Harbor Bancorp & Subsidiaries - Page 54

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          section 103(b)(2) of the 1954 Code, on the ground that the                  
          proceeds of both issues were "to be used directly . . . in any              
          trade or business carried on by any person who is not an exempt             
          person."  The only dispute on this issue is whether the bonds               
          qualified under section 103(b)(4)(A), which provides that an                
          industrial development bond will not be taxable under section               
          103(b)(1) if it is part of an issue "substantially all of the               
          proceeds of which are to be used to provide" (emphasis added)               
          various exempt facilities.  The question is the meaning of the              
          phrase "are to be used".                                                    
               Both the Whitewater and the Ironwood issues were industrial            
          development bonds under section 103(b)(2) because the proceeds              
          were to be lent to private, for-profit developers for the purpose           
          of constructing apartment projects to be used in a private trade            
          or business, and repayment of the bonds was to be secured,                  
          directly or indirectly, by the apartment projects and the income            
          they produced.  Although the documents provided that the                    
          Whitewater bonds and the Ironwood bonds were to fund the                    
          construction of residential rental properties that would meet the           
          20 percent low-income set-aside requirements of section                     
          103(b)(4)(A)(ii),2 what is in dispute is whether substantially              



               2Respondent concedes that the Ironwood project met the low-            
          income set-aside requirements of sec. 103(b)(4)(A)(ii).                     





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