WASHINGTON -- The Internal Revenue Code should allow issuers of tax-exempt bonds to elect to declare when a reissuance occurs without following a facts and circumstances test, the National Association of Bond Lawyers said in a letter submitted Friday to the Treasury and the Internal Revenue Service.
That recommendation is among 10 that were submitted by NABL on the March 1 deadline for comments on the proposed regulation for reissuance of state and local bonds published in the Federal Register Dec. 31.
Because it can be unclear whether a reissuance has occurred, "issuers often will file protective Forms 8038-G or 8038, as applicable, and ensure appropriate payments of rebate in circumstances where it is not clear whether a reissuance has occurred under the facts and circumstances test," NABL said in its letter.
"New bond counsel opinions might be rendered as a precautionary matter. While in many instances compliance might be achieved regardless of whether a reissuance occurred, unnecessary complexity, confusion, and costs are often introduced," the letter said.
The problem has become "particularly acute now that Congress has prohibited tax-exempt
advance refundings," NABL said.
NABL also suggested allowing qualified tender bonds to be remarketed at a premium when the issuer converts them to a fixed rate to maturity and that the regulation address the phase out of Libor.
Another suggestion was that the regulation clarify the circumstance under which a bond is extinguished because the issuer or issuer’s agent purchased it and whether a subsequent resale is treated as a refunding.
Some of the suggestions were requests for retaining “helpful” rules the IRS has issued in the past that are not in the proposed regulation.
Two other comments also were filed, according to the docket on the website regulations.gov, but neither one was publicly available as of midday Monday. IRS officials were unable to immediately identify either source of the comments.
NABL emailed its comments to The Bond Buyer.
Carol Lew, a shareholder at Stradling Yocca Carlson & Rauth in Newport Beach, Calif. who chaired a six-member committee of bond attorneys who drafted the letter, complimented the Treasury and IRS for their effort.
“I think they did a great job in coming up with a proposed regulation in attempting to show what the special rules were for qualified tender bonds,” Lew said in a phone interview. “There are a few things that were not included in this proposed reg and so we are providing comments about why they should be including those things.”
Until the proposed regulation was issued, the municipal bond market had to rely on Treasury Regulation 1.1001-3 which is not specifically tailored to the tax exempt bond market or tax-exempt qualified tender bonds.
The proposed regulation consolidates a number of Treasury notices – such as 88130 and 2008-41 – which were issued during the 2007-2011 financial crisis, according to Vicky Tsilas, a partner at Ballard Spahr who worked on the regulation in her former position as head of branch 5 in the chief counsel’s office of the Internal Revenue Service.
Tsilas, who left the IRS in the spring of 2018, described the reissuance regulation as “a major regulation.”
“Before this regulation got published, there were no reissuance regulations for bonds,” Tsilas told The Bond Buyer in January. “So the only regulation you had for bonds, but it didn’t quite cover all types of bonds, was under Section 1001 whether something was a significant modification.’’
Tsilas said the IRS has had drafts of a reissuance regulation dating back to 1994.
