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all the proceeds of the Whitewater and Ironwood bonds were to be
used for residential rental property.
While the phrase in section 103(b)(4) is "are to be used,"
the statutory sentence does not stop there but sets forth low-
income residence requirements that must be met "at all times
during the qualified project period". Thus, compliance requires
examination of actual events occurring after the issue date. It
would be illogical to suggest that expectations controlled until
the units were occupied, and that thereafter actual events would
control. Such a reading would put a party that never tried to
build the residential rental project in a better position than a
party who built the project but inadvertently failed to satisfy
the low-income requirements. Under section 1.103-8(b)(6)(ii) and
(iii), Income Tax Regs. (the 1979 reg.), issuers are permitted a
reasonable period of time to correct noncompliance.
Section 1.103-8(b)(6)(i) and (9), Income Tax Regs. (the 1979
reg.), makes clear that satisfaction of the residential rental
property exception of section 103(b)(4)(A) requires more than
just a good faith hope or assumption that the proceeds of a bond
issue will be properly applied. Section 1.103-8(b)(6)(i), Income
Tax Regs. (the 1979 reg.), provides that a post-issuance
nonconforming change will vitiate the exemption--retroactive to
the original issue date--unless corrected within a reasonable
time. Examples (4) and (5) of section 1.103-8(b)(9), Income Tax
Regs. (the 1979 reg.), illustrate this rule.
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