26 CFR §1.103-16

1. (a)General rule. An obligation of a volunteer fire department issued after December 31, 1980, shall be treated as an obligation of a political subdivision of a State for purposes of section 103(a)(1) if—
   1. (1)The volunteer fire department is a qualified volunteer fire department within the meaning of paragraph (b) of this section, and
   2. (2)Substantially all of the proceeds of the issue of which the obligation is a part are to be used for the acquisition, construction, reconstruction, or improvement of a fire house or fire truck used or to be used by the qualified volunteer fire department.
2. (b)Definition of qualified volunteer fire department. For purposes of this section, the term “qualified volunteer fire department” means an organization—
   1. (1)That is organized and operated to provide firefighting services or emergency medical services in an area within the jurisdiction of a political subdivision, and
   2. (2)That is required to furnish firefighting services by written agreement with the political subdivision, and
   3. (3)That serves persons in an area within the jurisdiction of the political subdivision that is not provided with any other firefighting services.
3. (c)“Substantially all” test. Substantially all of the proceeds of an issue are used for the purposes specified in paragraph (a)(2) of this section if 90 percent or more of the proceeds are so used. Thus, for example, if more than 10 percent of the proceeds of an obligation issued by a qualified volunteer fire department are used for the purchase of an ambulance or for rescue equipment not to be used in providing fire fighting services, interest on the obligation is not exempt from tax under section 103(i) and this section. In computing this percentage—
   1. (1)Costs are allocated between providing a firehouse or firetruck and other uses of the proceeds on a pro rata basis; and
   2. (2)The rules set forth in § 1.103-8(a)(1)(i), relating to amounts allocable to exempt and nonexempt uses and amounts chargeable to capital account, apply.
4. (d)Refunding issues. An obligation which is part of an issue issued by a qualified volunteer fire department after December 31, 1980, part or all of the proceeds of which issue are used directly or indirectly to pay principal, interest, call premium, or reasonable incidental costs of refunding a prior issue qualifies as an obligation of a political subdivision under section 103(i) and this section only if—
   1. (1)The prior issue was issued by a qualified volunteer fire department;
   2. (2)Substantially all of the proceeds of the prior issue were used for the purposes described in paragraph (a)(2) of this section;
   3. (3)The prior issue was issued after December 31, 1980; and
   4. (4)The refunding issue is issued not more than 180 days before the date on which the last obligation of the prior issue is discharged (within the meaning of § 1.103-13)(b)(11)).
5. (e)Examples. The provisions of this section may be illustrated by the following examples: