81 FR 88999 - Issue Price Definition for Tax-Exempt Bonds

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 237 (December 9, 2016)

Page Range		88999-89004
FR Document		2016-29486
This document contains final regulations on the definition of issue price for purposes of the arbitrage investment restrictions that apply to tax-exempt bonds and other tax-advantaged bonds. These final regulations affect State and local governments that issue tax-exempt bonds and other tax-advantaged bonds.
Federal Register, Volume 81 Issue 237 (Friday, December 9, 2016)
[Federal Register Volume 81, Number 237 (Friday, December 9, 2016)]
[Rules and Regulations]
[Pages 88999-89004]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-29486]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9801]
RIN 1545-BM46


Issue Price Definition for Tax-Exempt Bonds

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations on the definition of 
issue price for purposes of the arbitrage investment restrictions that 
apply to tax-exempt bonds and other tax-advantaged bonds. These final 
regulations affect State and local governments that issue tax-exempt 
bonds and other tax-advantaged bonds.

DATES: Effective date: These regulations are effective on December 9, 
2016.
    Applicability date: For the date of applicability, see Sec.  1.148-
11(m).

FOR FURTHER INFORMATION CONTACT: Lewis Bell at (202) 317-6980 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1347. The collection of information 
in these final regulations is in Sec.  1.148-1(f)(2)(ii), which 
requires the underwriter to provide to the issuer a certification and 
reasonable supporting documentation for use of the initial offering 
price to the public, Sec.  1.148-1(f)(2)(iii), which requires the 
issuer to obtain a certification from the underwriter for competitive 
sales, and Sec.  1.148-1(f)(2)(iv), which requires the issuer to 
identify in its books and records the rule used to determine the issue 
price of the bonds. The respondents are issuers of tax-exempt bonds 
that want to apply the special rules in Sec.  1.148-1(f)(2) to 
determine the issue price of the bonds.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally tax returns and 
tax return information are confidential, as required by section 6103.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) on the arbitrage investment restrictions under section 148 
of the Internal Revenue Code (Code). On June 18, 1993, the Department 
of the Treasury (Treasury Department) and the IRS published 
comprehensive final regulations in the Federal Register (TD 8476, 58 FR 
33510) on the arbitrage investment restrictions and related provisions 
for tax-exempt bonds under sections 103, 148, 149, and 150. Since that 
time, those final regulations have been amended in various limited 
respects, including most recently in final regulations published in the 
Federal Register (TD 9777, 81 FR 46582) on July 18, 2016 (the 
regulations issued in 1993 and the various amendments thereto are 
collectively referred to as the Existing Regulations).
    A notice of proposed rulemaking was published in the Federal 
Register (78 FR 56842; REG-148659-07) on

[[Page 89000]]

September 16, 2013 (the 2013 Proposed Regulations), which, among other 
things, proposed to amend the definition of ``issue price.'' 
Subsequently, the Treasury Department and the IRS withdrew Sec.  1.148-
1(f) of the 2013 Proposed Regulations regarding the definition of issue 
price and published another notice of proposed rulemaking in the 
Federal Register (80 FR 36301; REG-138526-14) on June 24, 2015, which 
re-proposed a definition of issue price (the 2015 Proposed 
Regulations). Comments were received and a public hearing was held on 
October 28, 2015. After consideration of all of the public comments, 
the Treasury Department and the IRS adopt the 2015 Proposed 
Regulations, with revisions, by this Treasury decision (the Final 
Regulations).

Summary of Comments and Explanation of Provisions

    This section discusses the comments received from the public 
regarding the 2015 Proposed Regulations. The comments are available for 
public inspection at www.regulations.gov. This section also explains 
revisions made in the Final Regulations.

1. Introduction

    Under section 103, interest received by investors on eligible State 
and local bonds is exempt from Federal income tax. As a result, tax-
exempt bonds tend to have lower interest rates than taxable 
obligations. Section 148 generally limits investment of proceeds of 
tax-exempt bonds to investment yields that are not materially higher 
than the yield on the bond issue. Section 148 also generally requires 
that excess investment earnings be paid to the Federal Government at 
periodic intervals. For purposes of these arbitrage investment 
restrictions, section 148(h) provides that yield on an issue is to be 
determined on the basis of the issue price (within the meaning of 
sections 1273 and 1274). The reason for using issue price (rather than 
sales proceeds less the costs of issuance) to determine yield for 
purposes of section 148(h) is to ensure that issuers bear the costs of 
issuance, rather than recover these costs through arbitrage profits. 
See H. Rep. No. 99-426, at 517 (1985). The report of the Committee on 
Ways and Means states that the Committee believed that this requirement 
would encourage issuers to scrutinize costs of issuance more closely 
and would encourage better targeting of the federal subsidy associated 
with tax-exempt bonds. Id., at 517-518. In general, the lower the issue 
price for bonds bearing a stated interest rate, the higher the yield. 
An issuer has an economic incentive to receive the highest price for 
bonds and to pay the lowest yield. This aligns with the purpose of the 
arbitrage restrictions, which is to minimize arbitrage investment 
benefits and remove incentives to issue more tax-exempt bonds, and thus 
to limit the federal revenue cost of the tax subsidy for tax-exempt 
bonds.
    The issue price definition under the Existing Regulations generally 
follows the issue price definition used for computing original issue 
discount on debt instruments under sections 1273 and 1274, with certain 
modifications. The definition of issue price under the Existing 
Regulations provides generally that the issue price of bonds that are 
publicly offered is the first price at which a substantial amount of 
the bonds is sold to the public. The Existing Regulations define a 
substantial amount to mean ten percent. Further, the Existing 
Regulations include a special rule that applies a reasonable 
expectations standard (rather than a standard based on actual sales) to 
determine, as of the sale date,\1\ the issue price for bonds for which 
a bona fide public offering is made, based on reasonable expectations 
regarding the initial offering price. The issue prices of bonds with 
different payment and credit terms are determined separately. Tax-
exempt bond issues often include bonds with different payment and 
credit terms that generally sell at different prices.
---------------------------------------------------------------------------

    \1\ Under Sec.  1.150-1(c)(6), the sale date of a bond is the 
first day on which there is a binding contract in writing for the 
sale or exchange of the bond. By comparison, under Sec.  1.150-1(b), 
the issue date for a bond is the date on which the issuer receives 
the purchase price in exchange for that bond, commonly referred to 
as the closing date or settlement date.
---------------------------------------------------------------------------

    The special rule in the Existing Regulations that provides for the 
determination of issue price as of the sale date based on reasonable 
expectations about the initial public offering price aims, in part, to 
provide certainty that the bonds will qualify as tax-exempt bonds and 
meet State or local requirements for debt issuance. Generally, the sale 
date is the date when the syndicate or sole underwriter in contractual 
privity with the issuer signs the agreement to buy the bonds from the 
issuer and when the terms of the bond issue are set. In the municipal 
bond market, due largely to the serial maturity structure and, in many 
cases, an inability to sell a substantial amount of each of the 
different maturities of the bonds with different terms (for which issue 
price must be determined separately) by the sale date, issuers may have 
difficulties in establishing the issue price of all of the bonds 
included within an issue by the sale date, unless a special rule is 
available.

2. General Rule: Actual Sale of a Substantial Amount of Bonds

    Consistent with section 148(h), the 2015 Proposed Regulations 
proposed to retain the rule that issue price generally will be 
determined under the rules of sections 1273 and 1274. The 2015 Proposed 
Regulations also proposed a general rule similar to that in the 
regulations under section 1273 that the issue price of bonds issued for 
money is the first price at which a substantial amount of the bonds is 
sold to the public. The 2015 Proposed Regulations proposed to retain 
the rule in the Existing Regulations that ten percent is the measure of 
a substantial amount. The 2015 Proposed Regulations also proposed to 
retain the rule that the issue prices of bonds with different payment 
and credit terms are determined separately.
    Commenters recommended adding an express rule to address the 
treatment of private placements (for example, bank loans), which in the 
municipal bond industry typically do not involve underwriters. 
Commenters also recommended clarifying that an issuer may use the 
general rule to determine issue price even if the issuer had sought to 
use the special rule based on the initial offering price to the public 
discussed in section 3 of this preamble. The Treasury Department and 
the IRS agree with these recommendations.
    The Final Regulations retain the rules in the Existing Regulations 
and the general rule of the 2015 Proposed Regulations that, for bonds 
issued for money, the issue price is the first price at which a 
substantial amount of the bonds is sold to the public, and a 
substantial amount is ten percent. In addition, in response to 
comments, the Final Regulations expressly provide that, for a bond 
issued for money in a private placement to a single buyer that is not 
an underwriter or a related party (as defined in Sec.  1.150-1(b)) to 
an underwriter, the issue price of the bond is the price paid by that 
buyer. Further, the Final Regulations clarify that for bonds for which 
more than one rule for determining issue price is available, for 
example, the general rule and one of the special rules discussed in 
sections 3 and 4 of this preamble, an issuer may select the rule it 
will use to determine the issue price for the bonds at any time on or 
before the issue date of the bonds. On or before the issue date of the 
bonds, the issuer must identify the rule selected in its books and 
records maintained for the bonds.

[[Page 89001]]

    A commenter suggested that a specific time on the sale date should 
be established as the proper time for determining issue price. The 
Treasury Department and the IRS understand that it has been a 
longstanding practice to determine issue price on the sale date without 
regard to a specific time and that it is unlikely for bonds to be sold 
to the public at different prices on that date. Thus, the imposition of 
a specific time deadline for such determination seems unnecessary and 
would add to the administrative burden. The Final Regulations do not 
adopt this comment.

3. Special Rule for Use of the Initial Offering Price to the Public

    The 2015 Proposed Regulations proposed a special rule that would 
allow an issuer to treat the initial offering price to the public as 
the issue price as of the sale date, provided certain requirements were 
met. That proposed special rule (referred to as the ``alternative 
method'' in the 2015 Proposed Regulations) proposed to require that the 
lead underwriter (or sole underwriter, if applicable) certify certain 
matters, including that no underwriter would sell bonds after the sale 
date and before the issue date at a price higher than the initial 
offering price except if the higher price was the result of a market 
change for the bonds after the sale date (for example, due to a change 
in market interest rates), and that the lead underwriter provide the 
issuer with supporting documentation for the matters covered by the 
certifications, including a justification for any higher price based on 
a market change. (This proposed requirement for underwriters generally 
to hold the price at no higher than the initial offering price to the 
public until the issue date is sometimes referred to herein as the 
``hold-the-offering-price'' requirement.)
    Commenters favored a special rule to allow use of the initial 
offering price to the public to set the issue price as of the sale 
date. Numerous commenters, however, expressed concerns about various 
aspects of the eligibility requirements for this proposed special rule. 
One concern expressed by underwriters was that the requirement for the 
lead underwriter to provide certification as to the actions of the 
entire underwriting syndicate or selling group was overly broad. 
Instead, underwriters recommended allowing members of an underwriting 
syndicate or a selling group to agree individually to act in accordance 
with the specific matters required under the special rule. The Final 
Regulations adopt the comment that each underwriter is individually or 
severally responsible for its agreement (rather than jointly 
responsible with other underwriters).
    Several commenters suggested that the hold-the-offering-price 
requirement would result in lower offering prices and should not be 
included in the special rule. One concern expressed related to the 
differing time periods between the sale date and the issue date for 
various issuers. One commenter recommended limiting the time period for 
holding the price to six business days after the sale date. Further, 
notwithstanding the potential flexibility in pricing afforded by the 
proposed market change exception to the hold-the-offering-price 
requirement, commenters overwhelmingly objected to this exception as 
unworkable because of the absence of meaningful benchmarks for 
municipal bond prices. Commenters also expressed concern that use of 
this exception could lead to audit disputes over appropriate 
documentation to support such price changes.
    Accordingly, the Final Regulations adopt a modified hold-the-
offering-price requirement that requires underwriters to hold the price 
for offering and selling unsold bonds at a price that is no greater 
than the initial offering price to the public for a shorter time period 
that ends on the earlier of (1) the close of the date that is the fifth 
(5th) business day after the sale date or (2) the date on which the 
underwriters have sold a substantial amount of the bonds to the public. 
Further, in response to the overwhelming negative comments about the 
proposed market change exception to the proposed hold-the-offering-
price requirement, the Final Regulations omit the market change 
exception.
    The modified hold-the-offering-price requirement in the Final 
Regulations provides a standardized time period for application of the 
requirement to bonds regardless of the differing time periods among 
issuers between sales and closings of municipal bond issues. Further, 
the shorter time period for this requirement should reduce potential 
associated risks to underwriters and thereby limit the effects of this 
requirement on initial pricing to issuers and, at the same time, ensure 
that market pricing behavior is consistent with the initial offering 
price used for issue price determinations.
    Two commenters suggested confirming that, for purposes of the hold-
the-offering-price requirement, an underwriter may sell bonds to anyone 
at a price that is lower (rather than higher) than the initial offering 
price to the public under this special rule. This special rule 
expressly provides for this result under the Final Regulations. One 
commenter sought clarification that underwriters may sell bonds to 
other underwriters at prices that are higher than the initial offering 
price to the public under this special rule. Sales to underwriters at 
such higher prices are inconsistent with a purpose of this special rule 
to use the initial offering price to the public as a proxy for the 
issuer's agreement with the underwriters about the maximum amount of 
underwriters' compensation that is reflected in setting the issue 
price. Thus, the Final Regulations clarify that underwriters may not 
sell the bonds at a price that is higher than the initial offering 
price to the public.
    Several commenters recommended a different special rule that would 
base determinations of issue price on sales of an aggregate percentage 
of all of the bonds included within an issue, as distinguished from the 
bond-by-bond method required to determine issue price for bonds with 
different interest rates, maturities, credits, or payment terms under 
the Existing Regulations and the 2015 Proposed Regulations. Commenters 
recommended different percentages of sales of aggregate principal 
amounts of bonds within an issue to determine issue price, including 25 
percent, 50 percent, and 65 percent.
    Although a rule that would focus on actual sales of greater 
percentages of the aggregate principal amounts of bonds included within 
an issue to determine issue price has potential utility, the Treasury 
Department and the IRS have concerns about the comparability of the 
terms of unsold bonds with the terms of sold bonds, which would serve 
as a proxy for setting the issue price of the unsold bonds, and about 
the attendant potential complexity to ensure appropriate comparability. 
Further, the Treasury Department and the IRS have concerns about 
selection of an appropriate percentage of aggregate sales for such a 
rule and whether issuers would be able to sell the required percentage 
of the aggregate principal amount of bonds within the issue. The public 
comments did not reflect any consensus on an appropriate percentage of 
aggregate sales for such a rule. In addition, several of the comments 
in favor of such a rule focused particularly on the need for a more 
workable rule for competitive sales. In response to this concern, the 
Final Regulations provide a simplified special rule for competitive 
sales, as described in section 4 of this preamble. Accordingly, the 
Final Regulations do not adopt a rule that would focus on actual sales 
of greater percentages of the aggregate principal amounts of bonds 
included within an issue.

[[Page 89002]]

    In summary, the Final Regulations provide a special rule under 
which an issuer may treat the initial offering price to the public as 
the issue price of the bonds as of the sale date if: (1) The 
underwriters offered the bonds to the public at a specified initial 
offering price on or before the sale date, and the lead underwriter in 
the underwriting syndicate or selling group (or, if applicable, the 
sole underwriter) provides, on or before the issue date, a 
certification to that effect to the issuer, together with reasonable 
supporting documentation for that certification, such as a copy of the 
pricing wire or equivalent communication; and (2) each underwriter 
agrees in writing that it will neither offer nor sell the bonds to any 
person at a price that is higher than the initial offering price during 
the period starting on the sale date and ending on the earlier of the 
close of the fifth (5th) business day after the sale date, or the date 
on which the underwriters have sold a substantial amount of the bonds 
to the public at a price that is no higher than the initial offering 
price to the public.

4. Special Rule for Competitive Sales

    Numerous commenters, including four States, strongly urged a 
streamlined special rule for competitive sales to allow the reasonably 
expected initial offering price to the public reflected in the winning 
bid in a competitive sale to establish the issue price without a hold-
the-offering-price requirement or other restrictions. Commenters 
suggested that the public bidding process for pricing municipal bonds 
in competitive sales itself provides a sufficient basis to achieve the 
best pricing for issuers. The Treasury Department and the IRS recognize 
that competitive sales favor competition and price transparency that 
may result in better pricing for issuers. The Final Regulations adopt 
these comments and provide that, for bonds issued for money pursuant to 
an eligible competitive sale, an issuer may treat the reasonably 
expected initial offering price to the public of the bonds as the issue 
price of the bonds as of the sale date if the issuer obtains a 
certification from the winning bidder regarding the reasonably expected 
initial offering price to the public of the bonds upon which the price 
in the winning bid is based.
    For purposes of this special rule, the Final Regulations define 
competitive sale to mean a sale of bonds by an issuer to an underwriter 
that is the winning bidder in a bidding process in which the issuer 
offers the bonds for sale to underwriters at specified written terms 
and that meets the following requirements: (1) The issuer disseminates 
the notice of sale to potential underwriters in a manner reasonably 
designed to reach potential underwriters; (2) all bidders have an equal 
opportunity to bid; (3) the issuer receives bids from at least three 
underwriters of municipal bonds who have established industry 
reputations for underwriting new issuances of municipal bonds; and (4) 
the issuer awards the sale to the bidder who offers the highest price 
(or lowest interest cost).

5. Definitions

    The 2015 Proposed Regulations proposed to define the term 
``public'' for purposes of determining the issue price of tax-exempt 
bonds to mean any person other than an underwriter or a related party 
to an underwriter. Several commenters recommended expanding the 
definition of public to include related parties to underwriters. This 
recommended change would allow various affiliates of underwriters, such 
as entities involved in proprietary trading, to qualify as members of 
the public for purposes of determining issue price. The Final 
Regulations do not adopt this comment. The Final Regulations retain 
this related party restriction on the definition of the public as a 
safeguard to protect against potential abuse.
    The 2015 Proposed Regulations proposed to define ``underwriter'' to 
include: (1) Any person that contractually agrees to participate in the 
initial sale of the bonds to the public by entering into a contract 
with the issuer or into a contract with a lead underwriter to form an 
underwriting syndicate and (2) any person that, on or before the sale 
date, directly or indirectly enters into a contract or other 
arrangement with any of the foregoing to sell the bonds. Numerous 
commenters expressed significant concern that the phrase ``other 
arrangement'' in the definition of underwriter was vague and 
unworkable. One commenter asked if distribution arrangements (for 
example, a retail distribution contract between a member of an 
underwriting syndicate or selling group and another dealer that is not 
in the syndicate or selling group) were included. Another commenter 
suggested changes to clarify that a contract to sell the bonds be 
limited to a contract with respect to the initial sale of the bonds to 
the public. In response to these comments, the Final Regulations omit 
the phrase ``or other arrangement'' from the definition of underwriter. 
The Final Regulations also clarify that covered agreements must relate 
to the initial sale of the bonds to the public and that these 
agreements include retail distribution agreements.

6. Standard for Reliance on Certifications and Consequences of 
Violations

    The 2015 Proposed Regulations proposed a standard that would limit 
an issuer's ability to rely on certifications from underwriters to 
circumstances in which an issuer did not know or have reason to know, 
after exercising due diligence, that the certifications were false. 
Several commenters expressed concerns about this proposed standard for 
reliance on certifications. One commenter expressed particular concern 
that the proposed standard appeared to be higher than or different from 
the general due diligence standard for determining reasonable 
expectations that bonds are not arbitrage bonds under Sec.  1.148-2(b) 
of the Existing Regulations. The existing definition of reasonable 
expectations, found in Sec.  1.148-1(b) of the Existing Regulations, 
treats an issuer's expectations or actions as reasonable only if a 
prudent person in the same circumstances as the issuer would have those 
same expectations or take those same actions, based on all the 
objective facts and circumstances. One commenter also sought 
confirmation that issuers could rely on certifications from 
underwriters without independent verification.
    In response to the comments, the Final Regulations omit the 
proposed special standard for reliance on underwriters' certifications. 
Instead, the existing due diligence standard under the Existing 
Regulations for reasonable expectations or reasonableness will apply to 
any certification under the Final Regulations. For example, this 
existing due diligence standard will apply under the special rule on 
competitive sales to an issuer's reliance on a certification from the 
winning bidder regarding the reasonably expected initial offering price 
to the public of the bonds upon which the price in the winning bid is 
based.
    Several commenters urged providing conclusive legal certainty for 
issue price determinations as of the sale date based on receipt of 
required underwriter certifications without regard to whether such 
certifications subsequently proved to be false. Although the Final 
Regulations generally will allow issuers to establish the issue price 
as of the sale date, the Final Regulations do not adopt this comment. 
Accordingly, a failure to meet a specific eligibility requirement of a 
rule for determining issue price, such as an underwriter's breach of 
its hold-the-offering-price agreement under the special rule for use of 
initial offering

[[Page 89003]]

price, will result in a failure to establish issue price under that 
rule and a redetermination of issue price under a different rule. The 
potential invalidation of an issue price determination is important to 
ensure compliance with the arbitrage restrictions and the legal 
availability of penalties against underwriters for false statements. A 
false statement by an underwriter in a certification or in the 
agreement among underwriters under one of these special rules may 
result in a penalty against the underwriter under section 6700, 
depending on the facts and circumstances.
    In accordance with section 6001, the issuer must maintain 
reasonable documentation in its books and records to support its issue 
price determinations. In addition, the Final Regulations require that 
the issuer obtain from the underwriter certain certifications and other 
reasonable supporting documentation such as a pricing wire to establish 
its issue price determination under a specific rule in the Final 
Regulations. A certification from the underwriter of the first price at 
which ten percent of the bonds were sold to the public is an example of 
reasonable supporting documentation to establish the issue price of the 
bonds under the general rule in the Final Regulations.

7. Other Comments

    A commenter requested a special rule under section 148 to determine 
issue price in a debt-for-debt exchange, including an exchange 
resulting from a significant modification under Sec.  1.1001-3. Under 
the special rule, an issuer would have the option to use a tax-exempt 
bond's stated principal amount as the issue price rather than the issue 
price that otherwise would apply under section 1273 or 1274. The 
commenter requested the rule because, in the commenter's experience, 
the stated interest rate on a tax-exempt bond issued in a debt-for-debt 
exchange was generally less than the adjusted applicable Federal rate 
(AAFR) used under section 1288 to determine whether the bond has 
adequate stated interest for purposes of section 1274. In this 
situation, the issue price of the bond would be less than the bond's 
stated principal amount, resulting in an arbitrage yield that is higher 
than it otherwise would be if the bond were treated as issued for an 
amount equal to the bond's stated principal amount. The Final 
Regulations do not include such a rule because, since the date of the 
commenter's request, the method to determine the AAFR has been modified 
in TD 9763, 81 FR 24482 (April 26, 2016). As a result of this 
modification, it is more likely that the issue price of a tax-exempt 
bond issued in a debt-for-debt exchange will be the bond's stated 
principal amount under section 1273 or 1274 (for example, because the 
AAFR will not be greater than the corresponding applicable Federal rate 
for taxable bonds, as it was in certain years before the modification).
    In addition, some commenters recommended allowing the use of issue 
price as defined for arbitrage purposes in applying various limitations 
for other tax-exempt bond purposes, such as those based on principal 
amounts, face amounts, and sale proceeds. The Final Regulations do not 
adopt this recommendation because it raises issues that are beyond the 
scope of the 2015 Proposed Regulations, and the recommended extension 
of the application of the definition of issue price beyond arbitrage 
purposes appropriately warrants a separate opportunity for public 
comment. The Treasury Department and the IRS, however, expect to 
consider this recommendation in connection with future guidance.

Applicability Date

    The Final Regulations apply to bonds that are sold on or after June 
7, 2017.

Special Analyses

    Certain IRS regulations, including these Final Regulations, are 
exempt from the requirements of Executive Order 12866, as supplemented 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required.
    It is hereby certified that these Final Regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based generally on the fact that any effect on 
small entities by these rules generally flows from section 148 of the 
Code. Section 148(h) of the Code requires the yield on an issue of 
bonds to be determined on the basis of issue price (within the meaning 
of sections 1273 and 1274). Under section 1273(b), the issue price is 
the first price at which a substantial amount of the bonds is sold to 
the public. Section 1.148-1(f)(2) of the Final Regulations gives effect 
to the statute by requiring the issuer to (1) obtain certain 
documentation from the underwriter, which is the party that sells the 
bonds to the public, to support the issuer's determination of issue 
price and (2) indicate in its books and records the rule used by the 
issuer to determine issue price. This information will be used to 
support the issue price of the bonds for audit and other purposes. Any 
economic impact of obtaining this information is minimal because most 
of the information already is provided to issuers by the underwriters 
under existing industry practices. Accordingly, these changes do not 
add to the impact on small entities imposed by the statutory provision. 
Therefore, a Regulatory Flexibility Analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required.
    Pursuant to section 7805(f) of the Code, the 2015 Proposed 
Regulations preceding these Final Regulations were submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business, and no comments were received.

Drafting Information

    The principal authors of these regulations are Johanna Som de Cerff 
and Lewis Bell, Office of Associate Chief Counsel (Financial 
Institutions and Products), IRS. However, other personnel from the 
Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.148-0(c) is amended by adding entries for Sec. Sec.  
1.148-1(f) and 1.148-11(m) to read as follows:


Sec.  1.148-0  Scope and table of contents.

* * * * *
    (c) * * *


Sec.  1.148-1  Definitions and elections.

* * * * *
    (f) Definition of issue price.
    (1) In general.
    (2) Bonds issued for money.
    (3) Definitions.
    (4) Other special rules.
* * * * *


Sec.  1.148-11  Effective/applicability dates.

* * * * *
    (m) Definition of issue price.

0
Par. 3. Section 1.148-1 is amended by revising the definition of 
``Issue price'' in paragraph (b) and adding paragraph (f) to read as 
follows:

[[Page 89004]]

Sec.  1.148-1  Definitions and elections.

* * * * *
    (b) * * *
    Issue price means issue price as defined in paragraph (f) of this 
section.
* * * * *
    (f) Definition of issue price--(1) In general. Except as otherwise 
provided in this paragraph (f), ``issue price'' is defined in sections 
1273 and 1274 and the regulations under those sections.
    (2) Bonds issued for money--(i) General rule. Except as otherwise 
provided in this paragraph (f)(2), the issue price of bonds issued for 
money is the first price at which a substantial amount of the bonds is 
sold to the public. If a bond is issued for money in a private 
placement to a single buyer that is not an underwriter or a related 
party (as defined in Sec.  1.150-1(b)) to an underwriter, the issue 
price of the bond is the price paid by that buyer. Issue price is not 
reduced by any issuance costs (as defined in Sec.  1.150-1(b)).
    (ii) Special rule for use of initial offering price to the public. 
The issuer may treat the initial offering price to the public as of the 
sale date as the issue price of the bonds if the requirements of 
paragraphs (f)(2)(ii)(A) and (B) of this section are met.
    (A) The underwriters offered the bonds to the public for purchase 
at a specified initial offering price on or before the sale date, and 
the lead underwriter in the underwriting syndicate or selling group 
(or, if applicable, the sole underwriter) provides, on or before the 
issue date, a certification to that effect to the issuer, together with 
reasonable supporting documentation for that certification, such as a 
copy of the pricing wire or equivalent communication.
    (B) Each underwriter agrees in writing that it will neither offer 
nor sell the bonds to any person at a price that is higher than the 
initial offering price to the public during the period starting on the 
sale date and ending on the earlier of the following:
    (1) The close of the fifth (5th) business day after the sale date; 
or
    (2) The date on which the underwriters have sold a substantial 
amount of the bonds to the public at a price that is no higher than the 
initial offering price to the public.
    (iii) Special rule for competitive sales. For bonds issued for 
money in a competitive sale, an issuer may treat the reasonably 
expected initial offering price to the public as of the sale date as 
the issue price of the bonds if the issuer obtains from the winning 
bidder a certification of the bonds' reasonably expected initial 
offering price to the public as of the sale date upon which the price 
in the winning bid is based.
    (iv) Choice of rule for determining issue price. If more than one 
rule for determining the issue price of the bonds is available under 
this paragraph (f)(2), at any time on or before the issue date, the 
issuer may select the rule it will use to determine the issue price of 
the bonds. On or before the issue date of the bonds, the issuer must 
identify the rule selected in its books and records maintained for the 
bonds.
    (3) Definitions. For purposes of this paragraph (f), the following 
definitions apply:
    (i) Competitive sale means a sale of bonds by an issuer to an 
underwriter that is the winning bidder in a bidding process in which 
the issuer offers the bonds for sale to underwriters at specified 
written terms, if that process meets the following requirements:
    (A) The issuer disseminates the notice of sale to potential 
underwriters in a manner that is reasonably designed to reach potential 
underwriters (for example, through electronic communication that is 
widely circulated to potential underwriters by a recognized publisher 
of municipal bond offering documents or by posting on an Internet-based 
Web site or other electronic medium that is regularly used for such 
purpose and is widely available to potential underwriters);
    (B) All bidders have an equal opportunity to bid (within the 
meaning of Sec.  1.148-5(d)(6)(iii)(A)(6));
    (C) The issuer receives bids from at least three underwriters of 
municipal bonds who have established industry reputations for 
underwriting new issuances of municipal bonds; and
    (D) The issuer awards the sale to the bidder who submits a firm 
offer to purchase the bonds at the highest price (or lowest interest 
cost).
    (ii) Public means any person (as defined in section 7701(a)(1)) 
other than an underwriter or a related party (as defined in Sec.  
1.150-1(b)) to an underwriter.
    (iii) Underwriter means:
    (A) Any person (as defined in section 7701(a)(1)) that agrees 
pursuant to a written contract with the issuer (or with the lead 
underwriter to form an underwriting syndicate) to participate in the 
initial sale of the bonds to the public; and
    (B) Any person that agrees pursuant to a written contract directly 
or indirectly with a person described in paragraph (f)(3)(iii)(A) of 
this section to participate in the initial sale of the bonds to the 
public (for example, a retail distribution agreement between a national 
lead underwriter and a regional firm under which the regional firm 
participates in the initial sale of the bonds to the public).
    (4) Other special rules. For purposes of this paragraph (f), the 
following special rules apply:
    (i) Separate determinations. The issue price of bonds in an issue 
that do not have the same credit and payment terms is determined 
separately. The issuer need not apply the same rule to determine issue 
price for all of the bonds in the issue.
    (ii) Substantial amount. Ten percent is a substantial amount.
    (iii) Bonds issued for property. If a bond is issued for property, 
the adjusted applicable Federal rate, as determined under section 1288 
and Sec.  1.1288-1, is used in lieu of the applicable Federal rate to 
determine the bond's issue price under section 1274.

0
Par. 4. Section 1.148-11 is amended by adding paragraph (m) to read as 
follows:


Sec.  1.148-11  Effective/applicability dates.

* * * * *
    (m) Definition of issue price. The definition of issue price in 
Sec.  1.148-1(b) and (f) applies to bonds that are sold on or after 
June 7, 2017.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: November 22, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury for Tax Policy.
[FR Doc. 2016-29486 Filed 12-8-16; 8:45 am]
 BILLING CODE 4830-01-P
Federal Register / Vol. 81, No. 237 / Friday, December 9, 2016 / Rules and Regulations 88999

and Budget. As required by the (f) The term reviewing official means SUPPLEMENTARY INFORMATION:
Regulatory Flexibility Act, TVA certifies TVA’s Senior Vice President, Chief
Paperwork Reduction Act
that these regulatory amendments will Human Resources Officer (or incumbent
not have a significant impact on small of a successor position), or another TVA The collection of information
business entities. Since this rule is official designated by the Senior Vice contained in these final regulations has
nonsubstantive, it is being made President in writing to decide an appeal been reviewed and approved by the
effective December 9, 2016. pursuant to § 1301.19; Office of Management and Budget in
* * * * * accordance with the Paperwork
List of Subjects in 18 CFR Part 1301 Reduction Act of 1995 (44 U.S.C.
■ 3. In § 1301.24, revise paragraph (a) to
Freedom of Information, Government 3507(d)) under control number 1545–
read as follows: 1347. The collection of information in
in the Sunshine, Privacy.
For the reasons stated in the § 1301.24 Specific exemptions. these final regulations is in § 1.148–
preamble, TVA amends 18 CFR part (a) The TVA system Nuclear Access 1(f)(2)(ii), which requires the
1301 as follows: Authorization and Fitness for Duty underwriter to provide to the issuer a
Records is exempt from subsections (d); certification and reasonable supporting
PART 1301—PROCEDURES (e)(4)(H); and (f)(2), (3), and (4) of 5 documentation for use of the initial
U.S.C. 522a (section 3 of the Privacy Act offering price to the public, § 1.148–
■ 1. The authority citation for part 1301 1(f)(2)(iii), which requires the issuer to
continues to read as follows: of 1974) to the extent that disclosure of
material would reveal the identity of a obtain a certification from the
Authority: 16 U.S.C. 831–831dd, 5 U.S.C. underwriter for competitive sales, and
source who furnished information to the
552. § 1.148–1(f)(2)(iv), which requires the
Government under an express promise
issuer to identify in its books and
Subpart B—Privacy Act that the identity of the source would be
records the rule used to determine the
held in confidence, and to the extent
issue price of the bonds. The
■ 2. In § 1301.12, revise paragraphs (d) that disclosure of testing or examination
respondents are issuers of tax-exempt
and (f) to read as follows: material would compromise the
bonds that want to apply the special
objectivity or fairness of the testing or
§ 1301.12 Definitions. rules in § 1.148–1(f)(2) to determine the
examination process. This exemption is
* * * * * issue price of the bonds.
pursuant to 5 U.S.C. 552a (k)(5) and (6).
(d) The term TVA system notice An agency may not conduct or
* * * * * sponsor, and a person is not required to
means a notice of a TVA system
published in the Federal Register Philip D. Propes, respond to, a collection of information
pursuant to the Act. TVA has published Director, Enterprise Information Security and unless it displays a valid control
TVA system notices about the following Policy. number assigned by the Office of
TVA systems: [FR Doc. 2016–29457 Filed 12–8–16; 8:45 am] Management and Budget.
Books or records relating to a
Apprentice Training Records—TVA. BILLING CODE 8120–08–P
collection of information must be
Personnel Files—TVA. retained as long as their contents may
Discrimination Complaint Files—TVA. become material in the administration
Work Injury Illness System—TVA. DEPARTMENT OF THE TREASURY of any internal revenue law. Generally
Employee Accounts Receivable—TVA.
Health Records—TVA. Internal Revenue Service tax returns and tax return information
Payroll Records—TVA. are confidential, as required by section
Travel History Records—TVA. 26 CFR Part 1 6103.
Employment Applicant Files—TVA. Background
Grievance Records—TVA. [TD 9801]
Employee Supplementary Vacancy This document contains amendments
RIN 1545–BM46
Announcement Records—TVA. to the Income Tax Regulations (26 CFR
Consultant and Contractor Records— Issue Price Definition for Tax-Exempt part 1) on the arbitrage investment
TVA. Bonds restrictions under section 148 of the
Nuclear Quality Assurance Personnel Internal Revenue Code (Code). On June
Records—TVA. AGENCY: Internal Revenue Service (IRS), 18, 1993, the Department of the
Questionnaire—Land Use Surveys in Treasury. Treasury (Treasury Department) and the
Vicinity of Proposed or Licensed ACTION: Final regulations. IRS published comprehensive final
Nuclear Power Plant—TVA. regulations in the Federal Register (TD
SUMMARY: This document contains final 8476, 58 FR 33510) on the arbitrage
Radiation Dosimetry Personnel
regulations on the definition of issue investment restrictions and related
Monitoring Records—TVA.
price for purposes of the arbitrage provisions for tax-exempt bonds under
Retirement System Records—TVA.
Energy Program Participant Records— investment restrictions that apply to tax- sections 103, 148, 149, and 150. Since
TVA. exempt bonds and other tax-advantaged that time, those final regulations have
OIG Investigative Records—TVA. bonds. These final regulations affect been amended in various limited
Call Detail Records—TVA. State and local governments that issue respects, including most recently in
Project/Tract Files—TVA. tax-exempt bonds and other tax- final regulations published in the
Section 26a Permit Application advantaged bonds. Federal Register (TD 9777, 81 FR
mstockstill on DSK3G9T082PROD with RULES

Records—TVA. DATES: Effective date: These regulations 46582) on July 18, 2016 (the regulations
U.S. TVA Police Records—TVA. are effective on December 9, 2016. issued in 1993 and the various
Wholesale, Retail, and Emergency Data Applicability date: For the date of amendments thereto are collectively
Files—TVA. applicability, see § 1.148–11(m). referred to as the Existing Regulations).
Nuclear Access Authorization and FOR FURTHER INFORMATION CONTACT: A notice of proposed rulemaking was
Fitness for Duty Records—TVA. Lewis Bell at (202) 317–6980 (not a toll- published in the Federal Register (78
* * * * * free number). FR 56842; REG–148659–07) on

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89000 Federal Register / Vol. 81, No. 237 / Friday, December 9, 2016 / Rules and Regulations

September 16, 2013 (the 2013 Proposed incentive to receive the highest price for within an issue by the sale date, unless
Regulations), which, among other bonds and to pay the lowest yield. This a special rule is available.
things, proposed to amend the aligns with the purpose of the arbitrage
2. General Rule: Actual Sale of a
definition of ‘‘issue price.’’ restrictions, which is to minimize
Substantial Amount of Bonds
Subsequently, the Treasury Department arbitrage investment benefits and
and the IRS withdrew § 1.148–1(f) of the remove incentives to issue more tax- Consistent with section 148(h), the
2013 Proposed Regulations regarding exempt bonds, and thus to limit the 2015 Proposed Regulations proposed to
the definition of issue price and federal revenue cost of the tax subsidy retain the rule that issue price generally
published another notice of proposed for tax-exempt bonds. will be determined under the rules of
rulemaking in the Federal Register (80 The issue price definition under the sections 1273 and 1274. The 2015
FR 36301; REG–138526–14) on June 24, Existing Regulations generally follows Proposed Regulations also proposed a
2015, which re-proposed a definition of the issue price definition used for general rule similar to that in the
issue price (the 2015 Proposed computing original issue discount on regulations under section 1273 that the
Regulations). Comments were received debt instruments under sections 1273 issue price of bonds issued for money is
and a public hearing was held on and 1274, with certain modifications. the first price at which a substantial
October 28, 2015. After consideration of The definition of issue price under the amount of the bonds is sold to the
all of the public comments, the Treasury Existing Regulations provides generally public. The 2015 Proposed Regulations
Department and the IRS adopt the 2015 that the issue price of bonds that are proposed to retain the rule in the
Proposed Regulations, with revisions, publicly offered is the first price at Existing Regulations that ten percent is
by this Treasury decision (the Final which a substantial amount of the bonds the measure of a substantial amount.
Regulations). is sold to the public. The Existing The 2015 Proposed Regulations also
Regulations define a substantial amount proposed to retain the rule that the issue
Summary of Comments and to mean ten percent. Further, the
Explanation of Provisions prices of bonds with different payment
Existing Regulations include a special and credit terms are determined
This section discusses the comments rule that applies a reasonable separately.
received from the public regarding the expectations standard (rather than a Commenters recommended adding an
2015 Proposed Regulations. The standard based on actual sales) to express rule to address the treatment of
comments are available for public determine, as of the sale date,1 the issue private placements (for example, bank
inspection at www.regulations.gov. This price for bonds for which a bona fide
section also explains revisions made in loans), which in the municipal bond
public offering is made, based on industry typically do not involve
the Final Regulations. reasonable expectations regarding the underwriters. Commenters also
1. Introduction initial offering price. The issue prices of recommended clarifying that an issuer
bonds with different payment and credit may use the general rule to determine
Under section 103, interest received terms are determined separately. Tax-
by investors on eligible State and local issue price even if the issuer had sought
exempt bond issues often include bonds to use the special rule based on the
bonds is exempt from Federal income with different payment and credit terms
tax. As a result, tax-exempt bonds tend initial offering price to the public
that generally sell at different prices. discussed in section 3 of this preamble.
to have lower interest rates than taxable The special rule in the Existing
obligations. Section 148 generally limits The Treasury Department and the IRS
Regulations that provides for the agree with these recommendations.
investment of proceeds of tax-exempt determination of issue price as of the
bonds to investment yields that are not The Final Regulations retain the rules
sale date based on reasonable
materially higher than the yield on the in the Existing Regulations and the
expectations about the initial public
bond issue. Section 148 also generally general rule of the 2015 Proposed
offering price aims, in part, to provide
requires that excess investment earnings Regulations that, for bonds issued for
certainty that the bonds will qualify as
be paid to the Federal Government at money, the issue price is the first price
tax-exempt bonds and meet State or
periodic intervals. For purposes of these at which a substantial amount of the
local requirements for debt issuance.
arbitrage investment restrictions, section bonds is sold to the public, and a
Generally, the sale date is the date when
148(h) provides that yield on an issue is substantial amount is ten percent. In
the syndicate or sole underwriter in
to be determined on the basis of the addition, in response to comments, the
contractual privity with the issuer signs
issue price (within the meaning of Final Regulations expressly provide
the agreement to buy the bonds from the
sections 1273 and 1274). The reason for that, for a bond issued for money in a
issuer and when the terms of the bond
using issue price (rather than sales private placement to a single buyer that
issue are set. In the municipal bond
proceeds less the costs of issuance) to is not an underwriter or a related party
market, due largely to the serial
determine yield for purposes of section (as defined in § 1.150–1(b)) to an
maturity structure and, in many cases,
148(h) is to ensure that issuers bear the underwriter, the issue price of the bond
an inability to sell a substantial amount
costs of issuance, rather than recover is the price paid by that buyer. Further,
of each of the different maturities of the
these costs through arbitrage profits. See the Final Regulations clarify that for
bonds with different terms (for which
H. Rep. No. 99–426, at 517 (1985). The bonds for which more than one rule for
issue price must be determined
report of the Committee on Ways and determining issue price is available, for
separately) by the sale date, issuers may
Means states that the Committee example, the general rule and one of the
have difficulties in establishing the
believed that this requirement would special rules discussed in sections 3 and
issue price of all of the bonds included
encourage issuers to scrutinize costs of 4 of this preamble, an issuer may select
mstockstill on DSK3G9T082PROD with RULES

issuance more closely and would 1 Under § 1.150–1(c)(6), the sale date of a bond is the rule it will use to determine the
encourage better targeting of the federal the first day on which there is a binding contract issue price for the bonds at any time on
subsidy associated with tax-exempt in writing for the sale or exchange of the bond. By or before the issue date of the bonds. On
bonds. Id., at 517–518. In general, the comparison, under § 1.150–1(b), the issue date for or before the issue date of the bonds, the
a bond is the date on which the issuer receives the
lower the issue price for bonds bearing purchase price in exchange for that bond,
issuer must identify the rule selected in
a stated interest rate, the higher the commonly referred to as the closing date or its books and records maintained for the
yield. An issuer has an economic settlement date. bonds.

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Federal Register / Vol. 81, No. 237 / Friday, December 9, 2016 / Rules and Regulations 89003

price, will result in a failure to establish 2016). As a result of this modification, bonds for audit and other purposes. Any
issue price under that rule and a it is more likely that the issue price of economic impact of obtaining this
redetermination of issue price under a a tax-exempt bond issued in a debt-for- information is minimal because most of
different rule. The potential invalidation debt exchange will be the bond’s stated the information already is provided to
of an issue price determination is principal amount under section 1273 or issuers by the underwriters under
important to ensure compliance with 1274 (for example, because the AAFR existing industry practices. Accordingly,
the arbitrage restrictions and the legal will not be greater than the these changes do not add to the impact
availability of penalties against corresponding applicable Federal rate on small entities imposed by the
underwriters for false statements. A for taxable bonds, as it was in certain statutory provision. Therefore, a
false statement by an underwriter in a years before the modification). Regulatory Flexibility Analysis under
certification or in the agreement among In addition, some commenters the Regulatory Flexibility Act (5 U.S.C.
underwriters under one of these special recommended allowing the use of issue chapter 6) is not required.
rules may result in a penalty against the price as defined for arbitrage purposes Pursuant to section 7805(f) of the
underwriter under section 6700, in applying various limitations for other Code, the 2015 Proposed Regulations
depending on the facts and tax-exempt bond purposes, such as preceding these Final Regulations were
circumstances. those based on principal amounts, face submitted to the Chief Counsel for
In accordance with section 6001, the amounts, and sale proceeds. The Final Advocacy of the Small Business
issuer must maintain reasonable Regulations do not adopt this Administration for comment on its
documentation in its books and records recommendation because it raises issues impact on small business, and no
to support its issue price that are beyond the scope of the 2015 comments were received.
determinations. In addition, the Final Proposed Regulations, and the
Drafting Information
Regulations require that the issuer recommended extension of the
obtain from the underwriter certain application of the definition of issue The principal authors of these
certifications and other reasonable price beyond arbitrage purposes regulations are Johanna Som de Cerff
supporting documentation such as a appropriately warrants a separate and Lewis Bell, Office of Associate
pricing wire to establish its issue price opportunity for public comment. The Chief Counsel (Financial Institutions
determination under a specific rule in Treasury Department and the IRS, and Products), IRS. However, other
the Final Regulations. A certification however, expect to consider this personnel from the Treasury
from the underwriter of the first price at recommendation in connection with Department and the IRS participated in
which ten percent of the bonds were future guidance. their development.
sold to the public is an example of List of Subjects in 26 CFR Part 1
Applicability Date
reasonable supporting documentation to
establish the issue price of the bonds The Final Regulations apply to bonds Income taxes, Reporting and
under the general rule in the Final that are sold on or after June 7, 2017. recordkeeping requirements.
Regulations. Special Analyses Adoption of Amendments to the
7. Other Comments Regulations
Certain IRS regulations, including
A commenter requested a special rule these Final Regulations, are exempt Accordingly, 26 CFR part 1 is
under section 148 to determine issue from the requirements of Executive amended as follows:
price in a debt-for-debt exchange, Order 12866, as supplemented by
Executive Order 13563. Therefore, a PART 1—INCOME TAXES
including an exchange resulting from a
significant modification under § 1.1001– regulatory impact assessment is not ■ Paragraph 1. The authority citation
3. Under the special rule, an issuer required. for part 1 continues to read in part as
would have the option to use a tax- It is hereby certified that these Final follows:
exempt bond’s stated principal amount Regulations will not have a significant
economic impact on a substantial Authority: 26 U.S.C. 7805 * * *
as the issue price rather than the issue
price that otherwise would apply under number of small entities. This ■ Par. 2. Section 1.148–0(c) is amended
section 1273 or 1274. The commenter certification is based generally on the by adding entries for §§ 1.148–1(f) and
requested the rule because, in the fact that any effect on small entities by 1.148–11(m) to read as follows:
commenter’s experience, the stated these rules generally flows from section
§ 1.148–0 Scope and table of contents.
interest rate on a tax-exempt bond 148 of the Code. Section 148(h) of the
issued in a debt-for-debt exchange was Code requires the yield on an issue of * * * * *
generally less than the adjusted bonds to be determined on the basis of (c) * * *
applicable Federal rate (AAFR) used issue price (within the meaning of § 1.148–1 Definitions and elections.
under section 1288 to determine sections 1273 and 1274). Under section * * * * *
whether the bond has adequate stated 1273(b), the issue price is the first price (f) Definition of issue price.
interest for purposes of section 1274. In at which a substantial amount of the (1) In general.
this situation, the issue price of the bonds is sold to the public. Section (2) Bonds issued for money.
bond would be less than the bond’s 1.148–1(f)(2) of the Final Regulations (3) Definitions.
stated principal amount, resulting in an gives effect to the statute by requiring (4) Other special rules.
arbitrage yield that is higher than it the issuer to (1) obtain certain * * * * *
otherwise would be if the bond were documentation from the underwriter,
mstockstill on DSK3G9T082PROD with RULES

treated as issued for an amount equal to which is the party that sells the bonds § 1.148–11 Effective/applicability dates.
the bond’s stated principal amount. The to the public, to support the issuer’s * * * * *
Final Regulations do not include such a determination of issue price and (2) (m) Definition of issue price.
rule because, since the date of the indicate in its books and records the ■ Par. 3. Section 1.148–1 is amended by
commenter’s request, the method to rule used by the issuer to determine revising the definition of ‘‘Issue price’’
determine the AAFR has been modified issue price. This information will be in paragraph (b) and adding paragraph
in TD 9763, 81 FR 24482 (April 26, used to support the issue price of the (f) to read as follows:

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Document Created: 2018-02-14 09:03:38
Document Modified: 2018-02-14 09:03:38
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Final regulations.
Dates		Effective date: These regulations are effective on December 9, 2016.
Contact		Lewis Bell at (202) 317-6980 (not a toll-free number).
FR Citation		81 FR 88999
RIN Number		1545-BM46
CFR Associated		Income Taxes and Reporting and Recordkeeping Requirements
81 FR 88999 - Issue Price Definition for Tax-Exempt Bonds

DEPARTMENT OF THE TREASURYInternal Revenue Service

Federal Register Volume 81, Issue 237 (December 9, 2016)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
