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the GIC's were constructively received by the Housing Authority
because the proceeds of the GIC's were used to pay the debt
service on the Bonds that the Housing Authority had issued.14
Logic indicates that the amount earned on the nonpurpose
investments (the GIC's) was substantially in excess of the amount
which would have been earned if the amounts invested in the GIC's
had been invested at a rate equal to the yield on the Bond
issues. The amount available to buy the GIC's--the Bond
proceeds--had been diminished by substantial fee payments and by
the purchase of land. Nevertheless, the payments yielded by the
Whitewater and Ironwood GIC's exactly equaled the debt service
payments specified in the Bond documents. Because an amount that
was substantially less than the Bond proceeds was invested in the
GIC's, and because the GIC's nevertheless generated enough
revenue to pay the Bonds' debt service requirements, it follows
that the GIC's paid interest at higher rates than the yield on
the Bonds. It further follows that amounts earned on the
(...continued)
Sec. 1.148-8(d)(5), Income Tax Regs., provides:
The term "investment proceeds" means, with respect to
an issue, any amounts actually or constructively
received from investing original proceeds of the issue.
14Satisfaction of a debtor's obligation by means of a third
party's payment to the creditor is the equivalent of receipt by
the debtor. Old Colony Trust Co. v. Commissioner, 279 U.S. 716,
729 (1929); Amos v. Commissioner, 47 T.C. 65, 70 (1966); see
Bintliff v. United States, 462 F.2d 403, 408 (5th Cir. 1972).
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