The Treasury Department intends to update guidance on the tax-exempt bond voluntary closing agreement program, revise a revenue procedure on arbitrage rebate refunds, and propose regulations on public approval requirements for private-activity bonds next year, according to the 2007-2008 priority guidance plan released yesterday. The three items, as well as a proposal to tighten partnership rules for tender option bonds, made up the new tax-exempt bond portion of the guidance plan. Four rolled-over items not completed in previous years also made it onto the list: final regulations on solid-waste bonds, final allocation and accounting rules for private-activity bonds, temporary regulations on clean renewable energy bonds, and proposed rules for arbitrage investment restrictions.Sources said muni market participants will be very interested in any changes to the rules governing the growing area of tender option bond programs, where investors in a trust or partnership typically purchase long-dated bonds, then issue seven-day put-option bonds that are bought by tax-exempt money market funds. Such funds have a large need for short-term debt because state and local governments tend to issue fixed-rate bonds.“This will raise eyebrows. For a long time, people were doing these deals without any guidance from the Internal Revenue Service,” said a former Treasury official who did not want to be identified. “It is such an important part of the market for mutual funds that they came up with series of revenue procedures to tell people how to do it.”The most recent of those revenue procedures, 2003-84, may be modified to “impose certain additional conditions on the equity structure of eligible partnerships,” according to the 2007-2008 guidance plan.The revenue procedure was designed to allow partnerships and money market funds to match up their accounting methods, since partnerships’ income shares are typically distributed once a year and money market funds distribute income on a monthly basis, according to John J. Cross 3d, an attorney in the Treasury Office of Tax Policy’s tax legislative counsel office.“We’re thinking about something that would be essentially prospective and part of the conditions for these monthly closings,” Cross said yesterday. “The investor-buyers [for TOBs] are big institutional funds, and they have been seeking more guidance on the structure of these things. We’ve decided it would be in this market’s best interest to provide a little more administrative certainty.”On the exempt organizations side, the 2007-2008 priority guidance plan includes regulations that will implement recently proposed revisions to the Form 990, which is the information return filed annually by tax-exempt organizations. The EO division also plans to issue guidance on a recently created excise tax on prohibited tax shelter transactions — a category that includes about 15 tax-exempt sale-in, lease-out and lease-in, lease-out deals — as well as qualified tuition savings plans under Section 529 of the tax code.In a press release that accompanied the priority guidance plan, Treasury said it intends to update and republish the list periodically during the year to reflect additional guidance needs, including the enactment of any tax legislation.
