SECTION 1. TAX EXEMPT TREATMENT OF CERTAIN BONDS ISSUED IN CONNECTION 
              WITH DELINQUENT REAL PROPERTY TAXES.

    (a) In General.--Section 148 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (i) as subsection (j) and by 
inserting after subsection (h) the following new subsection:
    ``(i) Special Rule for Delinquent Tax Bonds.--
            ``(1) In general.--For purposes of this section, a bond 
        which meets the requirements of paragraph (2) shall not be 
        treated as an arbitrage bond.
            ``(2) Delinquent tax bond requirements.--A bond meets the 
        requirements of this paragraph if--
                    ``(A) the bond is issued primarily to facilitate 
                the collection or receipt of delinquent real property 
                taxes levied for school districts that provide 
                education primarily below the post-secondary level,
                    ``(B) all sale proceeds of the issue of which the 
                bond is a part (other than sale proceeds, if any, to be 
                used for costs of issuance and the establishment of a 
                reasonably required reserve or replacement fund) are 
                transferred, within 30 days after the date of issue of 
                the bond, to governmental units that levy, collect, or 
                receive real property taxes,
                    ``(C)(i) the amount of the sale proceeds so 
                transferred does not exceed the amount of delinquent 
                real property taxes for the year (or the preceding 
                year) certified by such units to the issuer of the bond 
                as uncollected, and
                    ``(ii) such certification is made as of a specific 
                date which occurs during the 5-month period preceding 
                the date of the issuance of the bond,
                    ``(D) the maturity date of the bond is not later 
                than 3 months after the date of the issue, and
                    ``(E) all delinquent real property taxes (and 
                interest, fees, and penalties attributable to such 
                taxes) received by such governmental units after the 
                specific date referred to in subparagraph (C) and 
                before any maturity date of such issue are used, within 
                3 months of receipt, for the payment of principal, 
                interest, or redemption price of the issue of which the 
                bond is a part (to the extent that such taxes, 
                interest, fees, and penalties do not exceed such 
                principal, interest, and redemption price, in the 
                aggregate).
        For purposes of this part, proceeds of the issue which are 
        transferred in accordance with subparagraph (B) shall be 
        treated as spent on the date so transferred.
            ``(3) Refunding bonds.--A bond (or series of bonds) issued 
        to refund a bond meeting the requirements of paragraph (2) 
        shall be treated as meeting such requirements only if, in 
        addition to meeting such requirements--
                    ``(A) the maturity date of the refunding bond is 
                not later than 26 months after the date of issuance of 
                the original bond, and
                    ``(B) the requirements of subclauses (II) and (III) 
                of section 144(a)(12)(A)(ii) are met.''
    (b) Coordination With Hedge Bond Rules.--Section 149(g)(3) of such 
Code is amended by adding at the end the following new subparagraph:
                    ``(D) Exception for delinquent tax bond.--For 
                purposes of this subsection, the term `hedge bond' 
                shall not include any bond that meets the requirements 
                of section 148(i)(2).''
    (c) Coordination With Pooled Financial Bond Rules.--Section 
149(f)(4)(B) of such Code is amended--
            (1) by striking ``or'' at the end of clause (i),
            (2) by striking the period at the end of clause (ii) and 
        inserting ``, or'', and
            (3) by adding at the end the following new clause:
                            ``(iii) section 148(i) applies to such 
                        bond.''
    (d) Coordination With Private Activity Bond Rules.--Paragraph (2) 
of section 141(c) of such Code (relating to private activity bond; 
qualified bond) is amended by striking ``or'' at the end of 
subparagraph (A), by striking the period at the end of subparagraph (B) 
and inserting ``, or'', and by adding at the end the following new 
subparagraph:
                    ``(C) is with respect to a bond which meets the 
                requirements of section 148(i)(2) (relating to 
                delinquent tax bonds).''
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act. For 
purposes of the preceding sentence, a bond (or series of bonds) issued 
to refund a bond shall be treated as being issued on the date of 
issuance of the refunded bond, if the refunding bond meets the 
requirements of subclauses (I), (II), and (III) of section 
144(a)(12)(A)(ii) of the Internal Revenue Code of 1986.
Amends the Internal Revenue Code to provide that certain bonds issued by local governments in connection with delinquent real property taxes (delinquent tax bonds) may be treated as tax exempt.Requires: (1) such a bond to be issued (with a three-month maturity date) primarily to facilitate the collection or receipt of delinquent real property taxes levied for school districts that provide education primarily below the post-secondary level; and (2) that all delinquent real property taxes (and interest, fees, and penalties attributable to them) received by such governmental units after a specified date but before any maturity date are used, within three months of receipt, for the payment of principal, interest, or redemption price of the issue of which the bond is a part (to the extent that such taxes, interest, fees, and penalties do not exceed such principal, interest, and redemption price, in the aggregate).
To amend the Internal Revenue Code of 1986 to provide that certain bonds issued by local governments in connection with delinquent real property taxes may be treated as tax exempt.