Harbor Bancorp & Subsidiaries Edward J. Keith Elena Keith v. Commissioner of Internal Revenue

OPINION

RYMER, Circuit Judge:

Taxpayers Harbor Bancorp and Edward and Elena Keith appeal from a decision of the Tax Court denying tax-exempt status to interest the taxpayers earned on bonds issued by the Riverside County, California, Housing Authority. The Tax Court determined that (1) the Riverside County bond issues were subject to the Tax Reform Act of 1986 because the bonds were issued after December 31, 1985, and (2) the interest on the bonds is taxable because they are “arbitrage bonds” under the 1986 Act, in that (a) the proceeds were used, without the Housing Authority’s permission or…