Harbor Bancorp & Subsidiaries - Page 52

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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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