1994 U.S. Tax Ct. LEXIS 70">*77 The parties agree that the borrowers under the programs are "persons other than governmental units". Accordingly, if the amount of bond proceeds that is used to make or finance loans under the programs exceeds $ 5 million, ⁵ the bonds will meet the private loan financing test and will constitute private activity bonds, the interest from which will not be excludable from the bondholders' gross income.

The parties' disagreement centers on the proper measurement of the amount of bond proceeds that will be used "to make or finance loans" within the meaning of section 141(c). According to respondent, the full $ 15 million of bond proceeds that will be used to fund the advances will be used to make or finance loans to the borrowers, thereby causing the proposed transaction to exceed the1994 U.S. Tax Ct. LEXIS 70">*78 $ 5 million private loan financing test threshold. Respondent bases her argument on the fact that the advances are structured as loans and the borrowers are required to repay the advances in full over a fixed time period.

Petitioner concedes that the advances are structured as loans and that the $ 15 million face amount of the advances exceeds the section 141(c) private loan financing threshold. Petitioner, however, argues that the $ 15 million face amount of the advances is not the proper measurement of the amount of bond proceeds that will be used to "to make or 103 T.C. 481">*486 finance loans" under section 141(c). Instead, petitioner contends that the advances, despite being structured in full as loans, consist of two distinct economic components: (1) A loan from the city to the borrowers, and (2) a grant from the city to the borrowers. Petitioner contends that only the amount of the loan component is relevant for purposes of the section 141(c) private loan financing test.

Petitioner bases this bifurcation argument on the fact that the city allows the borrowers to repay the advances at interest rates below the market rate reflected in the yield on the bonds. Petitioner argues that1994 U.S. Tax Ct. LEXIS 70">*79 the loan component of the advances equals the present value of the repayments the borrowers must make on the advances, discounted at the assumed 8.5-percent market rate yield on the bonds. Under this formula, the amount of bond proceeds that will be used to make or finance loans equals $ 4,789,324, which is below the $ 5 million private loan financing test threshold of section 141(c). ⁶ The remaining $ 10,210,676 ($ 15 million - $ 4,789,324) of the advances, according to petitioner, constitutes a grant from the city to the borrowers that is not subject to the private loan financing test. ⁷

1. In General

The present case centers on the proper interpretation of the private loan financing test of section 141(c). Specifically, we must decide whether section 141(c) permits petitioner to use present value discounting methods to calculate the amount of bond proceeds "which are to be used (directly or indirectly) to make or finance loans".

As a preliminary matter, we note that this Court has previously addressed the general applicability of time value of money principles under the Code. In Follender v. Commissioner, 89 T.C. 943">89 T.C. 943 (1987), respondent attempted to apply 103 T.C. 481">*487 time value of money principles to the calculation of the "borrowed amount" under section 465(b)(2), thereby reducing the amount the taxpayer had "at risk" under the rules of section 465. After observing that "The concept of the time value of money is * * * relatively new to the Code", we concluded that time value of money concepts can be applied only in the presence of a legislative directive to do so. 89 T.C. 943">Follender v. Commissioner, supra at 950, 952. Because we found that section 465 "does not allow for present value calculations, 1994 U.S. Tax Ct. LEXIS 70">*81 expressly or implicitly", we rejected respondent's position. 89 T.C. 943">Id. at 952.

Petitioner contends that the present case is distinguishable from Follender. Petitioner concedes that, like the statute at issue in Follender, there is no specific statutory language in section 141(c) that supports the use of time value of money principles. Instead, petitioner bases its argument on: (1) The legislative history and statutory purpose of section 141(c); and (2) the use of time value of money concepts in certain other areas of Federal tax law. For the reasons set forth below, we find each of these arguments unpersuasive, and we decline petitioner's invitation to graft time value of money concepts onto the private loan financing test of section 141(c).

2. Legislative History and Purpose

Petitioner contends that the primary purpose of section 141(c) and its predecessor is to restrict "conduit financing" in which public issuers use their ability to issue tax-exempt debt to benefit private persons, rather than legitimate municipal purposes. Petitioner engages in a detailed economic analysis of the below-market nature of the advances, concluding that the1994 U.S. Tax Ct. LEXIS 70">*82 private borrowers under the advances receive the economic benefit of petitioner's ability to issue tax-exempt debt only to the extent that the borrowers pay down the municipality's debt at the favorable tax-exempt rate (i.e., to the extent of the present value of the repayments of the advances discounted at the anticipated yield on the bonds). Petitioner argues that the difference between the face amount of the advances and the discounted present value of the repayments constitutes an implicit grant by the city in furtherance of the public purpose of providing affordable 103 T.C. 481">*488 housing, and is not the type of conduit financing that Congress sought to restrict under section 141(c).

Although petitioner's analysis might be an appealing interpretation of the transaction based on economic theory, we do not believe that it is apposite for purposes of the statute before us. As the following analysis demonstrates, Congress enacted detailed statutory provisions to determine when a bond issuance that benefits both private and public interests is entitled to tax-exempt status. While petitioner is correct in asserting that the prevention of conduit financing was a significant concern of1994 U.S. Tax Ct. LEXIS 70">*83 Congress in enacting these provisions, the method Congress chose to address this problem does not support petitioner's use of time value of money concepts to bifurcate the advances into a loan portion and an implicit grant portion.

As an initial step in addressing petitioner's argument, we must look to the statutory language of section 141(c). As the Supreme Court observed: "There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes." United States v. American Trucking Associations, Inc., 310 U.S. 534">310 U.S. 534, 310 U.S. 534">543 (1940).

Section 141(c) does not contain a specific method for calculating the amount of bond proceeds used "to make or finance loans". Accordingly, we look to the words of the statute as ordinarily understood. See Commissioner v. Brown, 380 U.S. 563">380 U.S. 563, 380 U.S. 563">570-571 (1965); Lenz v. Commissioner, 101 T.C. 260">101 T.C. 260, 101 T.C. 260">265 (1993); Union Pac. Corp. v. Commissioner, 91 T.C. 32">91 T.C. 32, 91 T.C. 32">38 (1988). The term "loan" is commonly defined as the "Delivery by one 1994 U.S. Tax Ct. LEXIS 70">*84 party to and receipt by another party of sum of money upon agreement, express or implied, to repay it with or without interest." Black's Law Dictionary 936 (6th ed. 1990). This definition is consistent with our prior decisions in other contexts, in which a transaction has been held to be a loan if there is an unconditional obligation to repay a sum certain at a fixed or other maturity date. See Adams v. Commissioner, 58 T.C. 41">58 T.C. 41, 58 T.C. 41">58-59 (1972); New England Tank Indus., Inc. v. Commissioner, 50 T.C. 771">50 T.C. 771, 50 T.C. 771">777 (1968), affd. 413 F.2d 1038">413 F.2d 1038 (1st Cir. 1969).

103 T.C. 481">*489 Under this general definition, the full $ 15 million of advances constitutes loans. All the advances must be repaid by the borrowers to the city over a fixed term, and no portion of the advances will be forgiven. Moreover, the advances are structured as loans under the detailed written documentation between petitioner and each borrower. The fact that the advances carry a beneficial rate of interest does not, in our opinion, prevent the advances from being loans under the common definition of the term. Accordingly, under the ordinary 1994 U.S. Tax Ct. LEXIS 70">*85 meaning of the statutory language, the $ 15 million of bond proceeds that is used to fund the advances will exceed the $ 5 million private loan financing threshold of section 141(c).

It is well established that we may look to the legislative history of a statute where the statute is ambiguous. Texaco Inc. & Subs. v. Commissioner, 101 T.C. 571">101 T.C. 571, 101 T.C. 571">575 (1993); Centel Communications Co. v. Commissioner, 92 T.C. 612">92 T.C. 612, 92 T.C. 612">627-628 (1989), affd. 920 F.2d 1335">920 F.2d 1335 (7th Cir. 1990); U.S. Padding Corp. v. Commissioner, 88 T.C. 177">88 T.C. 177, 88 T.C. 177">184 (1987), affd. 865 F.2d 750">865 F.2d 750 (6th Cir. 1989). Even where the statutory language appears clear, we may seek out any reliable evidence as to legislative purpose. 310 U.S. 534">United States v. American Trucking Associations, Inc., supra at 543-544; 88 T.C. 177">United States Padding Corp. v. Commissioner, supra at 184; Huntsberry v. Commissioner, 83 T.C. 742">83 T.C. 742, 83 T.C. 742">747-748 (1984). However, where a statute appears clear on its face, we require unequivocal evidence of legislative1994 U.S. Tax Ct. LEXIS 70">*86 purpose before construing the statute so as to override the plain meaning of the words used therein. 83 T.C. 742">Huntsberry v. Commissioner, supra at 747-748.

The first limitations on the use of tax-exempt bond proceeds to make personal loans were contained in section 103(o) of the Internal Revenue Code of 1954 (1954 Code), which was enacted by the Deficit Reduction Act of 1984 (DRA 1984), Pub. L. 98-369, sec. 626, 98 Stat. 926. That section denied the tax-exclusion benefits of section 103(a) of the 1954 Code to interest on "private loan bonds". ⁸ The Senate 103 T.C. 481">*490 Finance Committee report states that section 103(o) was enacted because of concern "about the growing use of taxexempt bonds to finance loans for personal expenses of higher education * * * and the possible use of tax-exempt bonds to finance other personal loans." S. Rept. 98-169 (Vol. 1), at 706 (1984). The report explained the provisions of the new statute as follows:

The bill generally denies tax-exemption for interest on consumer loan bonds, which are defined as obligations five percent or more of the proceeds of which are to be used directly or indirectly to make loans to persons other than1994 U.S. Tax Ct. LEXIS 70">*87 exempt persons. * * * Loans to enable a borrower to finance any tax or governmental assessment of general application for an essential government function are not taken into account. In addition, consumer loan bonds do not include IDBs [Industrial Development Bonds], qualified mortgage bonds and qualified student loan bonds. [92 T.C. 612">Id. at 707.]

The Tax Reform Act of 19861994 U.S. Tax Ct. LEXIS 70">*88 (TRA 1986), Pub. L. 99-514, sec. 1301(b), 100 Stat. 2605, increased the restrictions on private loan financing. These new restrictions were codified as section 141(c). ⁹ The conference committee report noted that "the [private loan financing] restriction applies to loans to all persons other than governmental units", and observed that the revised statute "retains the present-law exceptions to the private loan restriction for all private activity bonds for which tax-exemption is provided specifically in the Code". H. Conf. Rept. 99-841, at II-692 (1986), 1986-3 C.B. (Vol. 4) 1, 692.

As the foregoing committee reports illustrate, Congress was concerned about1994 U.S. Tax Ct. LEXIS 70">*89 the use of tax-exempt bonds as a conduit to finance personal loans. However, Congress realized that certain loans to private persons further important public purposes and therefore should not jeopardize the tax-exempt status of the bond issue. In striking a balance between these concerns, Congress chose to concentrate the initial inquiry on the identity of the recipient of the loans, rather than the purposes served by the loans. As a result, the private loan 103 T.C. 481">*491 financing test of section 141(c)(1) focuses on whether the loan recipients are nongovernmental persons rather than the purposes for which the loan recipients are borrowing the money.

The statutory inquiry turns to the purpose of the loan only after it is determined that the private loan financing test of section 141(c)(1) is met, thereby causing the bonds to be private activity bonds under section 141(a)(2). Sections 142 through 147 contain the explicit requirements that must be satisfied in order for a private activity bond to be eligible for tax-exempt status based on the public purpose served. ¹⁰ As the TRA 1986 conference committee report makes clear, the exceptions to the private loan restrictions based on 1994 U.S. Tax Ct. LEXIS 70">*90 the public purpose served apply only when a "tax-exemption is provided specifically in the Code". H. Conf. Rept. 99-841, supra at II-692, 1986-3 C.B. (Vol. 4) at 692.

Petitioner's bifurcation argument, which focuses at the outset on the purposes served by the advances, is inconsistent with this two-step statutory approach that Congress enacted to limit conduit financing. Because the borrowers under the proposed transactions are not governmental units, the full amount of the advances falls within the scope of section 141(c)(1), which focuses solely on the identity of the borrower. Moreover, the proposed bonds do not constitute qualified private activity bonds under section 141(e), and therefore are not entitled to tax-exempt status based on the purported1994 U.S. Tax Ct. LEXIS 70">*91 public purpose served by the advances. To allow petitioner to apply time value of money concepts under section 141(c) to separate the "private" loan portion of the advances from the "public" grant portion of the advances would undermine the specific choices Congress made in deciding which loans that benefit both private and public purposes should be eligible for tax-exempt status.

Petitioner also cites the following paragraph from the conference committee report on the Tax Reform Act of 1986:

The conferees intend that, as under present law, a loan may arise from the direct lending of bond proceeds or may arise from transactions in 103 T.C. 481">*492 which indirect benefits that are the economic equivalent of a loan are conveyed. Thus, the determination of whether a loan is made depends on the substance of a transaction, as opposed to its form. For example, a lease or other contractual arrangement (e.g., a management contract or an output or take-or-pay contract) may in substance constitute a loan, even if on its face such an arrangement does not purport to involve the lending of bond proceeds. However, a lease or other deferred payment arrangement with respect1994 U.S. Tax Ct. LEXIS 70">*92 to bond-financed property that is not in form a loan of bond proceeds generally is not treated as such unless the arrangement transfers tax ownership to a nongovernmental person. Similarly, an output or management contract with respect to a bond-financed facility generally is not treated as a loan of bond proceeds unless the agreement in substance shifts significant burdens and benefits of ownership to the purchaser or manager of the facility. [H. Conf. Rept. 99-841, supra at II-692, 1986-3 C.B. (Vol. 4) at 692; emphasis added.]

Petitioner argues that the reference to substance over form in the committee report applies not only to recharacterize as a loan a transaction that is not structured as such, but also to determine that a portion of a transaction is not a loan even when the full transaction is structured as a loan. As applied to the facts of the present case, petitioner contends that the emphasized language mandates that we ignore the fact that the advances are structured in full as loans and that we look to the purported economic substance of the transaction using time value of money principles.

We are not persuaded that the emphasized language, 1994 U.S. Tax Ct. LEXIS 70">*93 taken in the context of the full quoted paragraph, supports petitioner's contention. A more reasonable interpretation of the paragraph indicates that Congress intended that section 141(c) be broadly construed to capture transactions that are in substance loans, even if they are not structured as loans. The emphasized reference to substance over form underscores Congress' concern, expressed in the first sentence of the excerpt, that section 141(c) be applied to all "transactions in which indirect benefits that are the economic equivalent of a loan are conveyed." The examples given in the quoted paragraph further demonstrate that Congress was concerned with broadening, rather than limiting, the potential scope of section 141(c). When analyzed in this context, the emphasized language supports the extension of section 141(c) to transactions, such as certain leases, management contracts, or take-or-pay contracts, that are disguised as something other than loans. It provides no support for petitioner's use 103 T.C. 481">*493 of time value of money concepts to reduce the amount of advances that is subject to the private loan financing test.

We note that our interpretation of the conference report1994 U.S. Tax Ct. LEXIS 70">*94 language is consistent with the prior decisions of this Court holding that a taxpayer generally may not invoke the substance over form principle to disavow the form in which he has structured a transaction. See Estate of Durkin v. Commissioner, 99 T.C. 561">99 T.C. 561, 99 T.C. 561">571-574 (1992); Coleman v. Commissioner, 87 T.C. 178">87 T.C. 178, 87 T.C. 178">201-204 (1986), affd. without published opinion 833 F.2d 303">833 F.2d 303 (3d Cir. 1987). This principle has also been adopted by the Supreme Court, which stated in Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134">417 U.S. 134, 417 U.S. 134">149 (1974):

This Court has observed repeatedly that, while a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not, and may not enjoy the benefit of some other route he might have chosen to follow but did not. "To make the taxability of the transaction depend upon the determination whether there existed an alternative form which the statute did not tax would create burden and uncertainty." [Citations omitted.]

Similarly, 1994 U.S. Tax Ct. LEXIS 70">*95 "It would be quite intolerable to pyramid the existing complexities of tax law by a rule that the tax shall be that resulting from the form of transaction taxpayers have chosen or from any other form they might have chosen, whichever is less." Television Indus., Inc. v. Commissioner, 284 F.2d 322">284 F.2d 322, 284 F.2d 322">325 (2d Cir. 1960), affg. 32 T.C. 1297">32 T.C. 1297 (1959).

Although this Court in certain circumstances permits a taxpayer to disavow the structure of his transaction upon a showing of "strong proof" that the transaction does not reflect economic reality, see 99 T.C. 561">Estate of Durkin v. Commissioner, supra at 572-573; 87 T.C. 178">Coleman v. Commissioner, supra at 202-203, petitioner has not met this burden. ¹¹ As discussed above, the advances constitute loans as commonly defined. The city is entitled to an unconditional repayment of the advances over a fixed period. The fact that the interest accruing on the outstanding advances is below the market rate 103 T.C. 481">*494 does not, in our opinion, constitute "strong proof" that the loan structure does not reflect economic reality.

1994 U.S. Tax Ct. LEXIS 70">*96 3. Use of Time Value of Money Concepts in Other Areas of Tax Law

Petitioner also contends that its use of time value of money principles under section 141(c) is supported by the use of these concepts in purportedly analogous statutes, cases and rulings in other areas of tax law. As specific support for this argument, petitioner cites: (A) Sections 1274 and 7872; (B) the Supreme Court decision in Dickman v. Commissioner, 465 U.S. 330">465 U.S. 330 (1984); and (C) section 141(b)(2), as interpreted by respondent's Notice 87-69, 1987-2 C.B. 378. After analyzing these examples, as well as related cases and rulings cited by petitioner, we find that they do not support the use of time value of money principles under section 141(c).

Petitioner argues that a statutory trend in favor of the application of time value of money concepts existed at the time the predecessor to section 141(c) was enacted, and that this trend should influence our interpretation of section 141(c). In support of this assertion, petitioner notes that the Deficit Reduction Act of 1984 (DRA 1984), Pub. L. 98-369, 98 Stat. 494, which contained1994 U.S. Tax Ct. LEXIS 70">*97 the predecessor to section 141(c), also enacted sections 1274 and 7872, which specifically incorporate time value of money principles. Section 1274, which is a part of the "original issue discount" rules of the Code, uses present value discounting calculations to determine the imputed principal amount of certain debt instruments issued in exchange for property. Sec. 1274(b). This calculation is necessary in order to determine the amount of imputed interest the debtholder must ratably include in his gross income under section 1272 and the issuer may deduct under section 163(e). Section 7872 applies time value of money principles to determine the gift tax and income tax consequences of certain loans with below-market interest rates.

Petitioner does not contend that section 1274 or section 7872 directly applies to the present case. ¹² Instead, petitioner 103 T.C. 481">*495 argues that "Because of the extensive attention paid by Congress to time value of money issues at the time section 141(c) was enacted, it is not likely that Congress would have intended such principles to be ignored when it extended the private lending limitation of Section 103(o) of the 1954 Code." Petitioner further 1994 U.S. Tax Ct. LEXIS 70">*98 argues, without citing any specific authority, that the use of time value of money principles under section 1274 and section 7872 creates a "strong presumption that Congress intended to apply these concepts to below-market interest advances under section 141(c), absent compelling evidence to the contrary." Although petitioner correctly notes that Congress enacted several statutory provisions during the early 1980s that specifically incorporate time value of money concepts, we disagree with the conclusion petitioner draws regarding the applicability of this statutory trend to section 141(c).

1994 U.S. Tax Ct. LEXIS 70">*99 As discussed above, this Court has previously addressed the inferences to be drawn from the explicit use of time value of money concepts in certain sections of the Code, including those sections enacted by DRA 1984. In Follender v. Commissioner, 89 T.C. 943">89 T.C. 943, 89 T.C. 943">952 (1987), after noting that "The concept of the time value of money is * * * relatively new to the Code," we reasoned that the use of time value of money concepts in specific statutes demonstrates that "Congress has been explicit in the areas it has chosen to require present value calculations." Because the statute at issue in that case, section 465(b)(2), "does not allow for present value calculations, expressly or implicitly", we held that time value of money principles could not be imputed. Id.

Following the reasoning set forth in Follender, we find that the explicit use of time value of money principles in certain sections enacted by DRA 1984 (e.g., sections 1274 and 7872), coupled with the absence of any such use in section 141(c), the predecessor of which was also enacted by DRA 1984, belies petitioner's argument that Congress intended to apply time value of money concepts to section1994 U.S. Tax Ct. LEXIS 70">*100 141(c). Sections 1274 and 7872 illustrate that Congress knows how to incorporate time value of money concepts into a statute when it so 103 T.C. 481">*496 desires. Had Congress chosen to apply these concepts to section 141(c), it is reasonable to assume that it would have explicitly included them in the statutory language, as was done in sections 1274 and 7872. Cf. Badaracco v. Commissioner, 464 U.S. 386">464 U.S. 386, 464 U.S. 386">395 (1984) (Supreme Court refused to interpret section 6501(c)(1) as a mere tolling of the period for assessing income tax, reasoning that "When Congress intends only a temporary suspension of the running of a limitations period, it knows how unambiguously to accomplish that result.").

Petitioner also cites the Supreme Court decision in Dickman v. Commissioner, 465 U.S. 330">465 U.S. 330 (1984), for the proposition that time value of money principles must be applied under section 141(c) even in the absence of a specific directive in the statute or legislative history. We disagree with petitioner's broad reading of that case.

In Dickman, the Supreme Court held that a father's interest-free demand loans to1994 U.S. Tax Ct. LEXIS 70">*101 his son and a closely held family corporation resulted in taxable gifts of the reasonable value of the use of the money loaned.¹³1994 U.S. Tax Ct. LEXIS 70">*102 465 U.S. 330">Id. at 344. In that case, respondent determined the value of the gifts by multiplying the loan balances outstanding at the end of each calendar quarter by the interest rate payable on underpayments of tax under section 6621. 465 U.S. 330">Id. at 332 n.2. The holding in the Dickman case was subsequently incorporated into section 7872.¹⁴

Contrary to petitioner's contention, the Supreme Court's reasoning in 465 U.S. 330">Dickman v. Commissioner, supra, does not mandate a broad, indiscriminate application of time value of money principles across all areas of the Internal Revenue Code. The decision was based on the Court's detailed analysis of the statutory language and legislative purpose underlying 103 T.C. 481">*497 the Federal gift tax provisions at issue. See Winter v. United States, 23 Cl. Ct. 758">23 Cl. Ct. 758, 23 Cl. Ct. 758">762 (1991), affd. without published opinion 972 F.2d 1355">972 F.2d 1355 (Fed. Cir. 1992) (refusing to apply Dickman time value of money principles to income tax deductions because "the holding in Dickman is grounded squarely on the statutory language of section 2501"). The Court's analysis1994 U.S. Tax Ct. LEXIS 70">*103 revealed that Congress intended to interpret the gift tax provisions in the broadest and most comprehensive sense in order to reach all transfers of property and property rights having significant value. 465 U.S. 330">Dickman v. Commissioner, supra at 334. Moreover, the Court reasoned that to impose the gift tax on interest-free loans would further "one of the major purposes of the federal gift tax statute: protection of the estate tax and the income tax." 465 U.S. 330">Id. at 338.

The reasoning in Dickman indicates that, absent specific statutory authorization, the use of time value of money principles is appropriate when necessary to effectuate a clearly stated legislative purpose. As discussed in detail above, neither the language of section 141(c) nor its legislative history supports the use of time value of money principles. The committee reports show that Congress was concerned with limiting the amount of loans that can be made to nongovernmental persons. For example, in providing that substance over form should control, the conference committee report highlights Congress' desire that the term "loan" be broadly interpreted, so that 1994 U.S. Tax Ct. LEXIS 70">*104 a wide variety of transactions that are not structured as loans will nevertheless be subject to the private loan financing test. See H. Conf. Rept. 99-841, at II-692 (1986), 1986-3 C.B. (Vol. 4) 692. In sharp contrast to this stated purpose of broadening the scope of section 141(c), petitioner's use of time value of money concepts would narrow the definition of transactions that would be subject to the private loan financing test.

In a related argument, petitioner cites respondent's Rev. Rul. 73-61, 1973-1 C.B. 408. That ruling, involving facts similar to those in Dickman, held that non-interest-bearing loans between a father and his son resulted in taxable gifts. ¹⁵ Petitioner contends that respondent's use of time 103 T.C. 481">*498 value of money principles in Rev. Rul. 73-61, supra, which was validated by the holding in 465 U.S. 330">Dickman v. Commissioner, supra, binds respondent to use those principles in the present case. For the same reasons that we rejected petitioner's argument concerning the applicability of 465 U.S. 330">Dickman v. Commissioner, supra, we reject petitioner's 1994 U.S. Tax Ct. LEXIS 70">*105 argument concerning Rev. Rul. 73-61, supra. Petitioner attempts to blindly apply principles from one area of tax law to another area, without regard to the reasoning underlying those principles. The application of time value of money concepts in the revenue ruling, as well as in Dickman, was based on the specific statutory purposes underlying the gift tax provisions at issue. See Rev. Rul. 73-61, 1973-1 C.B. at 408-409. In contrast, as discussed above, the statutory purposes underlying section 141(c) do not warrant the use of time value of money principles.

As discussed above, a bond constitutes a "private activity bond" if it meets either: (1) The private loan financing test of section 141(c), which is at issue here, or (2) the private business tests of section 141(b). Sec. 141(a). A bond issue meets the private business tests of section 141(b) if it meets both: (1) The private business use test of section 141(b)(1), and (2) either the private security test of section 141(b)(2)(A) or the private payment test of section 141(b)(2)(B). ¹⁶ In Notice 87-69, 1987-2 C.B. 378, respondent indicated that 103 T.C. 481">*499 time value of money principles are to be used for purposes of applying the private payment test of section 141(b)(2)(B). Although petitioner concedes that the private payment test of section 141(b)(2)(B) does not apply directly to the present case, it contends that the time value of money principles implicit in that test apply, by analogy, to the private loan financing test of section 141(c). We disagree.

1994 U.S. Tax Ct. LEXIS 70">*107 In general, the private payment test of section 141(b)(2)(B) is satisfied if the payment of the principal of, or the interest on, more than 10 percent of the proceeds of a bond issue is, directly or indirectly, derived from payments in respect of property, or borrowed money, used or to be used for a private business use. Sec. 141(b)(2). This test presents a peculiar problem in that it requires a comparison of two different streams of income: (1) The payments of debt service on the bonds and (2) the payments generated by property or borrowed money. These payment streams could have vastly different repayment terms, such as the period of time over which payments are made, the rate of interest on the outstanding balances, and the extent to which the outstanding principal is either amortized over the life of the debt or is payable in a single balloon payment. Without some common method of valuing these two streams, the comparison mandated by section 141(b)(2) would be useless. Notice 87-69, supra, by requiring the comparison of the present values of the two income streams, provides such a method. ¹⁷

1994 U.S. Tax Ct. LEXIS 70">*108 The use of time value of money concepts under section 141(b)(2) is consistent with our reasoning in Follender v. Commissioner, 89 T.C. 943">89 T.C. 943, 89 T.C. 943">952 (1987), that such principles should not be applied unless the statute provides for them, either expressly or implicitly. Congress, by statutorily requiring a comparison of potentially different income streams, implicitly sanctioned the use of a method for making the comparison meaningful. As in Dickman v. Commissioner, 465 U.S. 330">465 U.S. 330 (1984), time value of money concepts constitute a permissible tool for effectuating congressional intent.

This rationale, however, does not extend to the private loan financing test of section 141(c). As noted several times above, nothing in the statutory structure or legislative history 103 T.C. 481">*500 of section 141(c) mandates the use of time value of money principles. Unlike the streams of payments involved in section 141(b)(2)(B), section 141(c) merely requires the comparison of two absolute dollar amounts: (1) The "amount of the proceeds" of the issue that are used to make or finance loans, and (2) the lesser of 5 percent of the proceeds or $ 5 million. 1994 U.S. Tax Ct. LEXIS 70">*109 Accordingly, the present value discounting principles used in section 141(b)(2)(B) are not necessary to carry out the mathematical test required by section 141(c).

For the foregoing reasons, we hold that the advances may not be bifurcated, using time value of money principles, into a loan portion and a grant portion for purposes of the private loan financing test of section 141(c). Because the entire $ 15 million principal amount of the advances constitutes a loan for purposes of the test, the $ 5 million private loan financing test threshold of section 141(c) is exceeded. Accordingly, the bonds constitute private activity bonds under section 141(a)(2), and the interest thereon is not excludable from the bondholders' gross income under section 103(a).

As a final observation, we recognize that the proposed transactions were designed to alleviate significant public problems faced by the city. We emphasize that our decision is not intended as a rebuke of the city's efforts to address these important issues and is not based on the underlying merits of the programs. Rather, our holding is a result of a straightforward application of the test provided by section 141(c). Congress, 1994 U.S. Tax Ct. LEXIS 70">*110 if it desires to do so, has the power to revise the requirements of section 141(c) to permit the adoption of the proposed transactions, either by raising the specific dollar limitation in the private loan financing test or by explicitly incorporating time value of money principles into the test. Alternatively, as petitioner conceded at oral argument, the city could restructure the proposed transactions to explicitly separate the intended grant amount from the loan transaction. Unless and until such changes are made, however, we 103 T.C. 481">*501 are bound by the limitations of the existing statutory provisions and the transactional form petitioner has chosen.

Decision will be entered for respondent.