[Federal Register Volume 59, Number 90 (Wednesday, May 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11219]


[[Page Unknown]]

[Federal Register: May 11, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8476; TD 8425]
RIN 1545-AR05; 1545-AP09; 1545-AJ63

 

Arbitrage Restrictions on Tax-Exempt Bonds; Information Reporting 
for Tax-Exempt Bond Issues; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to the final regulations 
(TD 8476, and TD 8425), which were published in the Federal Register 
for Friday, June 18, 1993 (58 FR 33510) and Wednesday, August 12, 1992 
(57 FR 36001), respectively. The final regulations relate to the 
arbitrage and related restrictions applicable to tax-exempt bonds 
issued by State and local governments; and information reporting 
requirements for tax-exempt bonds.

EFFECTIVE DATES: Sections 1.148-3 and 1.148-10 are effective on July 1, 
1993. Section 1.149(e)-1 is effective on August 12, 1992.

FOR FURTHER INFORMATION CONTACT: William P. Cejudo, (202) 622-3980 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations that are the subject of these correcting 
amendments are under sections 148 and 149 of the Internal Revenue Code.

Need for Correction

    As published, TD 8476 and TD 8425 contains errors that may prove to 
be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

PART 1--[AMENDED]

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:
    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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

    Par. 2. Section 1.148-3 is amended as follows:

    1. Revise Example 1 of paragraph (j).
    2. Add paragraph (iii)(D) to Example 2 of paragraph (j).


Sec. 1.148-3  General arbitrage rebate rules.

* * * * *
    (j) * * *

    Example 1. Calculation and payment of rebate for a fixed yield 
issue. (i) Facts. On January 1, 1994, City A issues a fixed yield 
issue and invests all the sale proceeds of the issue ($49 million). 
There are no other gross proceeds. The issue has a yield of 7.0000 
percent per year compounded semiannually (computed on a 30 day 
month/360 day year basis). City A receives amounts from the 
investment and immediately expends them for the governmental purpose 
of the issue as follows: 

------------------------------------------------------------------------
                          Date                                Amount    
------------------------------------------------------------------------
2/1/94..................................................      $3,000,000
5/1/94..................................................       5,000,000
1/1/95..................................................       5,000,000
9/1/95..................................................      20,000,000
3/1/96..................................................      22,000,000
------------------------------------------------------------------------

    (ii) First computation date. (A) City A chooses January 1, 1999, 
as its first computation date. This date is the latest date that may 
be used to compute the first required rebate installment payment. 
The rebate amount as of this date is computed by determining the 
future value of the receipts and the payments for the investment. 
The compounding interval is each 6-month (or shorter) period and the 
30 day month/360 day year basis is used because these conventions 
were used to compute yield on the issue. The future value of these 
amounts, plus the computation credit, as of January 1, 1999, is: 

------------------------------------------------------------------------
                                            Receipts        FV (7.0000  
                 Date                     (payments)         percent)   
------------------------------------------------------------------------
1/1/94................................    ($49,000,000)    ($69,119,339)
2/1/94................................       3,000,000        4,207,602 
5/1/94................................       5,000,000        6,893,079 
1/1/95................................       5,000,000        6,584,045 
1/1/95................................          (1,000)          (1,317)
9/1/95................................      20,000,000       25,155,464 
1/1/96................................          (1,000)           1,229)
3/1/96................................      22,000,000       26,735,275 
1/1/97................................          (1,000)          (1,148)
                                       ---------------------------------
Rebate amount (1/01/99)...............  ...............         452,432 
------------------------------------------------------------------------

    (B) City A pays 90 percent of the rebate amount ($407,189) to 
the United States within 60 days of January 1, 1999.
    (iii) Second computation date. (A) On the next required 
computation date, January 1, 2004, the future value of the payments 
and receipts is: 

------------------------------------------------------------------------
                                                  Receipts    FV (7.0000
                     Date                        (payments)    percent) 
------------------------------------------------------------------------
1/1/99........................................     $452,432     $638,200
                                               -------------------------
Rebate amount (1/01/04).......................  ...........      638,200
------------------------------------------------------------------------

    (B) As of this computation date, the future value of the payment 
treated as made on January 1, 1999, is $574,380, which equals at 
least 90 percent of the rebate amount as of this computation date 
($638,200  x  0.9), and thus no additional rebate payment is due as 
of this date.
    (iv) Final computation date. (A) On January 1, 2009, City A 
redeems all the bonds, and thus this date is the final computation 
date. The future value of the receipts and payments as of this date 
is: 

------------------------------------------------------------------------
                                                Receipts     FV (7.0000 
                    Date                       (payments)     percent)  
------------------------------------------------------------------------
1/1/04......................................     $638,200      $900,244 
1/1/09......................................       (1,000)       (1,000)
                                             ---------------------------
Rebate amount (1/01/09).....................  ............      899,244 
------------------------------------------------------------------------

    (B) As of this computation date, the future value of the payment 
made on January 1, 1999, is $810,220 and thus an additional rebate 
payment of $89,024 is due. This payment reflects the future value of 
the 10 percent unpaid portion, and thus would not be owed had the 
issuer paid the full rebate amount as of any prior computation date.
    Example 2. Calculation and payment of rebate for a variable 
yield issue. * * *
    (iii) * * *
    (D) If the yield during the second computation period were, 
instead, 7.0000 percent, the rebate amount computed as of July 1, 
1999, would be $1,320,891. The future value of the payment made on 
July 1, 1999, would be $1,471,007, and, therefore, City B would have 
overpaid the rebate amount by $150,116.
* * * * *
    Par. 3. Section 1.148-10(d) is amended by revising the ninth and 
tenth sentence of Example 1 as follows:


Sec. 1.148-10  Anti-abuse rules and authority of Commissioner.

* * * * *
    (d) * * *

    Example 1. * * * The Bank note and the 1994 issue have different 
prepayment terms. The City does not reasonably expect to treat 
prepayments of the Bank note as gross proceeds of the 1994 issue. * 
* *
* * * * *
    Par. 4. Section 1.149(e)-1 is amended by revising paragraphs 
(e)(3)(i) and (e)(4) as follows:


Sec. 1.149(e)-1  Information reporting requirement for tax-exempt 
bonds.

* * * * *
    (e) * * *
    (3) * * *
    (i) Bond. The date of issue of a bond is determined under 
Sec. 1.150-1.
* * * * *
    (4) Issue price. The term ``issue price'' has the same meaning 
given the term under Sec. 1.148-1(b).
Cynthia E. Grigsby,
Chief, Regulations Unit, Assistant Chief Counsel (Corporate).
[FR Doc. 94-11219 Filed 5-6-94; 9:52 am]
BILLING CODE 4830-01-P