INDUSTRIAL DEVELOPMENT BONDS.

SEC. 107. INDUSTRIAL DEVELOPMENT BONDS. (a) Amendment of Section 103.— Section 103 (relating to interest on certain governmental obligations) is amended by relettering subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Industrial Development Bonds.— “(1) Subsection (a)(1) not to apply.— Except as otherwise provided in this subsection, any industrial development bond shall be treated as an obligation not described in subsection (a)(1). “(2) Industrial development bond.— For purposes of this subsection, the term ‘industrial development bond’ means any obligation— “(A) which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly in any trade or business carried on by any person who82 Stat. 267 is not mi exempt person (within the meaning of paragraph (3)), and “(B) the payment of the principal or interest on which (under the terms of such obligation or any underlying arrangement) is, in whole or in major part— “(i) secured by any interest in property used or to be used in a trade or business or in payments in respect of such property, or “(ii) to be derived from payments in respect of property, or borrowed money, used or to be used in a trade or business. “(3) Exempt person.— For purposes of paragraph (2)(A), the term ‘exempt person’ means— “(A) a governmental unit, or “(B) an organization described in section 501(c)(3) and exempt from tax under section 501(a)(but only with respect to a trade or business carried on by such organization which is not an unrelated trade or business, determined by applying sect ion 513(a) to such organization). “(4) Certain exempt activities.— Paragraph (1) shall not apply 1° any obligation which is issued as part of an issue substantially all of the proceeds of which are to be used to provide— “(A) residential real property for family units, “(B) sports facilities, “(C) convention or trade show facilities, “(D) airports, docks, wharves, mass commuting facilities, parking facilities, or storage or training facilities directly related to any of the foregoing, “(E) sewage or solid waste disposal facilities or facilities for the local furnishing of electric energy, gas, or water, or “(F) air or water pollution control facilities. “(5) Industrial parks.— Paragraph (1) shall not apply to any obligation issued as part of an issue substantially all of the proceeds of which are to be used for the acquisition or development of land as the site for an industrial park. For purposes of the preceding sentence, the term ‘development of land’ includes the provision of water, sewage, drainage, or similar facilities, or of transportation, power, or communication facilities, which are incidental to use of the site as an industrial park, but, except with respect to such facilities, does not include the provision of structures or buildings. “(6) Exemption for certain small issues.— “(A) In general.—Paragraph (1) shall not apply to any obligation issued as part of an issue the aggregate authorized face amount of which is $1,000,000 or less and substantially all of the proceeds of which are to be used (i) for the acquisition, construction, reconstruction, or improvement, of land or property of a character subject to the allowance for depreciation, or (ii) to redeem part or all of a prior issue which was issued for purposes described in clause (i) or this clause. “(B) Certain prior issues taken into account.— If— “(i) the proceeds of two or more issues of obligations (whether or not the issuer of each such issue is the same) are or will be used primarily with respect to facilities located in the same incorporated municipality or located in the same county (but not in any incorporated municipality), “(ii) the principal user of such facilities is or will be the same person or two or more related persons, and 82 Stat. 268 “(iii) but for this subparagraph, subparagraph (A) would apply to each such issue, then, for purposes of subparagraph (A), in determining the aggregate face amount of any later issue there shall be taken into account the face amount, of obligations issued under all prior such issues and outstanding at the time of such later issue (not including as outstanding any obligation which is to be redeemed from the proceeds of the later issue). “(C) Related persons.— For purposes of this paragraph and paragraph (7), a person is a related person to another person if— “(i) the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or “(ii) such persons are members of the same controlled group of corporations (as defined in section 1563(a), except that ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears therein). “(7) Exception.—Paragraphs (4), (5), and (6) shall not apply with respect to any obligation for any period during which it is held by a person who is a substantial user of the facilities or a related person.” (b) Effective Date.— (1) In general.— Except as provided by paragraph (2), the amendment made by subsection (a) shall apply to taxable years ending after April 30, 1968, but only with respect to obligations issued after such date. (2) Transitional provisions.— Section 103(c)(1) of the Internal Revenue Code of 1954, as amended by subsection (a), shall not. apply with respect to any obligation issued before January 1, 1969, if before May 1, 1968— (A) the issuance of the obligation (or the project in connection with which the proceeds of the obligations are to be used) was authorized or approved by the governing body of the governmental unit issuing the obligation or by the voters of such governmental unit; (B) in connection with the issuance of such obligation or with the use of the proceeds to be derived from the sale of such obligation or the property to be acquired or improved with such proceeds, a governmental unit has made a significant financial commitment; (C) any person (other than a governmental unit) who will use the proceeds to be derived from the sale of such obligation or the property to be acquired or improved with such proceeds has expended (or has entered into a binding contract to expend) for purposes which are related to the use of such proceeds or property, an amount equal to or in excess of 20 percent of such proceeds; or (D) in the case of an obligation issued in conjunction with a project where financial assistance will be provided by a governmental agency concerned with economic development, such agency has approved the project or an application for financial assistance is pending.