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Failure to pay the required amount results in the bond's being
treated as an arbitrage bond, which results in the loss of tax-
exempt status.
The parties have stipulated that no payments required by
section 148(f) were made to the United States. Therefore, if (1)
the Whitewater and Ironwood GIC's constitute nonpurpose
investments of the proceeds of the Bonds, and (2) these
investments earned a higher rate of return than the yield rate on
the Bonds, then the Bonds must be treated as arbitrage bonds
pursuant to section 148(f).
A "nonpurpose investment" is defined as any investment
property that is acquired with the gross proceeds of a bond issue
and is not acquired to carry out the governmental purpose of the
issue. Sec. 148(f)(6)(A). "Gross proceeds" include any amounts
actually or constructively received from the sale of the bonds as
well as any amounts received from investing the original proceeds
(...continued)
States by the issuer shall be paid in installments
which are made at least once every 5 years. Each
installment shall be in an amount which ensures that 90
percent of the amount described in paragraph (2) with
respect to the issue at the time payment of such
installment is required will have been paid to the
United States. The last installment shall be made no
later than 60 days after the day on which the last bond
of the issue is redeemed and shall be in an amount
sufficient to pay the remaining balance of the amount
described in paragraph (2) with respect to such issue.
There is no dispute that the Housing Authority of Riverside
County has not made such a payment within the time prescribed by
sec. 148(f)(3).
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