RES 90059 - Laserfiche WebLink

Interest on the Bonds may become subject to federal income taxation retroactive to the date of issuance of the Bonds should the City fail to comply, on a continuing basis, with the requirements of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), pertaining to arbitrage. Section 148 of the Code requires, among other things and with certain exceptionS, that the City not intentionally use any proceeds of the Bonds to acquire higher yielding investments or to replace funds which are used to acquire higher yielding investments, and further requires that any amounts earned on nonpurpose investments in excess of the amount which would have been earned if such investments were made at a rate equal to the yield on the Bonds be rebated to the United States. The City has covenanted in the Resolution of Issuance not to take any action which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and not to take any other action which would cause a loss of exemption from income taxation of interest on the Bonds. Assuming continuing compliance by the City with the covenants in the Resolution of Issuance intended to preserve the exemption from federal income taxation of interest on the Bonds, in the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income in calculating federal income taxation, except to the extent that such interest is subject to taxation through the application of those prowsions of the Code relating to the corporate alternative minimum tax and the environmental tax. In addition, in the opinion of Bond Counsel, under the existing laws of the State of California, interest on the Bonds is exempt from present California personal income taxation. Interest received on the Bonds by certain corporations may be subject to taxation by virtue of the operation of the following provisions of the Code: 1. In computing the corporate alternative minimum tax under Section 55 of the Code for taxable years beginning in 1987, 1988 and 1989, corporations are required to include in the calculation of alternative minimum taxable income, 50% of the excess of such corporation's adjusted net book income over its alternative minimum taxable income (determined without regard to this adjustment and prior to the reduction for certain net operating losses). For taxable years beginning in 1989, corporations are required to include in the calculation of alternative minimum taxable income, 75% of the excess of such corporation's adjusted current earnings over its alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). For certain corporations, interest on the Bonds has to be included in the calculation of adjusted net book income and adjusted current earnings. 2. Section 59(A) of the Code imposes on corporations, in addition to ap, y_ other tax imposed, an environmental tax equal to 0.12% of the excess of a corporation s modified alternative minimum taxable income over $2,000,000, whether or not the alternative minimum tax is paid by the corporation. For these purposes, a corporation's alternative minimum taxable income will include a portion of the interest on tax-exempt obligations, such as Bonds. This environmental tax is effective for taxable years beginning after December 31, 1986, and before January 1, 1992. In addition to the foregoing, the tax liability of certain taxpayers receiving interest on the Bonds, including banks, thrift institutions and property and casualty insurance companies, may be increased through the application of certain provisions of the Code which limit the deductions available to certain recipients of tax-exempt interest. For taxable years ending after December 31, 1986, under Section 265(b) of the Code, banks and thrift institutions will be unable to deduct any portion of the interest cost of purchasing or carrying tax-exempt obligations, including the Bonds, purchased after August 7, 1986. For taxable years beginning after December 31, 1986, under Section 832(b)(5) of the Code, property and casualty insurance companies are required to reduce the amount of their deduction for losses incurred