nonpurpose investment
(3) Arbitrage and investment gains to be used to reduce costs of owner-financing (A) In general An issue shall be treated as meeting the requirements of this paragraph only if an amount equal to the sum of— (i) the excess of— (I) the amount earned on all nonpurpose investments (other than investments attributable to an excess described in this clause), over (II) the amount which would have been earned if such investments were invested at a rate equal to the yield on the issue, plus (ii) any income attributable to the excess described in clause (i), is paid or credited to the mortgagors as rapidly as may be practicable. (B) Investment gains and losses For purposes of subparagraph (A), in determining the amount earned on all nonpurpose investments, any gain or loss on the disposition of such investments shall be taken into account. (C) Reduction where issuer does not use full 1.125 percentage points under paragraph (2) (i) In general The amount required to be paid or credited to mortgagors under subparagraph (A) (determined under this paragraph without regard to this subparagraph) shall be reduced by the unused paragraph (2) amount. (ii) Unused paragraph (2) amount For purposes of clause (i), the unused paragraph (2) amount is the amount which (if it were treated as an interest payment made by mortgagors) would result in the excess referred to in paragraph (2)(A) being equal to 1.125 percentage points. Such amount shall be fixed and determined as of the yield determination date. (D) Election to pay United States Subparagraph (A) shall be satisfied with respect to any issue if the issuer elects before issuing the bonds to pay over to the United States— (i) not less frequently than once each 5 years after the date of issue, an amount equal to 90 percent of the aggregate amount which would be required to be paid or credited to mortgagors under subparagraph (A) (and not theretofore paid to the United States), and (ii) not later than 60 days after the redemption of the last bond, 100 percent of such aggregate amount not theretofore paid to the United States. (E) Simplified accounting The Secretary shall permit any simplified system of accounting for purposes of this paragraph which the issuer establishes to the satisfaction of the Secretary will assure that the purposes of this paragraph are carried out. (F) Nonpurpose investment For purposes of this paragraph, the term “nonpurpose investment” has the meaning given such term by section 148(f)(6)(A).