26 U.S.C. § 103: Interest on State and local bonds

§ 1.103-1 Interest upon obligations of a State, territory, etc.§ 1.103-2 - 1.103-6 §§ 1.103-2-1.103-6 [Reserved]§ 1.103-7 Industrial development bonds.§ 1.103-8 Interest on bonds to finance certain exempt facilities.§ 1.103-9 Interest on bonds to finance industrial parks.§ 1.103-10 Exemption for certain small issues of industrial development bonds.§ 1.103-11 Bonds held by substantial users.§ 1.103-16 Obligations of certain volunteer fire departments.Prop. § 1.103-7 Proposed 1994 · [Removed]

Amended 1968, 1969, 1975, 1976, 1978, 1980, 1981, 1982, 1983, 1984, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, substituted “Interest on State and local bonds” for “Interest on certain governmental obligations” in section catchline.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsecs. (d) to (g) which related to certain irrigation dams, qualified scholarship funding bonds, certain federally guaranteed obligations, and qualified steam-generating or alcohol-producing facilities, respectively.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (h) which provided that obligations must not be guaranteed.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(2), substituted “guaranteed” for “guaranted”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1865(a), struck out “the United States,” after “program of”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsecs. (i) to (k) which related to obligations of certain volunteer fire departments, provided that obligations must be in registered form to be tax-exempt, and required public approval for industrial development bonds, respectively.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (l) which related to information reporting requirements for certain bonds.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1864(d), added subpar. (F) which read: “if such obligation is a private activity bond (as defined in subsection (n)(7)), such information as the Secretary may require for purposes of determining whether the requirements of subsection (n) are met with respect to such obligation.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (m) which related to obligations exempt other than under this title.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1871(a)(1), substituted “(j), (k), (l), (n), and (o)” for “(k), (l), and (n)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(3), substituted “608(a)(6)(A)” for “608(6)(A)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (n) which related to limitation on aggregate amount of private activity bonds issued during any calendar year.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1864(b), substituted “governmental units or other authorities” for “governmental units”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1864(c), substituted “all of the property to be financed by the obligation” for “the property described in such paragraph”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1864(e), substituted “identify project” for “specify project” in heading and “identify (with reasonable specificity) the project” for “specify the project” in text of subpar. (B)(i).
1986 Pub. L. 99-514 Pub. L. 99–514, § 1864(e)(2), substituted “any identification or specification” for “any specification”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1864(a)(1), added par. (13).
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (o) relating to consumer loan bonds.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1869(a), (b)(1), substituted “Private loan bonds” for “Consumer loan bonds” in subsection and par. (2) headings, “private loan bond” for “consumer loan bond” in text of pars. (1), (2)(A) and (B), and “subsection (c)(6)(H)(i)” for “subsection (c)(6)(G)(i)” in par. (2)(C)(ii).
1986 Pub. L. 99-514 Pub. L. 99–514, § 1869(b)(2), redesignated subsec. (o), relating to cross references, as (p).
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, struck out subsec. (p) which related to cross references.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1869(b)(2), redesignated former subsec. (o), relating to cross references, as (p).
1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(4), substituted “October 27, 1949 (48 U.S.C. 1403)” for “October 27, 1919 (48 U.S.C. 1403)”.
1984 Pub. L. 98-369 Pub. L. 98–369, § 622, amended subsec. (h) generally, in par. (1) substituting provisions that obligations are not included in the section if they are federally guaranteed for provisions which excluded obligations guaranteed, in whole or part, by the U.S. under a program to conserve energy, or under other Federal or State programs, in par. (2) substituting provisions defining “federally guaranteed” for provisions setting forth obligations to which this subsection applies, and adding pars. (3) to (5).
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(a)(1), inserted “In the case of an obligation issued after December 31, 1983, such obligation shall not be treated as described in this paragraph unless the appropriate requirements of subsections (b), (c), (h), (k), (l), and (n) of this section and section 103A are met with respect to such obligation. For purposes of applying such requirements, a possession of the United States shall be treated as a State; except that clause (ii) of subsection (n)(4)(A) shall not apply.”
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(a)(2), substituted “is exempt from tax under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act” for “is exempt from taxation under any provision of this title”.
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(a)(3), added par. (3).
1984 Pub. L. 98-369 Pub. L. 98–369, § 621, added subsec. (n). Former subsec. (n), relating to cross references, redesignated (o).
1984 Pub. L. 98-369 Pub. L. 98–369, § 626(a), added subsec. (o) relating to consumer loan bonds.
1984 Pub. L. 98-369 Pub. L. 98–369, § 621, redesignated subsec. (n), relating to cross references, as (o).
1983 Pub. L. 97-424 Pub. L. 97–424, § 547(a), added subsec. (m). Former subsec. (m) redesignated (n).
1983 Pub. L. 97-473 Pub. L. 97–473 amended subsec. (m) generally, adding pars. (1) and (2), redesignating former pars. (1) to (3) as (3) to (5), respectively, and striking out par. (24) which had provided reference regarding exempt-interest dividends to section 852(b)(5)(B.) See section 722(b) of Pub. L. 98–369, set out as a note below.
1983 Pub. L. 97-424 Pub. L. 97–424, § 547(a), redesignated former subsec. (m), relating to cross references, as (n).
1982 Pub. L. 97-248 Pub. L. 97–248, § 310(c)(2), substituted “must not be guaranteed or subsidized” for “must be in registered form and not guaranteed or subsidized” in heading, and in par. (1) struck out subpar. (A) reading “such obligation is not issued in registered form”, and redesignated subpars. (B) and (C) as (A) and (B), respectively.
1982 Pub. L. 97-248 Pub. L. 97–248, § 310(b)(1), added subsec. (j). Former subsec. (j), relating to cross references, redesignated (m).
1982 Pub. L. 97-248 Pub. L. 97–248, § 215(a), added subsec. (k).
1982 Pub. L. 97-248 Pub. L. 97–248, § 215(b)(1), added subsec. (l).
1982 Pub. L. 97-248 Pub. L. 97–248, §§ 215(a), (b)(1), 310(b)(1), redesignated former subsec. (j), relating to cross references, as (m).
1981 Pub. L. 97-34 Pub. L. 97–34, § 812(a), added subsec. (i) and redesignated former subsec. (i) as (j).
1980 Pub. L. 96-223 Pub. L. 96–223, § 241(a), added subsec. (g). Former subsec. (g) redesignated (i).
1980 Pub. L. 96-223 Pub. L. 96–223, § 244(a), added subsec. (h).
1980 Pub. L. 96-223 Pub. L. 96–223, §§ 241(a), 244(a), redesignated former subsec. (g) as (i).
1978 Pub. L. 95-600 Pub. L. 95–600, § 703(j)(1)(E), substituted “subsection (b)(4)(G)” for “subsection (c)(4)(G)”.
1978 Pub. L. 95-339 Pub. L. 95–339 redesignated second subsec. (e), relating to cross references, as (g).
1978 Pub. L. 95-339 Pub. L. 95–339 added subsec. (f).
1978 Pub. L. 95-339 Pub. L. 95–339 redesignated second subsec. (e), relating to cross references, as (g).
1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(a)(17)(B), redesignated subsec. (e) as (d). Former subsec. (d) redesignated (c).
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1901(a)(17)(B), (E), 2105(b), 2137(d), added subsec. (e) relating to qualified scholarship funding bonds, redesignated former subsec. (f) relating to cross references as a second subsec. (e), reduced the number of cross references in subsec. (e) as so redesignated from twenty-three (which made reference to various obligations of the United States and of corporations organized under Acts of Congress) to three, relating, respectively, to Puerto Rican bonds, Virgin Islands insular and municipal bonds, and certain obligations issued under title I of the Housing Act of 1949, and inserted a fourth cross reference, designated as par. (24) relating to the treatment of exempt-interest dividends. Former subsec. (e) redesignated (d).
1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(a)(17)(B), redesignated subsec. (f), relating to cross references, as (e).
1975 Pub. L. 94-182 Pub. L. 94–182 and Pub. L. 94–164 made identical amendments, adding subsec. (e) and redesignating former subsec. (e) as (f).
1969 Pub. L. 91-172 Pub. L. 91–172 added subsec. (d) and redesignated former subsec. (d) as (e).
1968 Pub. L. 90-364 Pub. L. 90–364 redesignated former subsec. (c) as (d).

Cases: Stewart v. Commissioner, 714 F.2d 977 (9th Cir. 1983); American National Bank of Austin v. United States, 421 F.2d 442 (5th Cir. 1970); State of Washington v. Commissioner, 692 F.2d 128 (D.C. Cir. 1982)

Final rules 5

(a) Exclusion Except as provided in subsection (b), gross income does not include interest on any State or local bond.

Amended 1976, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), substituted “Exclusion” for “General rule” in heading and amended text generally. Prior to amendment, text read as follows: “Gross income does not include interest on—
“(1) the obligations of a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia; and
“(2) qualified scholarship funding bonds.”
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1901(a)(17)(A), 2105(a), added par. (2) relating to qualified scholarship funding bonds. Former pars. (2) and (3), relating to obligations of the United States and to the obligations of corporations organized under an Act of Congress, were struck out.

Cited by 62

(b) Exceptions Subsection (a) shall not apply to—

Amended 1976, 1978, 1980, 1981, 1982, 1984, 1986, 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1013(c)(12)(A), amended subpar. (N), as in effect on the day before the date of the enactment of Pub. L. 99–514 [Oct. 22, 1986], by redesignating cls. (ii) and (iii) as (iii) and (iv), respectively, and by striking out cl. (i) and inserting in lieu thereof the following new cls.:
1988 “(i) In general.—Except as provided in clause (ii), this paragraph shall not apply to any obligation issued after December 31, 1986.
1988 “(ii) Certain refundings.—This paragraph shall apply to any obligation (or series of obligations) issued to refund an obligation issued on or before December 31, 1986, if—
“(I) the average maturity date of the issue of which the refunding obligation is a part is not later than the average maturity date of the obligations to be refunded by such issue,
“(II) the amount of the refunding obligation does not exceed the outstanding amount of the refunded obligation, and
“(III) the proceeds of the refunding obligation are used to redeem the refunded obligation not later than 90 days after the date of the issuance of the refunding obligation.
For purposes of subclause (I), average maturity shall be determined in accordance with subsection (b)(14)(B)(i).”
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, substituted provision relating to exceptions for provision relating to industrial development bonds.
1986 Pub. L. 99-272 Pub. L. 99–272 struck out par. (11) relating to pollution control facilities acquired by regional pollution control authorities.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1871(b), substituted “and (6)” for “(6), and (7)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1870, substituted “clause (ii)” for “clause (i)”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1871(b), substituted “and (6)” for “(6), and (7)”.
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(e), inserted “For purposes of subparagraph (A), any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.”
1984 Pub. L. 98-369 Pub. L. 98–369, § 474(r)(4), substituted “section 30(b)(2)(A)” for “section 44F(b)(2)(A)”.
1984 Pub. L. 98-369 Pub. L. 98–369, § 630, designated existing provisions as cl. (i) and added cls. (ii) and (iii).
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(c), added subpar. (P).
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(g), repealed par. (7) which related to advance refunding of qualified public facilities.
1984 Pub. L. 98-369 Pub. L. 98–369, § 628(d), inserted “For purposes of this paragraph— (A) a partnership and each of its partners (and their spouses and minor children) shall be treated as related persons, and (B) an S corporation and each of its shareholders (and their spouses and minor children) shall be treated as related persons.”
1984 Pub. L. 98-369 Pub. L. 98–369, § 623, added par. (15).
1984 Pub. L. 98-369 Pub. L. 98–369, § 627, added pars. (16) to (18).
1982 Pub. L. 97-248 Pub. L. 97–248, §§ 217(a)(1), (b), 221(a), (c)(1), 310(c)(1), in subpar. (A) substituted “if at all times during the qualified project period” for “if each obligation issued pursuant to the issue is in registered form and if” after “residential rental property”, and struck out “(within the meaning of section 167(k)(3)(B))” after “low or moderate income”, added subpar. (J), struck out provision that for purposes of subpar. (A), “targeted area project” meant a project located in a qualified census tract (within the meaning of section 103A(k)(2)) or an area of chronic economic distress (within the meaning of section 103A(k)(3)) and, in last sentence, substituted “electric energy or gas from” for “electric energy from”.
1982 Pub. L. 97-248 Pub. L. 97–248, § 217(a)(3), substituted “paragraph (13)” for “paragraph (7)”.
1982 Pub. L. 97-248 Pub. L. 97–248, § 214(d), added cl. (iv).
1982 Pub. L. 97-248 Pub. L. 97–248, § 214(a)–(c), (e), added subpars. (K) to (O).
1982 Pub. L. 97-248 Pub. L. 97–248, § 217(c), inserted “ferry,” after “rail car” in provisions preceding cl. (i), and in cl. (ii), inserted “(or, in the case of a ferry, mass transportation services)” after “mass commuting services”.
1982 Pub. L. 97-248 Pub. L. 97–248, § 217(a)(2), added par. (10). Former par. (10) redesignated (13).
1982 Pub. L. 97-248 Pub. L. 97–248, § 217(d), added par. (11).
1982 Pub. L. 97-248 Pub. L. 97–248, § 221(b), added par. (12). [Provisions of par. (12)(A) were formerly contained, as undesignated provisions, in par. (4).]
1982 Pub. L. 97-248 Pub. L. 97–248, § 217(a)(2), redesignated former par. (10) as (13).
1982 Pub. L. 97-248 Pub. L. 97–248, § 219(a), added par. (14).
1981 Pub. L. 97-34 Pub. L. 97–34, § 811(a), added subpar. (I).
1981 Pub. L. 97-34 Pub. L. 97–34, § 811(b), added par. (9) and redesignated former par. (9) as (10).
1980 Pub. L. 96-499 Pub. L. 96–499, § 1103(b), inserted before last sentence provisions defining “targeted area project” for purposes of subpar. (A).
1980 Pub. L. 96-499 Pub. L. 96–499, § 1103(a), substituted provisions relating to low or moderate income residential rental property for provisions relating to residential real property for family units.
1980 Pub. L. 96-223 Pub. L. 96–223, § 242(a)(1), added subpar. (H).
1980 Pub. L. 96-499 Pub. L. 96–499, § 1103(c), added subpar. (J).
1980 Pub. L. 96-223 Pub. L. 96–223, § 242(a)(2), added par. (8) and redesignated former par. (8) as (9).
1978 Pub. L. 95-600 Pub. L. 95–600, §§ 332(a), 333(a), in subpar. (G)(i) inserted reference to electric utility, industrial, agricultural, or commercial users and added subpar. (G)(ii) and provision following subpar. (G)(ii) relating to the local furnishing of electric energy.
1978 Pub. L. 95-600 Pub. L. 95–600, § 331(a), substituted in heading and cl. (i) “$10,000,000” for “$5,000,000”.
1978 Pub. L. 95-600 Pub. L. 95–600, § 331(b), added subpar. (I).
1978 Pub. L. 95-600 Pub. L. 95–600, § 334(a), (b), added par. (7), redesignated former par. (7) as (8) and, as so redesignated, substituted “(6), and (7)” for “and (6)”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(a)(17)(B), (C), redesignated subsec. (c) as (b) and in par. (1) of subsec. (b) as so redesignated substituted “subsection (a)(1) or (2)” for “subsection (a)(1)”. Former subsec. (b), which created an exception to the rule that gross income did not include interest on obligations of the United States, by providing that the exception did not apply to obligations of the United States (with specified exceptions) unless under the authorizing Acts such interest is wholly exempt from the taxes imposed by this subtitle, was struck out.

Cited by 51

(1) Private activity bond which is not a qualified bond Any private activity bond which is not a qualified bond (within the meaning of section 141).

Amended 1978

1978 Pub. L. 95-600 Pub. L. 95–600, § 703(j)(1)(A), substituted “subsection (a)(1) or (2)” for “subsection (a)(1)” in heading.

Cited by 16

(2) Arbitrage bond Any arbitrage bond (within the meaning of section 148).

Textual readingALL OF= Subsection (a) does not apply

“Any arbitrage bond (within the meaning of section 148)”

Amended 1982

1982 Pub. L. 97-248 Pub. L. 97–248, § 215(b)(2), substituted “For purposes of this section” for “For purposes of this subsection”.

Cited by 12

(3) Bond not in registered form, etc. Any bond unless such bond meets the applicable requirements of section 149.

Cited by 1

Amended 1968, 1971, 1976, 1978, 1980, 1984, 1986, 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1013(a)(34)(A), amended par. (7), as in effect on the day before the date of the enactment of Pub. L. 99–514 [Oct. 22, 1986], by substituting “necessary” for “necessary”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1301(a), in amending section generally, substituted provision relating to definitions for provision relating to arbitrage.
1984 Pub. L. 98-369 Pub. L. 98–369, § 624(b)(2), struck out “bonds” after “Arbitrage” in heading.
1984 Pub. L. 98-369 Pub. L. 98–369, § 624(a), added par. (6) and redesignated former par. (6) as (7).
1980 Pub. L. 96-222 Pub. L. 96–222, § 107(a)(3)(C), amended the directory language of Pub. L. 96–500, § 703(q)(1). See 1978 Amendment note below for subsec. (c)(5).
1978 Pub. L. 95-600 Pub. L. 95–600, § 703(j)(1)(D), (q)(1), as amended by Pub. L. 96–222, § 107(a)(3)(C), substituted “section 438 of the Higher Education Act of 1965” for “section 2 of the Emergency Insured Student Loan Act of 1969” and “paragraph (2)(A)” for “subsection (d)(2)(A)”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1901(a)(17)(B), (D), (b)(8)(B), 1906(b)(13)(A), 2105(c), redesignated subsec. (d) as (c) and, in subsec. (c) as so redesignated, substituted “(a)(1) or (4)” for “(a)(1)” in par. (1) and “(a)(1) or (2) or (4)” for “(a)(1)” in par. (2)(A), substituted “educational organization described in section 170(b)(1)(A)(ii)” for “educational institution (within the meaning of section 151(e)(4))” in par. (3)(A), added par. (5), redesignated former par. (5) as (6), and in par. (6) as so redesignated substituted “Secretary” for “Secretary or his delegate”. Former subsec. (c) redesignated (b).
1971 Pub. L. 92-178 Pub. L. 92–178, § 315(a)(1), substituted “energy or gas,” for “energy, gas, or water or”.
1971 Pub. L. 92-178 Pub. L. 92–178, § 315(a)(2), substituted “, or” for a period.
1971 Pub. L. 92-178 Pub. L. 92–178, § 315(a)(3), added subpar. (G).
1971 Pub. L. 92-178 Pub. L. 92–178, § 315(b), substituted “$1,000,000” for “$250,000”.
1968 Pub. L. 90-364 Pub. L. 90–364 added subsec. (c). Former subsec. (c) redesignated (d).
1968 Pub. L. 90-634 Pub. L. 90–634 added subpars. (D) to (H).

Cited by 18

(1) State or local bond The term “State or local bond” means an obligation of a State or political subdivision thereof.

Amended 1978, 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 624(b)(3), inserted “to arbitrage bonds” in heading.
1978 Pub. L. 95-600 Pub. L. 95–600, § 703(j)(1)(B), substituted in heading and text “(a)(1) or (2)” for “(a)(1) or (4)”.

Cited by 4

(2) State The term “State” includes the District of Columbia and any possession of the United States.

Amended 1978

1978 Pub. L. 95-600 Pub. L. 95–600, § 703(j)(1)(C), substituted “subsection (a)(1) or (2)” for “subsection (a)(1) or (2) or (4)”.

Cited by 3