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The statutory context of section 148(f) also supports a
literal application of its terms. The general definition of an
"arbitrage bond" is contained in section 103(c)(2). An
"arbitrage bond", within the meaning of that section, is one that
the issuer "reasonably expected" to produce arbitrage. If an
issuer "reasonably expected" to earn arbitrage with bond
proceeds, the bonds are not tax exempt. Section 148(f) is an
additional arbitrage restriction. It was intended to restrict
arbitrage even further than the historic reasonable expectation
test. In its explanation of the new section 148(f) provisions,
the Senate Finance Committee report states:
The bill generally extends to all tax-exempt bonds
(including refunding issues) additional arbitrage
restrictions similar to those presently applicable to
most IDBs and to qualified mortgage bonds. These
restrictions, requiring the rebate of certain arbitrage
profits and limiting investment of bond proceeds in
nonpurpose obligations, are in addition to the general
arbitrage restrictions for all tax-exempt bonds. [S.
Rept. 99-313, supra at 845, 1986-3 C.B. (Vol. 3) at
845; emphasis added.]
See also H. Rept. 99-426 (1985), 1986-3 C.B. (Vol. 2) 1, 555.
There is no indication in the statute or legislative history that
Congress wanted to limit section 148(f) to situations where the
issuer intended, or reasonably expected, to earn arbitrage.
Were we to superimpose an intent requirement onto section
148(f), that section would become redundant. Section 103(c)
already defined arbitrage bonds as those whose proceeds the
issuer reasonably expected, at the time of issue, would be used
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