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May 8, 2020

COVID-19: IRS Allows Governmental Issuers to Purchase and Hold Certain of Their Own Tax-Exempt Bonds

In response to the COVID-19 pandemic and resulting market instability and economic disruption in the short-term tax-exempt bond market, the Internal Revenue Service (IRS) issued
Notice 2020-25 on May 4, 2020, temporarily expanding the circumstances and time period in which governmental issuers may purchase and hold their own tax-exempt qualified tender bonds and tax-exempt commercial paper solely for purposes of §103 and §§141 through 150 of the Internal Revenue Code.

Notice 2020-25 allows a governmental issuer to purchase and hold, on a temporary basis, its own tax-exempt qualified tender bond or tax-exempt commercial paper without resulting in a reissuance or retirement of the purchased tax-exempt bond if the governmental issuer purchases the tax-exempt qualified tender bond or tax-exempt commercial paper during the permitted holding period and holds the bond no later than the end of the permitted holding period. For purposes of Notice 2020-25, the term “permitted holding period” means calendar year 2020.

During the permitted holding period, the governmental issuer may refund the purchased bond with a refunding bond, tender the purchased bond for purchase in a qualified tender right in its capacity as a bondholder, or resell the purchased bond. In addition, Notice 2020-25 states that a refunding of tax-exempt commercial paper, including tax-exempt commercial paper purchased at maturity with tax-exempt commercial paper during the permitted holding period, will be treated as part of the same issue as the purchased tax-exempt commercial paper.

Notice 2020-25 also modifies and supplements the guidance provided in Notice 2008-41 and the proposed Treasury Regulations set forth in §1.150-3 dealing with reissuance of tax-exempt obligations (the "Proposed Treasury Regulations"). Pursuant to Notice 2008-41 and the Proposed Treasury Regulations, a tax-exempt bond purchased by or on behalf of a governmental issuer pursuant to a qualified tender right is not treated as retired during a 90-day period starting on the date of acquisition of the tax-exempt qualified tender bond. Notice 2020-25 extends the 90-day period provided in Notice 2008-41 and the Proposed Treasury Regulations during which qualified tender bonds may be held by or on behalf of a governmental issuer without causing such bonds to be retired to 180 days as long as the acquisition occurs during the permitted holding period.

Notice 2020-25 states that for arbitrage purposes under §148 of the Internal Revenue Code, a qualified hedge with respect to bonds will not be deemed terminated because the governmental issuer holds the hedged bonds during the periods permitted in the Notice.

Notice 2020-25 became effective on May 4, 2020. However, it may be applied retroactively to purchases on or after January 1, 2020. Notice 2020-25 should only be relied on for the purposes described therein.

If you have any questions regarding the content of this alert, please contact Sharon Brown, partner, at; Shali Natesan, associate, at; or another member of the firm’s Public Finance Practice Area.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. You can reach our COVID-19 Response Team at


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