[Federal Register Volume 66, Number 9 (Friday, January 12, 2001)]
[Rules and Regulations]
[Pages 2811-2817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-622]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8934]
RIN 1545-AX60


Reopenings of Treasury Securities and Other Debt Instruments; 
Original Issue Discount

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
federal income tax treatment of debt instruments issued in certain 
reopenings. The final regulations provide guidance to holders and 
issuers of these debt instruments .

DATES: Effective Date: These regulations are effective March 13, 2001.
    Applicability Dates: For dates of applicability, see Secs. 1.163-
7(f), 1.1275-1(f), 1.1275-2(d), and 1.1275-2(k)(5).

[[Page 2812]]


FOR FURTHER INFORMATION CONTACT: William E. Blanchard, (202) 622-3950 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On November 5, 1999, temporary regulations were published in the 
Federal Register (64 FR 60342) that revised the rules for when a 
reopening of Treasury securities is a qualified reopening. The 
temporary regulations eliminated the acute, protracted shortage 
requirement that was in Sec. 1.1275-2(d). See Sec. 1.1275-2T(d) of the 
temporary Income Tax Regulations. As a result, additional Treasury 
securities issued in a reopening are part of the same issue as the 
original Treasury securities if (1) The additional Treasury securities 
have the same terms as the original Treasury securities, and (2) the 
additional Treasury securities are issued not more than one year after 
the original Treasury securities were first issued to the public.
    On November 5, 1999, proposed regulations (REG-115932-99) also were 
published in the Federal Register (64 FR 60395) that, for the first 
time, provided rules for reopenings of debt instruments other than 
Treasury securities. See Sec. 1.1275-2(k) of the proposed Income Tax 
Regulations.
    Although a public hearing on the proposed regulations was held on 
March 22, 2000, no one testified at the hearing. Eight comment letters, 
however, were received on the proposed regulations. The proposed 
regulations, with certain changes to respond to the comments, are 
adopted as final regulations.

Explanation of Provisions

Reopenings

A. General Description
    In certain circumstances, an issuer would like to reopen an 
existing issue of debt instruments (that is, sell additional amounts of 
debt instruments with terms that are identical to the terms of the 
original debt instruments and with the same CUSIP number and tax 
characteristics as the original debt instruments). In most cases, the 
purpose of the reopening is to create a large, liquid issue of debt 
instruments. However, during periods of rising market interest rates, 
the original issue discount (OID) provisions of the Code can 
effectively prohibit reopenings, especially if the additional debt 
instruments are not considered part of the same issue as the original 
debt instruments.
    If the debt instruments sold in the reopening are considered part 
of the original issue, they have OID only to the extent the debt 
instruments in the original issue have OID. Thus, if the original debt 
instruments were issued without OID, the subsequently sold debt 
instruments also do not have OID. In this case, any discount on the 
subsequently sold debt instruments generally is market discount, not 
OID. Conversely, if the subsequently sold debt instruments are a 
separate issue for tax purposes, any discount that arises as part of 
their issuance is OID if it equals or exceeds the OID de minimis amount 
for the debt instruments.
    The holder and issuer have different consequences depending upon 
whether the discount is characterized as OID or market discount. For a 
holder, the primary difference is whether the holder has to include the 
discount in income on a current basis as it accrues. If it is OID, the 
holder must include the accruals in income currently; if it is market 
discount, the holder generally does not have to include discount in 
income until the debt instrument is disposed of or redeemed. In 
general, an issuer's interest deduction does not depend on whether the 
discount is OID or market discount. However, the issuer's reporting 
obligations depend on whether the discount is OID or market discount. 
If the subsequently sold debt instruments are part of a separate issue 
and if the discount is OID, the issuer (or a broker or middleman) 
generally is required under section 6049 to make OID information 
reports for these debt instruments. To comply with this reporting 
obligation, the issuer must be able to distinguish the subsequently 
sold debt instruments (which require OID information reports) from the 
originally sold debt instruments. As a practical matter, the only way 
the subsequently sold debt instruments can be distinguished is if they 
are assigned new CUSIP numbers. The different tax treatment and the 
assignment of new CUSIP numbers prevents the debt instruments from 
being fungible and, thereby, defeats the purpose of the reopening.
B. Proposed Regulations
    In an attempt to strike a balance between the tax policy concern 
about the conversion of OID into market discount and the need to have 
the tax rules reflect current capital market practices, the proposed 
regulations specified when debt instruments issued in a reopening are 
considered part of the same issue as the original debt instruments (a 
qualified reopening). (As noted above, Sec. 1.1275-2T(d) provides rules 
to determine when a reopening of Treasury securities is a qualified 
reopening.)
    Under Sec. 1.1275-2(k) of the proposed regulations, a reopening of 
debt instruments is a qualified reopening if: (1) The original debt 
instruments are publicly traded; (2) the issue date of the additional 
debt instruments (treated as if they were a separate issue) is not more 
than six months after the issue date of the original debt instruments; 
(3) seven days before the date on which the price of the additional 
debt instruments is established, the yield of the original debt 
instruments (based on their fair market value) is not more than 107.5 
percent of the yield of the original debt instruments on their issue 
date; and (4) the yield of the additional debt instruments (based on 
the sales price of the additional debt instruments) is no more than 115 
percent of the yield of the original debt instruments on their issue 
date. For purposes of the yield tests, if the original debt instruments 
were issued with no more than a de minimis amount of OID, the coupon 
rate of the original debt instruments is used rather than the yield. A 
qualified reopening also includes a reopening of original debt 
instruments if the first two conditions described above are met and the 
additional debt instruments (treated as a separate issue) are issued 
with no more than a de minimis amount of OID. A qualified reopening, 
however, does not include a reopening of tax-exempt obligations or 
contingent payment debt instruments.
    The 107.5 percent test was designed to give some relief to the 
reopening of relatively short-term issues (that is, issues with a 
remaining term of ten years or less), which tend to be the most 
impacted by the OID de minimis rules. In addition, the 107.5 percent 
test, which is tested seven days before the anticipated pricing date, 
would give the issuer an indication as to whether the reopening would 
be a qualified reopening. The 115 percent test was designed to prevent, 
in a situation in which interest rates were to move sharply upward in 
the period between the announcement date and the issue date, a 
conversion of a significant amount of OID into market discount.
C. Final Regulations
(1) Fixed Reopening Period
    Commentators suggested that the final regulations extend the one-
year rule for reopenings of Treasury securities to other issuers. In 
support of this change, commentators stated that different rules will 
impede the ability of U.S. issuers to compete with foreign issuers for 
investors' funds and will affect the

[[Page 2813]]

ability of non-Treasury issuers to make their dollar-denominated issues 
attractive alternatives to U.S. Treasury securities as benchmarks for 
prevailing market interest rates. They also stated that an extended 
period (from six to twelve months) is often required in order to 
aggregate sufficient debt issuances to create a large liquid issue and 
that many holders of reopened debt instruments are tax-indifferent 
parties.
    If the one-year rule is not adopted in the final regulations, some 
commentators suggested that the final regulations provide a fixed 
period of less than one year in which there would be no restrictions on 
reopenings (for example, a period of six months for non-Treasury 
securities with an original maturity of less than ten years and nine 
months for non-Treasury securities with an original maturity of at 
least ten years). In addition, other commentators suggested that the 
final regulations extend the one-year rule to reopenings of issuers 
whose securities are treated as government securities for U.S. 
securities law purposes.
    After careful consideration of these comments, the IRS and the 
Treasury Department have decided not to adopt these suggestions. 
Congress adopted different statutory regimes for OID and market 
discount. The IRS and the Treasury Department believe that adopting the 
commentators' suggestions would not strike the appropriate balance 
between the statutory scheme and providing some flexibility for 
issuers. Additionally, the reopening of Treasury securities does not 
produce a potential mismatch between the issuer's interest deductions 
and the holder's income inclusions.
(2) Yield Test
    Commentators suggested that the two-part yield test be replaced 
with a single yield test. According to the commentators, by the time a 
reopening is priced, dealers, traders, and investors have arranged 
their affairs in reliance on the issue coming to market, and the issuer 
has earmarked the proceeds for use in its business. In addition, many 
of the participants have arranged hedges and other transactions around 
the reopening. In those cases in which the second-yield test would not 
be met (which would be caused by unexpected market volatility), a 
cancelled reopening could generate lost economic costs for these 
capital market participants. In addition, the second test would create 
marketing and credibility concerns for issuers.
    Most of the commentators suggested that any yield test should be 
applied either on the pricing date or the announcement date. According 
to one commentator, the yield test should be applied by an issuer on a 
single date that is the announcement date for the reopening 
transaction, provided the pricing date for the transaction occurs 
thereafter within a period consistent with customary commercial 
practice. Although customary commercial practice may vary somewhat by 
issuer and market, the period between the announcement date and the 
pricing date is usually five business days or less. The yield test 
should allow issuers to presume that a transaction is consistent with 
customary commercial practice if the period between the announcement 
date and the pricing date is five business days or less.
    For public transactions, the commentators suggested that the 
announcement date can be defined as the date that the reopening 
transaction is publicly announced through one or more media, including 
a press release, a news item posted on a public messaging service such 
as Reuters, Telerate, or Bloomberg, or a posting on the issuer's public 
web site. (Because the transaction is a reopening, the payment terms of 
the securities to be issued will be known in advance based on the prior 
issue.) A test based on a public announcement date would be fairly easy 
to administer for both issuers and the government. Moreover, if an 
announced reopening transaction is not priced within a customary 
commercial time frame, it is likely that the transaction will be re-
evaluated and subsequently re-announced on a later date that could 
serve as the appropriate announcement date for the yield test.
    According to another commentator, each reopening should be tested 
on the earlier of the pricing date or the announcement date of a 
reopening. The term announcement date could be defined as the later of 
seven days before pricing or the date on which an issuer's intent to 
reopen a security is reported on the standard electronic news services 
used by security broker-dealers. This rule would accommodate issuers 
who announce and price reopenings on the same day as well as Treasury 
and non-Treasury issuers who announce reopenings up to 7 days before 
pricing.
    According to a third commentator, an issuer should be permitted to 
satisfy any yield test by demonstrating that the test was satisfied on 
any one of the seven days prior to the date on which the price of the 
additional debt instruments was established.
    Based on historical evidence, the commentators stated that the 
107.5 pecent test in the proposed regulations would not have been met 
in a number of cases in which a reopening would be economically 
desirable. Therefore, the commentators suggested that any yield test 
should be based on 115 percent of the yield rather than 107.5 percent 
of the yield. While a 115 percent test also would not be met in a 
number of cases, the commentators stated that the 115 percent figure 
used in the proposed regulations represents an acceptable middle 
ground. (However, some commentators stated that a 115 percent test 
would be too low to qualify many reopenings of sovereign debt issued by 
emerging market governments.)
    In response to the comments, the final regulations adopt a single 
yield test to determine if the reopening is a qualified reopening. 
Under the final regulations, the yield test is satisfied if, on the 
date on which the price of the additional debt instruments is 
established (or, if earlier, the announcement date), the yield of the 
original debt instruments (based on their fair market value) is not 
more than 110 percent of the yield of the original debt instruments on 
their issue date (or, if the original debt instruments were issued with 
no more than a de minimis amount of OID, the coupon rate). For purposes 
of the yield test, the announcement date is the later of seven days 
before the date on which the price of the additional debt instruments 
is established or the date on which the issuer's intent to reopen a 
security is publicly announced through one or more media, including an 
announcement reported on the standard electronic news services used by 
security broker-dealers (for example, Reuters, Telerate, or Bloomberg). 
The test rate of 110 percent in the final regulations reflects a 
compromise between the 107.5 percent test rate in the proposed 
regulations and the 115 percent test rate suggested by the 
commentators.
(3) Six-Month Period
    Some of the commentators suggested that the six-month period be 
extended to one year. According to the commentators, many issuers have 
specific funding needs that arise sporadically over the course of a 
year or, in the case of foreign sovereign issuers, are often fiscally 
constrained from reopening issues within a six-month period. Therefore, 
an extended period (from six to twelve months) is required in order to 
aggregate sufficient debt issuances to create a large, liquid issue. 
Because the extension of the six-month period would increase the 
likelihood of the conversion of OID into market discount, the final 
regulations do not adopt this suggestion.

[[Page 2814]]

(4) De Minimis Test
    Some of the commentators suggested that the final regulations 
clarify the treatment of reopened debt instruments that are issued with 
no more than a de minimis amount of OID after the expiration of the 
six-month period (a de facto qualified reopening). According to the 
commentators, the proposed regulations apparently are stricter than 
current law in limiting a de facto qualified reopening to one in which 
the reopened securities are issued within six months after the issue 
date of the original debt instruments. As a result, there is 
uncertainty in the debt markets where none existed for these 
securities.
    The final regulations provide that a reopening (including a 
reopening of Treasury securities) is a qualified reopening if the 
original debt instruments are publicly traded and the additional debt 
instruments are issued with no more than a de minimis amount of OID 
(determined without the application of Sec. 1.1275-2(k)). As a result, 
the de minimis test is no longer limited to the six-month period after 
the issue date of the original debt instruments.
(5) Reopenings After the Six-Month Period
    Some of the commentators suggested that the final regulations allow 
a reopening occurring after the expiration of the fixed reopening 
period to be a qualified reopening if the reopening satisfies a yield 
test that would limit the amount of OID converted into market discount. 
In the experience of the commentators, as longer-term debt securities 
progress in age, they become less liquid as compared with shorter-term 
debt securities of equal remaining life. (For example, a thirty-year 
debt issue with five years of remaining life generally can be expected 
to be less liquid than an otherwise identical new five-year issue.) The 
ability to reopen a security throughout its life would help issuers 
increase the liquidity of their longer-term issues as needed to address 
such competitive concerns. This ability would be highly valuable to 
private sector and government-sponsored enterprise issuers; therefore, 
it would be appropriate to allow it so long as a yield test ultimately 
limits the amount of OID that can be converted into market discount. 
For example, the final regulations could permit an issuer (including 
the Treasury Department) to reopen a security after the fixed reopening 
period if a 10 percent yield-change test is met.
    The final regulations do not adopt this suggestion. The IRS and the 
Treasury Department believe that the changes to the de minimis test 
described above provide the appropriate relief for debt instruments 
reopened after the six-month period.
D. Treasury Securities
    The final regulations concerning reopenings of Treasury securities 
are generally the same as the temporary regulations. See Sec. 1.1275-
2(d)(2). In addition, under the final regulations, if a reopening of 
Treasury securities is not a qualified reopening under Sec. 1.1275-
2(d)(2) (for example, because the reopening date is more than one year 
after the issue date of the original Treasury securities), the 
reopening is a qualified reopening under Sec. 1.1275-2(k) if the 
additional Treasury securities are issued with no more than a de 
minimis amount of OID (determined without the application of 
Sec. 1.1275-2(k)).
E. Issuer's Treatment
    The proposed regulations require the issuer to take into account, 
as an adjustment to its interest expense, any difference between the 
amounts paid by the holders to acquire the additional debt instruments 
issued in a qualified reopening and the adjusted issue price of the 
original debt instruments. This difference would either increase or 
decrease the adjusted issue prices of all of the debt instruments in 
the issue (both original and additional) with respect to the issuer 
(but not the holder). The issuer would then, as of the reopening date, 
recompute the yield of the debt instruments in the issue based on this 
aggregate adjusted issue price and the remaining payment schedule of 
the debt instruments. The issuer would use this recomputed yield for 
purposes of applying the constant yield method to determine its 
accruals of interest expense over the remaining term of the debt 
instruments in the issue.
    One commentator suggested that the adjusted issue price of the 
combined debt instruments simply should be the sum of the issuer's 
adjusted issue price in the original debt instruments on the reopening 
date and the issue price of the additional debt instruments determined 
as if they were a separate issue. The final regulations do not adopt 
this suggestion; the rule in the proposed regulations is more accurate 
than the rule suggested by the commentator. The same commentator also 
suggested that the final regulations state that, for purposes of 
determining the adjusted issue price of the combined debt instruments, 
pre-issuance accrued interest on the additional debt instruments for 
which the issuer is compensated at issuance is not treated as part of 
the issue price of the additional debt instruments. In effect, this 
suggestion would make the rule in Sec. 1.1273-2(m) mandatory for debt 
instruments issued in a qualified reopening. Under Sec. 1.1273-2(m), a 
taxpayer can choose to determine the issue price of a debt instrument 
by excluding pre-issuance accrued interest. There does not seem to be a 
compelling reason to make this rule mandatory for debt instruments 
issued in a qualified reopening when it is not mandatory for other debt 
instruments. As a result, the final regulations do not adopt this 
suggestion.
F. Effective Date
    The rules in the final regulations for qualified reopenings (other 
than for Treasury reopenings subject to Sec. 1.1275-2(d)) apply to debt 
instruments that are part of a reopening where the reopening date is on 
or after March 13, 2001.

Definition of Issue

    The proposed regulations define the term issue as two or more debt 
instruments that (1) have the same credit and payment terms, (2) are 
issued either pursuant to a common plan or as part of a single 
transaction or a series of related transactions, and (3) are issued 
within a period of 13 days beginning with the date on which the first 
debt instrument that would be part of the issue is issued to a person 
other than a bond house, broker, or similar person acting in the 
capacity of an underwriter, placement agent, or wholesaler. The final 
regulations generally are the same as the proposed regulations but for 
the additional requirement that the debt instruments be issued on or 
after March 13, 2001. The final regulations also provide certain 
transition rules if the debt instruments are issued prior to March 13, 
2001.

Issue Price of Treasury Securities

    Under Sec. 1.1275-2T(d)(1), the issue price of an issue of Treasury 
securities auctioned before November 2, 1998, is the average price of 
the securities sold, and the issue price of an issue of Treasury 
securities auctioned on or after November 2, 1998, is the price of the 
securities sold at auction. The change to the definition of issue price 
for Treasury securities in the temporary regulations reflected the 
Treasury Department's switch on November 2, 1998, from an average price 
auction to a single price auction for selling Treasury securities. 
However, in order to accommodate all types of auction techniques and 
because the rule for an average price auction, when applied to a single 
price auction, produces the same result as the rule for

[[Page 2815]]

a single price auction, the final regulations provide that the issue 
price of an issue of Treasury securities is the average price of the 
securities sold.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations and, because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Drafting Information

    The principal author of the regulations is William E. Blanchard, 
Office of the Associate Chief Counsel (Financial Institutions and 
Products). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by 
removing the entry for Sec. 1.1275-2T to read in part as follows:

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


    Par. 2. Section 1.163-7 is amended by:
    1. Revising paragraph (e).
    2. Adding a new paragraph (f).
    The revision and addition read as follows:


Sec. 1.163-7  Deduction for OID on certain debt instruments.

* * * * *
    (e) Qualified reopening--(1) In general. In a qualified reopening 
of an issue of debt instruments, if a holder pays more or less than the 
adjusted issue price of the original debt instruments to acquire an 
additional debt instrument, the issuer treats this difference as an 
adjustment to the issuer's interest expense for the original and 
additional debt instruments. As provided by paragraphs (e)(2) through 
(5) of this section, the adjustment is taken into account over the term 
of the instrument using constant yield principles.
    (2) Positive adjustment. If the difference is positive (that is, 
the holder pays more than the adjusted issue price of the original debt 
instrument), then, with respect to the issuer but not the holder, the 
difference increases the aggregate adjusted issue prices of all of the 
debt instruments in the issue, both original and additional.
    (3) Negative adjustment. If the difference is negative (that is, 
the holder pays less than the adjusted issue price of the original debt 
instrument), then, with respect to the issuer but not the holder, the 
difference reduces the aggregate adjusted issue prices of all of the 
debt instruments in the issue, both original and additional.
    (4) Determination of issuer's interest accruals. As of the 
reopening date, the issuer must redetermine the yield of the debt 
instruments in the issue for purposes of applying the constant yield 
method described in Sec. 1.1272-1(b) to determine the issuer's accruals 
of interest expense over the remaining term of the debt instruments in 
the issue. This redetermined yield is based on the aggregate adjusted 
issue prices of the debt instruments in the issue (as determined under 
this paragraph (e)) and the remaining payment schedule of the debt 
instruments in the issue. If the aggregate adjusted issue prices of the 
debt instruments in the issue (as determined under this paragraph (e)) 
are less than the aggregate stated redemption price at maturity of the 
instruments (determined as of the reopening date) by a de minimis 
amount (within the meaning of Sec. 1.1273-1(d)), the issuer may use the 
rules in paragraph (b) of this section to determine the issuer's 
accruals of interest expense.
    (5) Effect of adjustments on issuer's adjusted issue price. The 
adjustments made under this paragraph (e) are taken into account for 
purposes of determining the issuer's adjusted issue price under 
Sec. 1.1275-1(b).
    (6) Definitions. The terms additional debt instrument, original 
debt instrument, qualified reopening, and reopening date have the same 
meanings as in Sec. 1.1275-2(k).
    (f) Effective dates. This section (other than paragraph (e) of this 
section) applies to debt instruments issued on or after April 4, 1994. 
Taxpayers, however, may rely on this section (other than paragraph (e) 
of this section) for debt instruments issued after December 21, 1992, 
and before April 4, 1994. Paragraph (e) of this section applies to 
qualified reopenings where the reopening date is on or after March 13, 
2001.

    Par. 3. In Sec. 1.1271-0, paragraph (b) is amended by:
    1. Adding entries for paragraphs (f)(1), (f)(2), (f)(3), and (f)(4) 
of Sec. 1.1275-1.
    2. Removing the language ``[Reserved]'' from the entry for 
paragraph (d) and adding entries for paragraph (d) of Sec. 1.1275-2.
    3. Adding entries for paragraph (k) of Sec. 1.1275-2.
    4. Removing the entries for Sec. 1.1275-2T.
    5. Removing the language ``[Reserved]'' from the entry for 
paragraph (g) and adding an entry for paragraph (g) of Sec. 1.1275-7.
    The revisions and additions read as follows:


Sec. 1.1271-0  Original issue discount; effective date; table of 
contents.

* * * * *
    (b) * * *
* * * * *


Sec. 1.1275-1  Definitions.

* * * * *
    (f) Issue.
    (1) Debt instruments issued on or after March 13, 2001.
    (2) Debt instruments issued before March 13, 2001.
    (3) Transition rule.
    (4) Cross-references for reopening and aggregation rules.
* * * * *


Sec. 1.1275-2  Special rules relating to debt instruments.

* * * * *
    (d) Special rules for Treasury securities.
    (1) Issue price and issue date.
    (2) Reopenings of Treasury securities.
* * * * *
    (k) Reopenings.
    (1) In general.
    (2) Definitions.
    (3) Qualified reopening.
    (4) Issuer's treatment of a qualified reopening.
    (5) Effective date.
* * * * *


Sec. 1.1275-7  Inflation-indexed debt instruments.

* * * * *
    (g) Reopenings.
* * * * *

    Par. 4. In Sec. 1.1275-1, paragraph (f) is revised to read as 
follows:


Sec. 1.1275-1  Definitions.

* * * * *

[[Page 2816]]

    (f) Issue--(1) Debt instruments issued on or after March 13, 2001. 
Except as provided in paragraph (f)(3) of this section, two or more 
debt instruments are part of the same issue if the debt instruments--
    (i) Have the same credit and payment terms;
    (ii) Are issued either pursuant to a common plan or as part of a 
single transaction or a series of related transactions;
    (iii) Are issued within a period of thirteen days beginning with 
the date on which the first debt instrument that would be part of the 
issue is issued to a person other than a bond house, broker, or similar 
person or organization acting in the capacity of an underwriter, 
placement agent, or wholesaler; and
    (iv) Are issued on or after March 13, 2001.
    (2) Debt instruments issued before March 13, 2001. Except as 
provided in paragraph (f)(3) of this section, two or more debt 
instruments are part of the same issue if the debt instruments--
    (i) Have the same credit and payment terms;
    (ii) Are sold reasonably close in time either pursuant to a common 
plan or as part of a single transaction or a series of related 
transactions; and
    (iii) Are issued on or after April 4, 1994, and before March 13, 
2001.
    (3) Transition rule. If the issue date of any of the debt 
instruments that would be part of the same issue (determined as if each 
debt instrument were part of a separate issue) is on or after March 13, 
2001, then the definition of the term issue in paragraph (f)(1) of this 
section applies rather than the definition in paragraph (f)(2) of this 
section to determine if the debt instruments are part of the same 
issue.
    (4) Cross-references for reopening and aggregation rules. See 
Sec. 1.1275-2(d) and (k) for rules that treat debt instruments issued 
in certain reopenings as part of an issue of original (outstanding) 
debt instruments. See Sec. 1.1275-2(c) for rules that treat two or more 
debt instruments as a single debt instrument.
* * * * *

    Par. 5. In Sec. 1.1275-2, paragraph (d) is revised and paragraph 
(k) is added to read as follows:


Sec. 1.1275-2  Special rules relating to debt instruments.

* * * * *
    (d) Special rules for Treasury securities--(1) Issue price and 
issue date. The issue price of an issue of Treasury securities is the 
average price of the securities sold. The issue date of an issue of 
Treasury securities is the first settlement date on which a substantial 
amount of the securities in the issue is sold. For an issue of Treasury 
securities sold from November 1, 1998, to March 13, 2001, the issue 
price of the issue is the price of the securities sold at auction.
    (2) Reopenings of Treasury securities--(i) Treatment of additional 
Treasury securities. Notwithstanding Sec. 1.1275-1(f), additional 
Treasury securities issued in a qualified reopening are part of the 
same issue as the original Treasury securities. As a result, the 
additional Treasury securities have the same issue price, issue date, 
and (with respect to holders) the same adjusted issue price as the 
original Treasury securities. This paragraph (d)(2) applies to 
qualified reopenings that occur on or after March 25, 1992.
    (ii) Definitions--(A) Additional Treasury securities. Additional 
Treasury securities are Treasury securities with terms that are in all 
respects identical to the terms of the original Treasury securities.
    (B) Original Treasury securities. Original Treasury securities are 
securities comprising any issue of outstanding Treasury securities.
    (C) Qualified reopening--reopenings on or after March 13, 2001. For 
a reopening of Treasury securities that occurs on or after March 13, 
2001, a qualified reopening is a reopening that occurs not more than 
one year after the original Treasury securities were first issued to 
the public or, under paragraph (k)(3)(iii) of this section, a reopening 
in which the additional Treasury securities are issued with no more 
than a de minimis amount of OID.
    (D) Qualified reopening--reopenings before March 13, 2001. For a 
reopening of Treasury securities that occurs before March 13, 2001, a 
qualified reopening is a reopening that occurs not more than one year 
after the original Treasury securities were first issued to the public. 
However, for a reopening of Treasury securities (other than Treasury 
Inflation-Indexed Securities) that occurred prior to November 5, 1999, 
a qualified reopening is a reopening of Treasury securities that 
satisfied the preceding sentence and that was intended to alleviate an 
acute, protracted shortage of the original Treasury securities.
* * * * *
    (k) Reopenings--(1) In general. Notwithstanding Sec. 1.1275-1(f), 
additional debt instruments issued in a qualified reopening are part of 
the same issue as the original debt instruments. As a result, the 
additional debt instruments have the same issue date, the same issue 
price, and (with respect to holders) the same adjusted issue price as 
the original debt instruments.
    (2) Definitions--(i) Original debt instruments. Original debt 
instruments are debt instruments comprising any single issue of 
outstanding debt instruments. For purposes of determining whether a 
particular reopening is a qualified reopening, debt instruments issued 
in prior qualified reopenings are treated as original debt instruments 
and debt instruments issued in the particular reopening are not so 
treated.
    (ii) Additional debt instruments. Additional debt instruments are 
debt instruments that, without the application of this paragraph (k)--
    (A) Are part of a single issue of debt instruments;
    (B) Are not part of the same issue as the original debt 
instruments; and
    (C) Have terms that are in all respects identical to the terms of 
the original debt instruments as of the reopening date.
    (iii) Reopening date. The reopening date is the issue date of the 
additional debt instruments (determined without the application of this 
paragraph (k)).
    (iv) Announcement date. The announcement date is the later of seven 
days before the date on which the price of the additional debt 
instruments is established or the date on which the issuer's intent to 
reopen a security is publicly announced through one or more media, 
including an announcement reported on the standard electronic news 
services used by security broker-dealers (for example, Reuters, 
Telerate, or Bloomberg).
    (3) Qualified reopening--(i) Definition. A qualified reopening is a 
reopening of original debt instruments that is described in paragraph 
(k)(3)(ii) or (iii) of this section. In addition, see paragraph (d)(2) 
of this section to determine if a reopening of Treasury securities is a 
qualified reopening.
    (ii) Reopening within six months. A reopening is described in this 
paragraph (k)(3)(ii) if--
    (A) The original debt instruments are publicly traded (within the 
meaning of Sec. 1.1273-2(f));
    (B) The reopening date of the additional debt instruments is not 
more than six months after the issue date of the original debt 
instruments; and
    (C) On the date on which the price of the additional debt 
instruments is established (or, if earlier, the announcement date), the 
yield of the original debt instruments (based on their fair market 
value) is not more than 110 percent of the yield of the original debt 
instruments on their issue date (or, if the original debt instruments 
were issued with no more than a de minimis amount of OID, the coupon 
rate).

[[Page 2817]]

    (iii) Reopening with de minimis OID. A reopening (including a 
reopening of Treasury securities) is described in this paragraph 
(k)(3)(iii) if--
    (A) The original debt instruments are publicly traded (within the 
meaning of Sec. 1.1273-2(f)); and
    (B) The additional debt instruments are issued with no more than a 
de minimis amount of OID (determined without the application of this 
paragraph (k)).
    (iv) Exceptions. This paragraph (k)(3) does not apply to a 
reopening of tax-exempt obligations (as defined in section 1275(a)(3)) 
or contingent payment debt instruments (within the meaning of 
Sec. 1.1275-4).
    (4) Issuer's treatment of a qualified reopening. See Sec. 1.163-
7(e) for the issuer's treatment of the debt instruments that are part 
of a qualified reopening.
    (5) Effective date. This paragraph (k) applies to debt instruments 
that are part of a reopening where the reopening date is on or after 
March 13, 2001.


Sec. 1.1275-2T  [Removed]

    Par. 6. Section 1.1275-2T is removed.

    Par. 7. In Sec. 1.1275-7, paragraph (g) is added to read as 
follows:


Sec. 1.1275-7  Inflation-indexed debt instruments.

* * * * *
    (g) Reopenings. For rules concerning a reopening of Treasury 
Inflation-Indexed Securities, see paragraphs (d)(2) and (k)(3)(iii) of 
Sec. 1.1275-2.
* * * * *

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: December 29, 2000.
Jonathan Talisman,
Assistant Secretary of the Treasury.
[FR Doc. 01-622 Filed 1-11-01; 8:45 am]
BILLING CODE 4830-01-U