• Magnus, a high school teacher, enjoys hang gliding in his spare time. Magnus lives near Briarwood Cliffs, a notable geographic feature in his state located in the City of Avalon. Briarwood Cliffs has become such a popular destination for hang gliding enthusiasts that the City of Avalon recently created a special improvements district (the “District”) to manage the area. The District has plans to undertake construction of several improvements to the area, including glider launching facilities and related supporting elements (e.g. parking areas, etc.). All such facilities will be available to the general public. The District plans to issue bonds (authorized under state law) to fund a portion of the planned improvements (the interest and principle payments on the bonds will be funded through a special District property tax assessment along with public admission and user fees). Magnus is intrigued by this bond offering and is considering investing. However, he requires clarification of the tax status of the interest (i.e., fully taxable or tax exempt) he would earn on this investment. Will the interest Magnus earns on any investment in District bonds be exempt from federal income taxation? Hint: Start withIRC §103 and the regulations thereunder.