A bill to amend the Tax Reform Act of 1984.

Amends the Tax Reform Act of 1984 to revise a special arbitrage rule. Provides, under the revision, that securities or obligations are not State and local bonds and are not subject to yield restrictions to the extent that on the date of issue of a bond issue which is payable from the investment earnings on such securities or obligations such securities or obligations are held in a fund: (1) which, except to the extent of the investment earnings on such securities or obligations, cannot be used, under State constitutional or statutory restrictions continuously in effect since October 9, 1969, through the date of issue of the bond issue, to pay debt service on the bond issue or to finance the facilities that are to be financed with the proceeds of the bonds; or (2) the annual distributions from which cannot exceed seven percent of the average fair market value of the assets held in such fund except to the extent distributions are necessary to pay debt service on the bond issue.