Opinion ID: 410333
Heading Depth: 3
Heading Rank: 2

Heading: Issuance expenses.

Text: 21 Deciding whether the Tax Court permissibly allowed the State to include issuance costs in the yield calculation is, however, a more difficult issue. While the term discount explicitly appears in Section 103(c), the term issuance expenses does not. Thus, Congress may intentionally have drawn a distinction between discount and issuance expenses in identifying precisely which costs the State could take into account in determining the permissible reinvestment yield. But such a congressional intent is unlikely. Issuance expenses--legal fees, printing costs, advertising expenses, and so on--are outlays made to procure money, are incurred directly in connection with the bond issuance, and effectively reduce the money available from the issuance. They thereby reduce the real economic value of the debt instrument to its issuer. When Congress required states and municipalities to restrict their reinvested proceeds to yields not materially higher than the yields on their Section 103 issuances, there had been a long and consistent practice of requiring issuance expenses to be treated the same as discounts. The Treasury had for years been unable to draw a distinction between expenses [like bond discount] and other expenses incidental to the issuance of the bonds   . G.C.M. 14349, XIV-1 C.B. 36 (1935). Nor had the courts drawn such a distinction. See Denver & Rio Grande Western R. Co., 32 T.C. 43, 51 (1959), Acq. 1959-2 C.B. 4, aff'd on other issues, 279 F.2d 368 (10th Cir. 1960); Leach Corporation, 30 T.C. 563, 579 (1958), Acq. 1959-1 C.B. 4; Julia Stow Lovejoy, 18 B.T.A. 1179, 1182 (1930); Chicago, Rock Island & Pacific R. Co., 13 B.T.A. 988, 1035 (1928). Since Congress created a very mechanical test for identifying arbitrage bonds, it is unlikely that it meant to draw, or to give the IRS discretionary authority to create, a distinction which had not previously existed. In short, the most natural reading of both the statute and the commonly accepted meaning of the term yield calls for including both discount and issuance expenses in the determination of purchase price (and the calculation of yield).