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regulation is section 1.103-13(f)(1), Income Tax Regs.,22 which
provides:
In general. A State or local governmental unit shall
allocate the cost of its acquired obligations to the
unspent proceeds of each issue of governmental
obligations issued by such unit. * * * [Emphasis
added.]
The majority fails to state who it thinks is making the
nonpurpose investments in the GIC's. If it is any person other
than the Housing Authority, then the majority fails adequately to
emphasize and justify its tracing rationale.
I would not attempt to justify a tracing rationale. I think
that, on the facts of this case, we can find that the Housing
Authority made nonpurpose investments. I would do so as follows.
The financing plan was that the Housing Authority would lend
the bond proceeds to the developers and, in consideration
thereof, receive the developer notes and the benefit of the
letters of credit. The letters of credit were to be secured by
the GIC's. Indeed, the expectation was that the letters of
credit would be the exclusive source of repayment to the Housing
Authority (and on the Bonds). The first paragraph of the first
page of the Secondary Offering Statement of the Ironwood Bond
issue states in part:
22 The parties agree that sec. 1.103-13(f), Income Tax
Regs. (1979), is the appropriate regulation governing the
allocation of investments to bond proceeds in the case of the
bonds in issue.
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