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February 13, 2019

Treasury and IRS Release Proposed Reissuance Regulations

On December 31, 2018, Treasury and the IRS released proposed regulations under Sections 150 and 1001 of the Internal Revenue Code regarding whether tax-exempt bonds have been retired and reissued for purposes of Sections 103 and 141 through 150 of the Internal Revenue Code (the "Proposed Regulations"). The Proposed Regulations generally follow existing guidance with certain technical modifications.

The Proposed Regulations are expected to take effect 90 days after the date of publication as final regulations in the Federal Register. Issuers can, however, apply the Proposed Regulations prior to that date. Otherwise, pursuant to Notice 2008-41, issuers can use either Notice 88-130 or Notice 2008-41 when determining if a reissuance of a tax-exempt bond has occurred. The Proposed Regulations, when finalized, are expected to make obsolete the existing guidance provided in Notice 88-130 and Notice 2008-41. In particular, the Proposed Regulations coordinate the existing guidance regarding the reissuance standards for "qualified tender bonds."

The Proposed Regulations generally follow the guidance set forth in Notice 2008-41 with certain modifications and clarifications. The Proposed Regulations provide that, generally, a tax-exempt bond is retired (i) when there are significant modifications to the terms of a bond so that the bond ceases to be the same bond for tax purposes under Treasury Regulation Section 1.1001-3, (ii) if the issuer or an agent acting on its behalf acquires the bond in a manner that liquidates or extinguishes the bondholder's investment in the bond, and (iii) if the bond is redeemed.

  • The Proposed Regulations also provide three exceptions to the general rules of retirement. The first two exceptions apply to "qualified tender bonds," and the third exception applies to all tax-exempt bonds. The exceptions are as follows:
    A qualified tender right that arises upon an issuer's exercise of an option to change the interest rate mode will be disregarded for the purposes of determining whether a significant modification of a qualified tender bond, under Treasury Regulation Section 1.1001-3, results in a retirement of the bond.
  • Acquisition of a qualified tender bond pursuant to a qualified tender right will not result in a retirement, provided that neither the issuer nor its agent hold the bond for longer than 90 days.
  • Acquisition of a tax-exempt bond by a guarantor or a liquidity facility provider acting as the issuer's agent does not result in a retirement of the bond if the acquisition is pursuant to the terms of the guarantee or liquidity facility and the guarantor or liquidity provider is not a related party (as defined in Section 1.150-1(b)) to the issuer.

Comments to the Proposed Regulations and requests for a hearing must be submitted to the IRS no later than March 1, 2019.


If you have any questions regarding the content of this alert, please contact Sharon Brown, partner, at slbrown@barclaydamon.com,  Amanda Mirabito, associate, atamirabito@barclaydamon.com,  or another member of the firm's Public Finance Practice Area.

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