Harbor Bancorp & Subsidiaries - Page 55

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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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