Proposed regulations: Defining “issue price” of tax-exempt bonds, arbitrage restrictions

Defining “issue price” of tax-exempt bonds

The Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-138526-14) concerning the definition of “issue price” for purposes of arbitrage restrictions under section 148 with respect to tax-exempt and other tax-advantage bonds.


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With today’s proposed regulations [PDF 213 KB], proposed changes to the existing regulations (the changes were proposed in September 2013) relating to “issue price” are withdrawn, in response to comments and statements made at a public hearing.

Today’s release re-proposes regulations concerning the definition of “issue price.” The preamble to today’s release states that the IRS and Treasury will address the remaining provisions in the 2013 proposed regulations at a later time.


The definition of “issue price” for purposes of section 148 generally follows the definition used for computing original issue discount on debt instruments, under sections 1273 and 1274, with certain modifications.

The current regulations have an “issue price” rule that applies a reasonable expectations regarding the initial public offering price and defines substantial amount as 10%. The September 2013 proposed regulations would replace the reasonable expectations rule with an actual sales rule, and provide a safe-harbor to be the actual sales price at which a minimum of 25% of the bonds is first sold to the public.

In response to comments raising concerns about the September 2013 proposed changes to determining issue price, today’s release re-proposes the definition of “issue price.” The new proposed regulations contain the general rule 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. For these purposes, 10% is retained as a “substantial amount.” [The proposed regulations also retain the rule for tax-exempt bonds that the issue prices of bonds with different payment and credit terms are determined separately.]

Today’s proposed regulations, however, further provide an alternative method of determining issue price for bonds, a substantial amount of which is not sold pursuant to orders received from the public as of the sale date. Under the alternative method, an issuer may treat the initial offering price to the public as the issue price, provided certain requirements are met. The proposed regulations set forth rules for documenting what is the initial offering price.

Comments are specifically requested on other alternative approaches or safeguards for determining that prices obtained by underwriters in actual sales of bonds to the public between the sale date and the issue date are consistent with the use of initial offering prices to the public of the sale date, as a simplifying assumption for issue price determinations under the alternative method.

Comments and requests to speak at an October 2015 public hearing are due by a date that is 90 days after publication of these proposed rules in the Federal Register on June 24, 2015.

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