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Ways and Means Committee at the time section 148 was enacted in
1986:
The bill also provides additional restrictions on
the types of obligations in which bond proceeds may be
invested without regard to yield restrictions. Under
the bill, the arbitrage restrictions are expanded to
apply to the acquisition of any property held for
investment other than another bond exempt from tax
under the Code. Thus, investment in any taxable
security as well as any deferred payment contract
(e.g., an annuity) or other property held for
investment is precluded if the yield on the property is
materially higher than the yield on the bonds. This
restriction applies regardless of the purpose of the
investment (e.g., whether the investment is acquired as
an acquired purpose obligation, an acquired nonpurpose
obligation, or an acquired program obligation). Under
this rule, for example, the purchase of an annuity
contract to fund a pension plan of a qualified
governmental unit would be subject to the same
arbitrage restrictions as would direct funding of that
plan with bond proceeds. The purchase of bond
insurance is not considered to be the purchase of an
annuity contract. Similarly, investment of bond
proceeds in any other type of deferred payment
investment-type contract to fund an obligation of the
issuer or bond beneficiary would be subject to these
yield restrictions. The restriction would not apply,
however, to real or tangible personal property acquired
with bond proceeds for reasons other than investment
(e.g., courthouse facilities financed with bond
proceeds). [H. Rept. 99-426 (1985), 1986-3 C.B. (Vol.
2) 1, 552; fn. ref. omitted; emphasis added.]
Almost the same statement appears in the report of the Senate
Finance Committee. S. Rept. 99-313 (1985), 1986-3 C.B. (Vol. 3)
1, 845; see also H. Conf. Rept. 99-841 (1986), 1986-3 C.B. (Vol.
4) 1, 747.
Investment-type property is defined in section 1.148-1(b),
Income Tax Regs., in pertinent part, as follows:
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