SEC. 2. BACKGROUND

.01 Section 103(a) of the Code provides that, except as provided in section 103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a ‘‘qualified bond’’ within the meaning of section 141. Section 141(e) provides that the term ‘‘qualified bond’’ includes any private activity bond that (1) is a qualified mortgage bond, (2) meets the volume cap requirements under section 146, and (3) meets the applicable requirements under section 147. .02 Section 143(a)(1) provides that the term ‘‘qualified mortgage bond’’ means a bond that is issued as part of a ‘‘qualified mortgage issue’’. Section 143(a)(2)(A) provides that the term ‘‘qualified mortgage issue’’ means an issue of one or more bonds by a state or political subdivision thereof, but only if (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of section 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on financing provided by the issue are used not later than the close of the first semi-annual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue.

.03 Section 143(f) of the Code imposes eligibility requirements concern

.06 The Department of Housing and Urban Development (HUD) has computed the median gross income for the United States, the states, and statistical areas within the states. The income information was released to the HUD regional offices on January 18, 1995, and may be obtained by calling the HUD reference service at 1-800245-2691 or, in the Washington, D.C., area, at 301-251-5154. The Internal Revenue Service annually publishes only the median gross income for the United States.

.07 The most recent nationwide average purchase prices and average area purchase price safe harbor limitations were published on September 6, 1994, in Rev. Proc. 94–55, 1994–2 C.B. 716.