Harbor Bancorp & Subsidiaries - Page 28

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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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