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BEGHE, J., concurring: I agree with and have joined the
majority opinion that the bonds in question were taxable
arbitrage bonds within the meaning of section 148(f): the bond
proceeds were used to purchase investments that were not acquired
to carry out the governmental purpose; those investments produced
excess earnings under section 148(f)(2); and the issuer has
failed to rebate the amount of the excess earnings to the United
States. In enacting section 148(f) of the 1986 Code, Congress
repudiated the holding of Washington v. Commissioner, 77 T.C. 656
(1981), affd. 692 F.2d 128 (D.C. Cir. 1982), and thereby made
clear that "amounts earned" on nonpurpose investments are not
limited to amounts that directly inure to the issuer: they also
include excess earnings that enable more than a de minimis part
of the bond proceeds to be diverted to pay underwriters, bond and
tax counsel, and other service providers. See S. Rept. 99-313,
at 828, 845 (1985), 1986-3 C.B. (Vol. 3) 1, 828, 845. As a
result, the interest on the bonds ostensibly issued by the
Riverside Housing Authority was not excludable from the income of
the bondholders under section 103.
I write separately to focus on three additional grounds, the
first two of which were also advanced by respondent, for holding
taxable the bonds in this case (and the bonds in other pending
cases).
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