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The legislative history of the arbitrage and rebate provisions
shows a consistent congressional intent that State and local
governments (the issuers) not profit from arbitrage. It is plain
that, in requiring rebates of excess earnings on "nonpurpose
investments", Congress contemplated investments made by the
issuers, not unauthorized investments of bond proceeds diverted to
improper uses by others. As petitioners state in their brief:
"Nothing * * * suggests that money once stolen is subject to the
yield restriction rules".
When Congress enacted section 148(f), it did not intend to
require the rebate of arbitrage created by the unauthorized acts of
persons other than the issuer and not received by the issuer. Such
amounts are not amounts earned on nonpurpose investments within the
meaning of that provision. My conclusion is reinforced by
Congress' contemporaneous inclusion of section 148(a) in the Tax
Reform Act of 1986. As a result of the enactment of section
148(a), Congress expanded the definition of arbitrage bonds to
include those that involved the issuer's intentional acquisition of
post-issuance arbitrage earnings. Congress thus put the tax
exemption for interest earned on bonds at risk where a State or its
subdivision intentionally used the bond proceeds to earn arbitrage
profits. In such a circumstance, a violation of section 148(a)
cannot be cured. However, by enacting section 148(f), Congress
permitted the use of the rebate provisions to preserve the bonds'
exempt status in situations where the issuer unintentionally made
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