NABL has four requests for IRS regulatory guidance

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The National Association of Bond Lawyers is suggesting that the Internal Revenue Service focus on ongoing regulatory projects and minor tweaks of existing regulations for the 2020 fiscal year that begins Oct. 1.

In a Friday letter, NABL has only four suggestions for the IRS 2020 priority guidance plan on regulatory issues involving the tax-exempt bond industry, half as many as it did a year ago. The suggestions would largely provide clarity for the legal community on subjects like reissuance by consolidating and clarifying existing IRS guidance and making certain small changes.

“Our main goal was the focus on things that build on momentum for what Treasury was already working on and discreet requests for things we thought they could get done within a year,” said Johnny Hutchinson, a partner at Squire Patton Boggs in Houston and Chair of NABL’s Tax Law Committee. “That’s why we ended up shortening our list.”

In addition, Treasury and IRS took two big steps in acting on last year’s NABL requests on Dec. 31 when it published a proposed re-issuance regulation and a final regulation that updates and modernizes the public notice requirements for issuing private activity bonds.

The proposed regulation on re-issuance is the IRS's first covering that topic for the tax-exempt bond market by consolidating notices the service issued during the 2007-2011 financial crisis.

NABL has kept re-issuance on its list of suggestions for 2020 in the hope that the IRS can finalize the proposed regulations.

“We were trying to keep the ball rolling on that as opposed to five or six additional things that they would have to start from scratch,” Hutchinson said. “We wanted to focus this year on things they could conceivably get done within the fiscal year.”

The IRS “got off to a really good start” with the proposed reissuance regulations, Hutchinson said. “Most of the comments are in the nature of clarifying and preserving some of the pre-existing rules that were omitted rather than a fundamental rethinking of the approach.”

In March NABL offered 10 recommendations to the IRS on the proposed reissuance regulations.

Second on NABL’s list of suggestions is for the IRS to “revise and supplement Revenue Procedure 2018-26 to clarify, simplify, and expand the application of the remedial action rules.”

Hutchinson said Revenue Procedure 2018-26 “broadened the scope of problems that you could fix with the remedial action regulations.”

NABL is asking the IRS to look back at the comments it has submitted on the revenue procedure about the proposal, including some of its unintended consequences.

Third, NABL has requested some minor revisions and clarifications to regulations issued in 2015 that are in section 1.141-6 of Treasury Regulations covering projects that are financed with a mixture of tax-exempt bonds and other funds or taxable debt.

“This is something that could be fixed with a notice or a revenue procedure or some guidance that would be pretty easy to get out,” Hutchinson said.

The fourth and final request is for guidance that a current refunding of direct-pay bonds such as Build America Bonds does not cause the bond to lose its subsidy prior to redemption even if has been legally defeased.

“This would be just a bit of administrative grace from the IRS,” Hutchinson said, noting that it would be no more than 90 days.

“If the underlying bonds are legally defeased, they are treated as re-issued and because they are re-issued, they lose their subsidy immediately,” he said. “So for that escrow period you don’t get the benefit of the interest subsidy during that stretch.”

Hutchinson said the NABL request is “a matter of Treasury taking their hand off the throttle.”

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