4.10.2 No Federal Guarantee

A bond will not be tax exempt if the bond is federally guaranteed. A bond is federally guaranteed if (1) the payment of the principal of and interest on the bond is guaranteed in whole or in part by the United States or an agency or instrumentality thereof; (2) the bond is part of an issue of bonds of which 5% or more of the proceeds are to be (a) used to make loans, the payment of the principal of or interest on is to be guaranteed in whole or in part by the United States or an agency or instrumentality thereof or (b) invested directly or indirectly in federally insured deposit accounts; or (3) the payment of principal of or interest on the bond is otherwise indirectly guaranteed in whole or in part by the United States or an agency or instrumentality thereof. There is a broad exception for proceeds invested during a permitted initial temporary period, such as during the first 3 years following issuance of a new money bond issue (that meet the requirements for the 3 year temporary period described in Section 4.8.4.1, Initial Temporary Period). Other exceptions include certain insurance programs (e.g., a guarantee by the Veterans Administration), guarantees of student loans, investments in a bona fide reserve fund or a reasonably required reserve or replacement fund; and investments in obligations issued by the U.S. Treasury.