or programs.234 Each of these targeted transitional exceptions applies only to one described project or issue of bonds or to a limited group of described projects, and each is subject to a maximum dollar amount of bonds.235 Additionally, these rules generally require that the transitioned bonds be issued before January 1, 1991. Bonds which are the subject of project-specific transitional exceptions and which are private activity bonds (as defined by the Act) generally are exempt from the new private activity bond volume limitations only if (1) equivalent bonds issued under prior law would not have been subject to volume limitations (e.g., bonds for residential rental housing, qualified redevelopment bonds, and the private use portion of governmental bonds), 236 or (2) the bonds are issued pursuant to carryforwards of prior law volume cap for calendar years 1984 or 1985, which timely carryforward elections were filed with the Treasury Department before January 1, 1986.237

Certain transitional exceptions provided in the Deficit Reduction Act of 1984 are also re-enacted by the Act. These transitional exceptions are those exempting a specifically described project, or a limited group of such projects, from one or more of the provisions of that Act. The Act generally re-enacts the 1984 Act transitional exceptions only if the transitioned bonds are issued before January 1, 1989.238

Revenue Effect of Tax-Exempt Bond Provisions

These provisions are estimated to increase fiscal year budget receips by $16 million in 1987, $69 million in 1988, $114 million in 1989, $192 million in 1990, and $231 million in 1991.

234 Congress intended that these project-specific transition rules would be in addition to any generic transition rules applicable under the Act.

235 A technical amendment may be necessary for the statute to reflect Congress' intent that, subject to restrictions similar to those imposed on post-sunset refundings of qualified small-issue bonds, bonds authorized under these project-specific transitional exceptions may be currently refunded. Advance refundings of bonds authorized under these transitional exceptions is not permitted.

236 This provision also applies to bonds for governmentally owned airports, docks and wharves, mass commuting facilities, and convention or trade show facilities.

237 Certain of these project-specific transitional exceptions specifically describe the bonds authorized under the exceptions as exempt-facility or other types of bonds for which carryforward elections are permitted under the new State private activity bond volume limitations. In such cases, Congress intended that carryforward elections under the new State private activity bond volume limitations (for years 1986 and thereafter) be permitted to the same extent as if the bonds were identified in new Code sec. 146(f)(5), provided all such bonds are issued before the termination date for the transitional exception authorizing their issuance. A technical amendment may be necessary for the statute to reflect this intent.

238 Re-enactment of these project-specific transition rules does not change the general prohibition contained in the 1984 Act and other previous revenue Acts on refunding certain obligations (e.g., private loan bonds) that may not be originally issued under those Acts.

B. General Stock Ownership Corporations (GSOCs) (sec. 1303 of the Act and former secs. 1391-1397 of the Code) 239

Prior Law

A State could establish a General Stock Ownership Corporation (GSOC) to serve as an investment fund for its citizens. GSOCS could elect to be exempt from federal income tax, and the shareholders would report as gross income their pro rata share of the GSOC's taxable income.

Reasons for Change

No GSOC has been organized since enactment of the authorizing legislation, and the period during which a GSOC could be formedJanuary 1, 1979, through December 31, 1983—has expired.

Explanation of Provision

The GSOC provisions are repealed.

Effective Date

The repeal of the GSOC provisions is effective as of January 1, 1984.

Revenue Effect

This provision has no effect on budget receipts in fiscal years 1987-1991.

239 For legislative background of the provision, see: H.R. 3838, as reported by the House Committee on Ways and Means on December 7, 1985, sec. 702; H. Rep. 99-426, p. 573; H.R. 3838, as reported by the Senate Committee on Finance on May 29, 1986, secs. 1517 and 1518; S. Rep. 99313, pp. 860-1; and H. Rep. 99-841, Vol. II (September 18, 1986), p. II-762 (Conference Report).

APPENDIX XIII-1

JOINT STATEMENT BY THE HONORABLE DAN ROSTENKOWSKI (D., ILL.), CHAIRMAN, COMMITTEE ON WAYS AND MEANS, THE HONORABLE BOB PACKWOOD (R., ORE.), CHAIRMAN, COMMITTEE ON FINANCE, THE HONORABLE JOHN J. DUNCAN (R., TENN.), RANKING MEMBER, COMMITTEE ON WAYS AND MEANS, THE HONORABLE RUSSELL LONG (D., LA.), RANKING MEMBER, COMMITTEE ON FINANCE, AND THE HONORABLE JAMES A. BAKER, III, SECRETARY OF THE TREASURY, ON THE EFFECTIVE DATES OF PENDING TAX REFORM LEGISLATION (MARCH 14, 1986) The following is a joint statement made by Chairman Dan Rostenkowski (D., Ill.), House Committee on Ways and Means, Chairman Bob Packwood (R., Ore.), Senate Committee on Finance, Rep. John J. Duncan, Ranking Member of the Committee on Ways and Means, Senator Russell Long, Ranking Member of the Committee on Finance, and Secretary of the Treasury James A. Baker, III, with respect to the effective dates of certain provisions of the comprehensive tax reform legislation (H.R. 3838) being considered by the Congress:

As Chairmen and ranking members of the tax-writing committees of the House and Senate and Secretary of the Treasury, we are sensitive to the uncertainty created by the pending comprehensive tax reform legislation (H.R. 3838). In undertaking tax reform, our intent is to provide greater equity in the tax system, a goal that will encourage greater confidence in our Government as a whole. The uncertainty created by some effective dates contained in H.R. 3838, as passed by the House in December 1985, is to an extent the unavoidable result of the thoughtful, deliberative process, which is necessary if we are to achieve our ultimate goal. We have reviewed the effective dates of the major provisions of the pending tax reform legislation and have examined the consequences of any postponement of those dates.

The chief principle guiding us has been a balancing of revenue effect and possible rush to market of tax-motivated transactions against any adverse effects created by the effective dates in H.R. 3838. At this time, we have determined that tax-exempt financing for State and local governments is an area where we support a selective postponement of effective dates. In taking this action, we are making no commitment with respect to what substantive rules ultimately may be enacted governing tax-exempt bonds.

Many Members of Congress are concerned about recent dramatic increases in the volume of tax-exempt refinancings for private activities. It is not our intent, however, to restrict the ability of States and local governments to finance their direct governmental operations or to force States to change their existing practices governing financing of those operations while tax reform legislation is pending.

Therefore, we are endorsing a postponement, until September 1, 1986 (or the date of enactment of tax reform legislation, if earlier)

of any application of the provisions and restrictions listed below to bonds that under present law are not (i) industrial development bonds, (ii) bonds that would be IDBs if section 501(c)(3) organizations were nonexempt persons engaged in trades or businesses, (iii) student loan bonds, (iv) mortgage subsidy bonds, or (v) other private ("consumer") loan bonds for which tax-exemption is permitted. In addition, this action does not apply to so-called pension bonds or to bonds which involve payments by private parties for the use of bond-financed property and which would be IDBs if such payments were used to pay debt service.

The provisions and restrictions to which this action applies are (1) The definition of nonessential function bond and the new unified volume cap contained in H.R. 3838;

(2) Any extension of arbitrage rebate restrictions, and any other new arbitrage restrictions, other than the method of determining bond yield (i.e., the reversal of the decision in State of Washington v. Commissioner);

(3) Any new restrictions on early issuance of these bonds (ie., provisions requiring certain expenditures within certain periods);

(4) Any new restrictions on advance refunding of bonds which were originally issued before 1986, other than a limitation on the temporary period for refunding bond proceeds to 30 days and the method of determining bond yield (listed in item (2), above);

(5) Any extension of information reporting requirements to these bonds; and

(6) Any treatment of interest on these bonds as a minimum tax preference item under H.R. 3838 as passed by the House. We believe that limiting our action to the bonds described and provisions listed above does not threaten a rush to market of taxmotivated transactions. However, we are instructing our staffs to monitor the tax-exempt bond market as consideration of tax reform legislation continues, and to advise us of any indications of evidence of tax-motivated bond issuance.

We believe our action today is consistent with the goal of comprehensive tax reform and will enable the Congress better to act only after thorough consideration of the many issues presented by such reform.

APPENDIX XIII-2

JOINT STATEMENT BY THE HONORABLE DAN ROSTENKOWSKI (D., ILL.), CHAIRMAN, COMMITTEE ON WAYS AND MEANS, THE HONORABLE BOB PACKWOOD (R., ORE.), CHAIRMAN, COMMITTEE ON FINANCE, AND THE HONORABLE JAMES A. BAKER, III, SECRETARY OF THE TREASURY, (JULY 17, 1986)

The following is a joint statement made by Chairman Dan Rostenkowski (D., Ill.), House Committee on Ways and Means, Chairman Bob Packwood (R., Ore.), Senate Committee on Finance, and Secretary of the Treasury James A. Baker, III, with respect to the effective date of a proposed requirement that certain arbitrage profits on tax-exempt bonds be rebated to the Federal Government: On March 14, 1986, we issued a joint statement indicating our intention that certain new restrictions on tax-exempt bonds contained in tax reform legislation (H.R. 3838), as passed by the House of Representatives and the Senate, not be applied to bonds used to finance operations of State and local governments that are issued before the earlier of the date of enactment of H.R. 3838, or September 1, 1986.

As we stated in March, it is not our intent to restrict the ability of State and local governments to finance their direct governmental operations or to force States to change their existing practices governing financing of those operations while tax reform legislation is pending. As we also stated, however, we did not intend by our statement to create an atmosphere where tax-motivated issuance of bonds would occur. To that end, we instructed our staffs in that statement to monitor the tax-exempt bond market as consideration of tax reform legislation continued, and to advise us of any indications of tax-motivated bond issuance.

During the past week, Congressional and Treasury staffs have informed us of a substantial increase in volume of transactions that are motivated primarily by the ability to earn and retain arbitrage profits. These arbitrage-motivated transactions were never intended to be covered by our joint statement in March. The arbitragemotivated transactions to which we are referring involve the funding of so-called "blind pools" with tax-exempt bonds. Issuance of tax-exempt bonds for the pools in question generally has not occurred before 1986, or has occurred in much smaller amounts than in 1986. In addition, there are few or no binding commitments as to the ultimate users of the proceeds of the bonds in question, and the bonds are being issued for longer terms than is customary for such issues.

After reviewing these transactions, we have determined that issuance of bonds for these arbitrage-motivated pools is not within the spirit of our statement of March 14, 1986. We are announcing, therefore, that the provisions of that statement relating to rebate