‘‘(4) SPECIAL
RULES
RELATING
TO
ARBI-
TRAGE.—An issue shall be treated as meeting the 
requirements of this paragraph if the issue meets 
the requirements of section 148, except that such re-
quirements shall not apply if the issuer elects— 
‘‘(A) to treat any earnings on proceeds in-
vested before use for a qualified purpose as part 
of gross proceeds for purposes of paragraph 
(2), and 
‘‘(B) to apply paragraph (2)(C) by sub-
stituting ‘100 percent’ for ‘95 percent’. 
‘‘(5) MATURITY
LIMITATION.—An issue shall 
not be treated as meeting the requirements of this 
paragraph if the maturity of any bond which is part 
of such issue exceeds the maximum term determined 
by the Secretary under rules similar to the rules of 
section 54(e)(2). 
‘‘(e) OTHER DEFINITIONS.—For purposes of this 
subchapter— 
‘‘(1) CREDIT
ALLOWANCE
DATE.—The term 
‘credit allowance date’ means— 
‘‘(A) March 15, 
‘‘(B) June 15, 
‘‘(C) September 15, and 
‘‘(D) December 15. 
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Such term includes the last day on which the bond 
is outstanding. 
‘‘(2) LOCAL EDUCATIONAL AGENCY.—The term 
‘local educational agency’ has the meaning given to 
such term by section 14101 of the Elementary and 
Secondary Education Act of 1965. Such term in-
cludes the local educational agency that serves the 
District of Columbia but does not include any other 
State agency. 
‘‘(3) BOND.—The term ‘bond’ includes any ob-
ligation. 
‘‘(4) STATE.—The term ‘State’ includes the 
District of Columbia and any possession of the 
United States. 
‘‘(5) PUBLIC
SCHOOL
FACILITY.—The term 
‘public school facility’ shall not include— 
‘‘(A) any stadium or other facility pri-
marily used for athletic contests or exhibitions 
or other events for which admission is charged 
to the general public, or 
‘‘(B) any facility which is not owned by a 
State or local government or any agency or in-
strumentality of a State or local government. 
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‘‘(6) GROSS PROCEEDS.—The term ‘gross pro-
ceeds’ means proceeds from the sale of an issue re-
duced by reasonable issuance costs. 
‘‘(f) CREDIT INCLUDED IN GROSS INCOME.—Gross 
income includes the amount of the credit allowed to the 
taxpayer under this section (determined without regard to 
subsection (c)) and the amount so included shall be treat-
ed as interest income. 
‘‘(g) BONDS HELD
BY REGULATED INVESTMENT 
COMPANIES.—If any qualified public school modernization 
bond is held by a regulated investment company, the credit 
determined under subsection (a) shall be allowed to share-
holders of such company under procedures prescribed by 
the Secretary. 
‘‘(h) CREDITS MAY BE STRIPPED.—Under regula-
tions prescribed by the Secretary— 
‘‘(1) IN GENERAL.—There may be a separation 
(including at issuance) of the ownership of a quali-
fied public school modernization bond and the enti-
tlement to the credit under this section with respect 
to such bond. In case of any such separation, the 
credit under this section shall be allowed to the per-
son who on the credit allowance date holds the in-
strument evidencing the entitlement to the credit 
and not to the holder of the bond. 
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