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TITLE 26-INTERNAL REVENUE CODE (i) the principal user of such facilities is or will be the same person or two or more related persons, and (iii) but for this subparagraph, subpara- graph (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 ac- count the face amount of obligations issued under all prior such issues and outstanding at the time of such later issue (not Includ- ing 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 para- graph (7), a person Is a related person to an- other person if- (I) the relationship between such per- sons 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 substitut- ed for "at least 80 percent" each place it appears therein). (D) $5,000,000 limit in certain cases At the election of the issuer, made at such time and in such manner as the Secretary shall by regulations prescribe, with respect to any issue this paragraph shall be ap- plied- (I) by substituting "$5,000,000" for "$1,000,000" in subparagraph (A), and (ii) in determining the aggregate face amount of such Issue, by taking into ac- count not only the amount described in subparagraph (B), but also the aggregate amount of capital expenditures with re- spect to facilities described in subpara- graph (E) paid or incurred during the 6- year period beginning 3 years before the date of such issue and ending 3 years after such date (and financed otherwise than out of the proceeds of outstanding issues to which subparagraph (A) ap- plied), as if the aggregate amount of such capital expenditures constituted the face amount of a prior outstanding issue de- scribed in subparagraph (B). (E) Facilities taken into account For purposes of subparagraph (D)(ii), the facilities described in this subparagraph are facilities- (i) located in the same incorporated mu- nicipality or located in the same county (but not in any incorporated municipal- ity), and (ii) the principal user of which is or will be the same person or two or more related persons. For purposes of clause (I), the determina- tion of whether or not facilities are located in the same governmental unit shall be made as of the date of issue of the issue in question. (F) Certain capital expenditures not taken into account For purposes of subparagraph (D)(i), any capital expenditure- (I) to replace property destroyed or damaged by fire, storm, or other casualty, to the extent of the fair market value of the property replaced, (it) required by a change made after the date of issue of the issue in question in a Federal or State law or local ordinance of general application or required by a change made after such date in rules and regulations of general application issued under such a law or ordinance, or (iii) required by circumstances which could not be reasonably foreseen on such date of issue or arising out of a mistake of law or fact (but the aggregate amount of expenditures not taken into account under this clause with respect to any issue shall not exceed $1,000,000), shall not be taken into account. (G) Limitation on loss of tax exemption In applying subparagraph (D)(i) with re- spect to capital expenditures made after the date of any issue, no obligation issued as a part of such issue shall be treated as an ob- ligation not described in subsection (a)(1) by reason of any such expenditure for any period before the date on which such ex- penditure is paid or incurred. (H) Certain refinancing issues In the case of any issue described in sub- paragraph (A)(ii), an election may be made under subparagraph (D) only if all of the prior issues being redeemed are issues to which subparagraph (A) applies. In apply- ing subparagraph (D)(ii) with respect to such a refinancing issue, capital expendi- tures shall be taken into account only for purposes of determining whether the prior issues being redeemed qualified (and would have continued to qualify) under subpara- graph (A). (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. (c) Arbitrage bonds (I) Subsection (a)(1) or (4) not to apply Except as provided in this subsection, any arbitrage bond shall be treated as an obliga- tion not described in subsection (a)(1) or (4). (2) Arbitrage bond For purposes of this subsection, the term "arbitrage bond" means any obligation which is issued as part of an issue all or a major por- tion of the proceeds of which are reasonably expected to be used directly or indirectly- (A) to acquire securities (within the mean- ing of section 165(g)(2)(A) or (B)) or obliga- tions (other than obligations described in subsection (a)(1) or (2) or (4)) which may be reasonably expected at the time of issuance of such issue, to produce a yield over the Page 113 § 103