SECTION 2. BACKGROUND

.01 Section 226 of the Taxpayer Relief Act of 1997, Pub. L. 105–34, 111 Stat. 821 (1997), added § 1397E to the Internal Revenue Code to provide a credit to holder of Bonds under certain circumstances so that the Bonds generally can be issued without discount or interest. Ninety-five percent of Bond proceeds are to be used for qualified purposes, as defined by § 1397E(d)(5), with respect to a qualified

2001–3 I.R.B. 343 January 16, 2001

zone academy, as defined by § 1397E(d)(4).

.02 Section 1397E(e)(1), as amended by § 509 of the Tax Relief Extension Act of 1999, Pub. L. 106–170, 113 Stat. 1860 (1999) provides that the aggregate amount of Bonds that may be issued for the States is limited to $400 million for each of the years, 1998, 1999, 2000, and 2001 (the “national limitation”). This amount is to be allocated among the States by the Secretary on the basis of their respective populations below the poverty level (as defined by the Office of Management and Budget) and is to be further allocated by each State to quali

fied zone academies within the State or possession.

.03 Section 1397E(e)(4), as amended, by § 509 of the Tax Relief Extension Act of 1999, Pub. L. 106–170, 113 Stat. 1860 (1999) provides that any carryforward of a limitation amount may be carried only to the first 2 years (3 years for carryforwards from 1998 or 1999) following the unused limitation year. For this purpose a limitation amount shall be treated as used on a first–in first–out basis.

.04 Rev. Proc. 98–9, 1998–1 C.B. 341, Rev. Proc. 98–57, 1998–2 C.B. 682, and Rev. Proc. 2000–10, 2000–2 I.R.B. 287, respectively, allocated the national limita

tion for 1998, 1999, and 2000 among the States and possessions.