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I.
I believe that the bonds in question were arbitrage bonds on
the date of issuance under section 103(d), as enacted by the Tax
Reform Act of 1969, Pub. L. 91-172, sec. 601(a), 83 Stat. 487,
656. Contrary to Judge Jacobs, dissenting op. p. 65, I believe
that the Riverside Housing Authority failed to show, as of the
date of issuance in February 1986, that it did not reasonably
expect that the proceeds would be invested in higher yield
obligations.
On the subject of reasonable expectations, petitioners are
off base in arguing that, if our decision goes against them, the
standard of care required of state and local issuers will have
been retroactively made higher than it was or should have been at
the time the deals were done. I agree with respondent that the
issuer's standard of care set forth in section 1.148-1(b), Income
Tax Regs. (the 1993 reg.), is basically no different from what
was required under the regulation in effect in 1985-86, section
1.103-13(a)(2), Income Tax Regs. (the 1979 reg.). Even if there
may now be a higher level of consciousness among state and local
bond issuers and their counsel about the levels of due diligence
required, reasonableness is an objective and normative standard.
By any such standard, the Riverside Housing Authority and its
counsel were egregiously and inexcusably lax in failing to
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