the governmental purpose of the issue, the obligor is a 
conduit borrower.
    Conduit financing issue means an issue the proceeds of which are 
used or are reasonably expected to be used to finance at least one 
purpose investment representing at least one conduit loan to one conduit 
borrower.
    Conduit loan means a purpose investment (as defined in Sec. 1.148-
1).
    Governmental bond means any bond of an issue of tax-exempt bonds in 
which none of the bonds are private activity bonds.
    Issuance costs means costs to the extent incurred in connection 
with, and allocable to, the issuance of an issue within the meaning of 
section 147(g). For example, issuance costs include the following costs 
but only to the extent incurred in connection with, and allocable to, 
the borrowing: underwriters' spread; counsel fees; financial advisory 
fees; rating agency fees; trustee fees; paying agent fees; bond 
registrar, certification, and authentication fees; accounting fees; 
printing costs for bonds and offering documents; public approval process 
costs; engineering and feasibility study costs; guarantee fees, other 
than for qualified guarantees (as defined in Sec. 1.148-4(f)); and 
similar costs.
    Issue date means, in reference to an issue, the first date on which 
the issuer receives the purchase price in exchange for delivery of the 
evidence of indebtedness representing any bond included in the issue. 
Issue date means, in reference to a bond, the date on which the issuer 
receives the purchase price in exchange for that bond. In no event is 
the issue date earlier than the first day on which interest begins to 
accrue on the bond or bonds for Federal income tax purposes.
    Obligation means any valid evidence of indebtedness under general 
Federal income tax principles.
    Pooled financing issue means an issue the proceeds of which are to 
be used to finance purpose investments representing conduit loans to two 
or more conduit borrowers, unless those conduit loans are to be used to 
finance a single capital project.
    Private activity bond means a private activity bond (as defined in 
section 141).
    Qualified mortgage loan means a mortgage loan with respect to an 
owner-occupied residence acquired with the proceeds of an obligation 
described in section 143(a)(1) or 143(b) (or applicable prior law).
    Qualified student loan means a student loan acquired with the 
proceeds of an obligation described in section 144(b)(1).
    Related party means, in reference to a governmental unit or a 
501(c)(3) organization, any member of the same controlled group, and, in 
reference to any person that is not a governmental unit or 501(c)(3) 
organization, a related person (as defined in section 144(a)(3)).
    Taxable bond means any obligation the interest on which is not 
excludable from gross income under section 103.
    Tax-exempt bond means any bond the interest on which is excludable 
from gross income under section 103(a). For purposes of section 148, 
tax-exempt bond includes:
    (1) An interest in a regulated investment company to the extent that 
at least 95 percent of the income to the holder of the interest is 
interest that is excludable from gross income under section 103; and
    (2) A certificate of indebtedness issued by the United States 
Treasury pursuant to the Demand Deposit State and Local Government 
Series program described in 31 CFR part 344.
    Working capital expenditure means any cost that is not a capital 
expenditure. Generally, current operating expenses are working capital 
expenditures.
    (c) Definition of issue--(1) In general. Except as otherwise 
provided in this paragraph (c), the term issue means two or more bonds 
that meet all of the following requirements:
    (i) Sold at substantially the same time. The bonds are sold at 
substantially the same time. Bonds are treated as sold at substantially 
the same time if they are sold less than 15 days apart.
    (ii) Sold pursuant to the same plan of financing. The bonds are sold 
pursuant

[[Page 747]]

to the same plan of financing. Factors material to the plan of financing 
include the purposes for the bonds and the structure of the financing. 
For example, generally--
    (A) Bonds to finance a single facility or related facilities are 
part of the same plan of financing;
    (B) Short-term bonds to finance working capital expenditures and 
long-term bonds to finance capital projects are not part of the same 
plan of financing; and
    (C) Certificates of participation in a lease and general obligation 
bonds secured by tax revenues are not part of the same plan of 
financing.
    (iii) Payable from same source of funds. The bonds are reasonably 
expected to be paid from substantially the same source of funds, 
determined without regard to guarantees from parties unrelated to the 
obligor.
    (2) Exception for taxable bonds. Taxable bonds and tax-exempt bonds 
are not part of the same issue under this paragraph (c). The issuance of 
tax-exempt bonds in a transaction (or series of related transactions) 
that includes taxable bonds, however, may constitute an abusive 
arbitrage device under Sec. 1.148-10(a) or a device to avoid other 
limitations in sections 103 and 141 through 150 (for example, structures 
involving windows or unreasonable allocations of bonds).
    (3) Exception for certain bonds financing separate purposes--(i) In 
general. Bonds may be treated as part of separate issues if the 
requirements of this paragraph (c)(3) are satisfied. Each of these 
separate issues must finance a separate purpose (e.g., refunding a 
separate prior issue, financing a separate purpose investment, financing 
integrated or functionally related capital projects, and financing any 
clearly discrete governmental purpose). Each of these separate issues 
independently must be a tax-exempt bond (e.g., a governmental bond or a 
qualified mortgage bond). The aggregate proceeds, investments, and bonds 
in such a transaction must be allocated between each of the separate 
issues using a reasonable, consistently applied allocation method. If 
any separate issue consists of refunding bonds, the allocation rules in 
Sec. 1.148-9(h) must be satisfied. An allocation is not reasonable if 
it achieves more favorable results under sections 103 and 141 to 150 
than could be achieved with actual separate issues. All allocations 
under this paragraph (c)(3) must be made in writing on or before the 
issue date.
    (ii) Exceptions. This paragraph (c)(3) does not apply for purposes 
of sections 141(b)(5), 141(c)(1), 141(d)(1), 144(a), 148, 149(d), and 
149(g).
    (4) Special rules for certain financings--(i) Draw-down loans. Bonds 
issued pursuant to a draw-down loan are treated as part of a single 
issue. The issue date of that issue is the first date on which the 
aggregate draws under the loan exceed the lesser of $50,000 or 5 percent 
of the issue price.
    (ii) Commercial paper--(A) In general. Short-term bonds having a 
maturity of 270 days or less (commercial paper) issued pursuant to the 
same commercial paper program may be treated as part of a single issue, 
the issue date of which is the first date the aggregate amount of 
commercial paper issued under the program exceeds the lesser of $50,000 
or 5 percent of the aggregate issue price of the commercial paper in the 
program. A commercial paper program is a program to issue commercial 
paper to finance or refinance the same governmental purpose pursuant to 
a single master legal document. Commercial paper is not part of the same 
commercial paper program unless issued during an 18-month period, 
beginning on the deemed issue date. In addition, commercial paper issued 
after the end of this 18-month period may be treated as part of the 
program to the extent issued to refund commercial paper that is part of 
the program, but only to the extent that--
    (1) There is no increase in the principal amount outstanding; and
    (2) The program does not have a term in excess of--
    (i) 30 years; or
    (ii) The period reasonably necessary for the governmental purposes 
of the program.
    (B) Safe harbor. The requirement of paragraph (c)(4)(ii)(A)(2) of 
this section is treated as satisfied if the weighted average maturity of 
the issue does not

[[Page 748]]

exceed 120 percent of the weighted average expected economic life of the 
property financed by the issue.
    (iii) Certain general obligation bonds. Except as otherwise provided 
in paragraph (c)(2) of this section, bonds that are secured by a pledge 
of the issuer's full faith and credit (or a substantially similar 
pledge) and sold and issued on the same dates pursuant to a single 
offering document may be treated as part of the same issue if the issuer 
so elects on or before the issue date.
    (5) Anti-abuse rule. In order to prevent the avoidance of sections 
103 and 141 through 150 and the general purposes thereof, the 
Commissioner may treat bonds as part of the same issue or as part of 
separate issues to clearly reflect the economic substance of a 
transaction.
    (6) Sale date. The sale date of a bond is the first day on which 
there is a binding contract in writing for the sale or exchange of the 
bond.
    (d) Definition of refunding issue and related definitions--(1) 
General definition of refunding issue. Refunding issue means an issue of 
obligations the proceeds of which are used to pay principal, interest, 
or redemption price on another issue (a prior issue, as more 
particularly defined in paragraph (d)(5) of this section), including the 
issuance costs, accrued interest, capitalized interest on the refunding 
issue, a reserve or replacement fund, or similar costs, if any, properly 
allocable to that refunding issue.
    (2) Exceptions and special rules. For purposes of paragraph (d)(1) 
of this section, the following exceptions and special rules apply--
    (i) Payment of certain interest. An issue is not a refunding issue 
if the only principal and interest that is paid with proceeds of the 
issue (determined without regard to the multipurpose issue rules of 
Sec. 1.148-9(h)) is interest on another issue that--
    (A) Accrues on the other issue during a one-year period including 
the issue date of the issue that finances the interest;
    (B) Is a capital expenditure; or
    (C) Is a working capital expenditure to which the de minimis rule of 
Sec. 1.148-6(d)(3)(ii)(A) applies.
    (ii) Certain issues with different obligors--(A) In general. An 
issue is not a refunding issue to the extent that the obligor (as 
defined in paragraph (d)(2)(ii)(B) of this section) of one issue is 
neither the obligor of the other issue nor a related party with respect 
to the obligor of the other issue.
    (B) Definition of obligor. The obligor of an issue means the actual 
issuer of the issue, except that the obligor of the portion of an issue 
properly allocable to an investment in a purpose investment means the 
conduit borrower under that purpose investment. The obligor of an issue 
used to finance qualified mortgage loans, qualified student loans, or 
similar program investments (as defined in Sec. 1.148-1) does not 
include the ultimate recipient of the loan (e.g., the homeowner, the 
student).
    (iii) Certain special rules for purpose investments. For purposes of 
this paragraph (d), the following special rules apply:
    (A) Refunding of a conduit financing issue by a conduit loan 
refunding issue. Except as provided in paragraph (d)(2)(iii)(B) of this 
section, the use of the proceeds of an issue that is used to refund an 
obligation that is a purpose investment (a conduit refunding issue) by 
the actual issuer of the conduit financing issue determines whether the 
conduit refunding issue is a refunding of the conduit financing issue 
(in addition to a refunding of the obligation that is the purpose 
investment).
    (B) Recycling of certain payments under purpose investments. A 
conduit refunding issue is not a refunding of a conduit financing issue 
to the extent that the actual issuer of the conduit financing issue 
reasonably expects as of the date of receipt of the proceeds of the 
conduit refunding issue to use those amounts within 6 months (or, if 
greater, during the applicable temporary period for those amounts under 
section 148(c) or under applicable prior law) to acquire a new purpose 
investment. Any new purpose investment is treated as made from the 
proceeds of the conduit financing issue.
    (C) Application to tax-exempt loans. For purposes of this paragraph 
(d), obligations that would be purpose investments (absent section 
148(b)(3)(A)) are treated as purpose investments.

[[Page 749]]

    (iv) Substance of transaction controls. In the absence of other 
applicable controlling rules under this paragraph (d), the determination 
of whether an issue is a refunding issue is based on the substance of 
the transaction in light of all the facts and circumstances.
    (v) Certain integrated transactions in connection with asset 
acquisition not treated as refunding issues. If, within six months 
before or after a person assumes (including taking subject to) 
obligations of an unrelated party in connection with an asset 
acquisition (other than a transaction to which section 381(a) applies if 
the person assuming the obligation is the acquiring corporation within 
the meaning of section 381(a)), the assumed issue is refinanced, the 
refinancing issue is not treated as a refunding issue.
    (3) Current refunding issue. Current refunding issue means:
    (i) Except as provided in paragraph (d)(3)(ii) of this section, a 
refunding issue that is issued not more than 90 days before the last 
expenditure of any proceeds of the refunding issue for the payment of 
principal or interest on the prior issue; and
    (ii) In the case of a refunding issue issued before 1986--
    (A) A refunding issue that is issued not more than 180 days before 
the last expenditure of any proceeds of the refunding issue for the 
payment of principal or interest on the prior issue; or
    (B) A refunding issue if the prior issue had a term of less than 3 
years and was sold in anticipation of permanent financing, but only if 
the aggregate term of all prior issues sold in anticipation of permanent 
financing was less than 3 years.
    (4) Advance refunding issue. Advance refunding issue means a 
refunding issue that is not a current refunding issue.
    (5) Prior issue. Prior issue means an issue of obligations all or a 
portion of the principal, interest, or call premium on which is paid or 
provided for with proceeds of a refunding issue. A prior issue may be 
issued before, at the same time as, or after a refunding issue. If the 
refunded and unrefunded portions of a prior issue are treated as 
separate issues under Sec. 1.148-9(i), for the purposes for which that 
section applies, except to the extent that the context clearly requires 
otherwise, references to a prior issue refer only to the refunded 
portion of that prior issue.
    (e) Controlled group means a group of entities controlled directly 
or indirectly by the same entity or group of entities within the meaning 
of this paragraph (e).
    (1) Direct control. The determination of direct control is made on 
the basis of all the relevant facts and circumstances. One entity or 
group of entities (the controlling entity) generally controls another 
entity or group of entities (the controlled entity) for purposes of this 
paragraph if the controlling entity possesses either of the following 
rights or powers and the rights or powers are discretionary and non-
ministerial--
    (i) The right or power both to approve and to remove without cause a 
controlling portion of the governing body of the controlled entity; or
    (ii) The right or power to require the use of funds or assets of the 
controlled entity for any purpose of the controlling entity.
    (2) Indirect control. If a controlling entity controls a controlled 
entity under the test in paragraph (e)(1) of this section, then the 
controlling entity also controls all entities controlled, directly or 
indirectly, by the controlled entity or entities.
    (3) Exception for general purpose governmental entities. An entity 
is not a controlled entity under this paragraph (e) if the entity 
possesses substantial taxing, eminent domain, and police powers. For 
example, a city possessing substantial amounts of each of these 
sovereign powers is not a controlled entity of the state.

[T.D. 8476, 58 FR 33549, June 18, 1993; 58 FR 44453, Aug. 23, 1993, as 
amended by T.D. 8538, 59 FR 24046, May 10, 1994; T.D. 8712, 62 FR 2304, 
Jan. 16, 1997; T.D. 8718, 62 FR 25513, May 9, 1997]