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of the bond issue. Sec. 148(f)(6)(B); sec. 1.148-8(d)(1)-(5),
Income Tax Regs.
The Whitewater and Ironwood GIC's were acquired with the
gross proceeds of the Whitewater and Ironwood bond issues,
respectively. These proceeds were first placed in developer loan
fund accounts and then transferred to Unified. Unified then
transferred most of these proceeds to the MCFC entities, which,
in turn, used them to purchase the GIC's. Following the flow of
funds on February 20, 1986, it is clear that $16,110,817.98 of
Whitewater bond proceeds and $11,047,408.05 of Ironwood bond
proceeds were expended to acquire the GIC's. The governmental
purpose for the issuance of the Whitewater and Ironwood bonds was
the construction of low- and moderate-income multifamily housing
projects. The GIC's were not acquired to carry out this
governmental purpose. Accordingly, the GIC's constituted
nonpurpose investments within the meaning of section
148(f)(6)(A).
Petitioners argue that the GIC's do not constitute
nonpurpose investments, because neither the Housing Authority nor
the developer made an "investment decision". Petitioners ask
this Court to construe the meaning of "nonpurpose investment" to
exclude any unauthorized investment.10 However, the statute does
10Petitioners also argue that the Treasury's regulation
defining "nonpurpose investment" is invalid, because the
definition therein is broader than the definition in the statute.
We fail to see a significant difference in the definitions. Sec.
(continued...)
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