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corporations (including S corporations and foreign corporations), certain foreign corporations subject to the
“branch profits tax,” individual recipients of Social Security or Railroad Retirement benefits, owners of an
interest in a financial securitization trust, taxpayers entitled to claim the refundable credit in Section 36B of
the Code for coverage under a qualified health plan, taxpayers who may be deemed to have incurred or
continued indebtedness to purchase or carry tax-exempt obligations and taxpayers attempting to qualify for
the earned income tax credit.
Original Issue Premium
Bonds purchased in the initial public offering with yields lower than their applicable interest rates,
as shown on the inside cover page hereof, have been sold with “bond premium.” Each such Bond is referred
to below as an “OIP Bond.” The excess of (i) the owner’s basis in the OIP Bond immediately after
acquisition over (ii) the amount payable at maturity (excluding qualified stated interest) as determined under
Section 171 of the Code constitutes the amount of the bond premium. Under the Code, the bond premium
is amortized based on the owner’s yield over the remaining term of the OIP Bond (or, in the case of certain
callable OIP Bonds, to an earlier call date that results in a lowest yield on the OIP Bond). The owner of an
OIP Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest
accrual period against the bond premium allocable to that period. No deduction is allowed for such
amortization of bond premium even though the owner is required to decrease the adjusted basis in the
owner’s OIP Bond by the amount of the amortizable bond premium, which will result in an increase in the
gain (or decrease in the loss) recognized for federal income tax purposes upon a sale or disposition of the
OIP Bond prior to its maturity.
Prospective purchasers of any OIP Bonds should consult their own tax advisors regarding the
treatment of bond premium for federal income tax purposes, including various special rules relating thereto,
and state and local tax consequences, in connection with the acquisition, ownership, sale, exchange, or other
disposition of, and amortization of bond premium on, such OIP Bonds.
Information Reporting and Backup Withholding
Prospective purchasers should be aware that the interest on the Bonds is subject to information
reporting to the IRS in a manner similar to interest paid on taxable obligations. In addition, interest on the
Bonds may be subject to backup withholding if the interest is paid to an owner who or which (i) is not an
“exempt recipient” and (ii) (A) fails to furnish an accurate U.S. taxpayer identification number in the
manner required, (B) has been notified of a failure to report all interest and dividends required to be shown
on federal income tax returns or (C) fails to certify under penalty of perjury that the owner is not subject to
withholding. Individuals generally are not exempt recipients, although corporations and other entities
generally are.
The reporting and backup withholding requirements do not in and of themselves affect the
excludability of interest on the Bonds from gross income for federal income tax purposes, and amounts
withheld under the backup withholding rules may be refunded or credited against the owner’s federal
income tax liability, if any, provided that the required information is timely furnished to the IRS.
Internal Revenue Service Audits
The IRS has established a program to audit tax-exempt obligations to determine whether the interest
thereon is includable in gross income for federal income tax purposes. If the IRS does audit the Bonds, the
IRS will, under its current procedures, treat the Issuer as the taxpayer. As such, the beneficial owners of the
Bonds will have only limited rights, if any, to participate in the audit or any administrative or judicial review
or appeal thereof. Any action of the IRS, including but not limited to the selection of the Bonds for audit,
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