The Definition of Issue Price of Tax Exempt Bonds

SIFMA provides comments to the Internal Revenue Service (IRS) on proposed U.S. Treasury regulations relating to the definition of “issue price” of tax exempt bonds for purposes of the arbitrage rules under Section 148 of the Internal Revenue Code of 1986 (the Code), REG-148659-07.

SIFMA disagrees with the approach to determining issue price embodied in the proposed regulations, which seek to formalize policies previously applied through unofficial or non-precedential public statements, examination inquiries and practices of the Tax Exempt Bonds (TEB) division of the Governmental Entities division of the Tax Exempt and Governmental Entities Division of the IRS.

SIFMA believes it would be inappropriate to abandon the well-accepted, favorably regarded and longstanding principle that allows the issue price of tax exempt bonds to be established by reference to the reasonable expectations of the transaction participants of the price at which the bonds will be sold pursuant to a bona fide public offering. The proposed regulations, while well-intentioned, represent an approach to defining and documenting issue price which is unworkable based on limitations on the ability of issuers, underwriters and others to monitor sales of bonds during the order period.

SIFMA urges the IRS to maintain the reasonable expectations principle and make refinements that take into account the reality of marketing functions as dictated both by free market processes and currently mandated securities law regulatory procedures applicable to municipal bonds.