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league of minnesota cities <br />February 24, 1981 <br />TO: Mayors, Managers and Clerks <br />FROM: Donald Slater, Executive Director <br />RE: <br />IRS Revenue Ruling Disallowing Deduction by <br />�ariks for Interest on Public Funds <br />As you may or may not be aware, on December 15, 1980 the IRS issued Procedure <br />Bulletin 80 -55. The ruling had the effect of no longer allowing a bank to <br />deduct its cost of paying interest on time deposits it holds for state and <br />local governments, if tax - exempt bond issues were used to secure those <br />deposits. The ruling is scheduled to take effect on May 31, and it is likely <br />to result in state and local governments earning less interest on their <br />deposits, and having to pay higher interest rates on the bonds that they sell. <br />The League of Minnesota Cities as well as the National League of Cities <br />contends that the IRS has erroneously and arbitrarily applied a section of <br />the basic tax law - the Internal Revenue Code of 1954 - to interest paid by <br />banks on deposits of state and local governments. The task in the next few <br />months will be to let your congressman and senators know of the detrimental <br />effect the ruling will have on your city's finances. <br />The National League of Cities has also asked cities to document the interest <br />income they expect to lose if the procedure goes into effect and send that <br />information to: <br />National League of Cities <br />Office of Federal Relations <br />1301 Pennsylvania Ave. NW <br />Washington, DC 20004 <br />DS:rmm <br />59 <br />1100 nenoven building 460 cedar street, saint paul, minnesota 55101 C612) 222 -2861 <br />