[Federal Register Volume 64, Number 126 (Thursday, July 1, 1999)]
[Rules and Regulations]
[Pages 35573-35575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16621]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8826]
RIN 1545-AX23
Qualified Zone Academy Bonds; Obligations of States and Political
Subdivisions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations that provide
guidance to state and local government issuers of qualified zone
academy bonds. These temporary regulations change the method of
ascertaining the qualified zone academy bond credit rate and provide
reimbursement rules. State and local governments that issue
[[Page 35574]]
qualified zone academy bonds will be affected by these temporary
regulations. The text of these temporary regulations also serves as the
text of the proposed regulations set forth in the notice of proposed
rulemaking on this subject in the Proposed Rules section of this issue
of the Federal Register.
DATES: Effective Date: These regulations are effective July 1, 1999.
Applicability Date: For dates of applicability, see Sec. 1.1397E-
1T(j).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Timothy L.
Jones (202) 622-3980 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 226(a) of the Taxpayer Relief Act of 1997, Public Law 105-
34 (111 Stat. 788), amended the Internal Revenue Code by redesignating
section 1397E as 1397F and adding a new section 1397E. Section 1397E
authorizes a new type of debt instrument known as a qualified zone
academy bond. Temporary regulations interpreting section 1397E were
published on January 7, 1998 (63 FR 671).
Explanation of Provisions
In General
A qualified zone academy bond is a taxable bond issued by a state
or local government, the proceeds of which are used to improve certain
eligible public schools. In lieu of receiving periodic interest
payments from the issuer, an eligible holder of a qualified zone
academy bond is generally allowed annual federal income tax credits
while the bond is outstanding. These credits compensate the holder for
lending money to the issuer and function as payments of interest on the
bond.
Credit Rate
Under section 1397E(b)(2), the Secretary shall determine a credit
rate for qualified zone academy bonds that the Secretary estimates will
permit the bonds to be issued without discount and without interest
cost to the issuer. Section 1.1397E-1T(b) provides that the credit rate
for a qualified zone academy bond is equal to 110 percent of the long-
term applicable Federal rate(AFR), compounded annually, for the month
in which the bond is issued.
Comments have been received that the credit rate established by
Sec. 1.1397E-1T(b) is generally lower than the rate required to permit
the issuance of qualified zone academy bonds without discount and
without interest cost to the issuer. Comments have also been received
that a single credit rate applicable to obligations issued during a
monthly period is too rigid and non-responsive to market interest rate
movements.
The revised regulations state that the Secretary will determine
monthly (or more often as the Secretary deems necessary) a credit rate
that will generally permit the issuance of qualified zone academy bonds
without discount and without interest cost to the issuers. The revised
regulations also provide that the manner for ascertaining the credit
rate determined by the Secretary will be set forth in procedures,
notices, forms, and instructions as prescribed by the Commissioner. A
notice to be published in the Internal Revenue Bulletin will further
provide that, until otherwise provided, the qualified zone academy bond
credit rate will be determined daily and will be published on the
Internet site for State and Local Government Bonds. The credit rate to
be applied to a qualified zone academy bond will be the daily rate for
the first day on which there is a binding contract in writing for the
sale or exchange of the bond. Treasury and the Internal Revenue Service
will monitor the issuance of qualified zone academy bonds to determine
if future adjustments in the credit rate may be required.
Coordination with Reimbursement Rules
These temporary regulations provide that the proceeds of a
qualified zone academy bond may be used to reimburse a qualified
expenditure (including any qualified non-capital expenditure) made
prior to the date the bond was issued. The temporary regulations
provide that rules similar to the reimbursement rules set forth in
Sec. 1.150-2 will apply. Comments are solicited about whether these
rules provide adequate guidance regarding reimbursement matters for
issuers of qualified zone academy bonds.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply.
See also the Special Analysis Section of the notice of proposed
rulemaking on qualified zone academy bonds in the Proposed Rules
Section of this issue of the Federal Register. Pursuant to section
7805(f) of the Internal Revenue Code, these temporary regulations will
be 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 these regulations is Timothy L. Jones,
Office of Assistant Chief Counsel (Financial Institutions & Products).
However, other personnel from IRS and the 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 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1397E-1T is amended as follows:
1. Revising paragraphs (b) and (j).
2. Redesignating paragraph (h) as paragraph (i).
3. Adding new paragraph (h).
The revisions and additions read as follows:
Sec. 1.1397E-1T Qualified zone academy bonds (temporary).
* * * * *
(b) Credit rate. The Secretary shall determine monthly (or more
often as deemed necessary by the Secretary) the credit rate the
Secretary estimates will generally permit the issuance of a qualified
zone academy bond without discount and without interest cost to the
issuer. The manner for ascertaining the credit rate for a qualified
zone academy bond as determined by the Secretary shall be set forth in
procedures, notices, forms, or instructions prescribed by the
Commissioner.
* * * * *
(h) Reimbursement. An expenditure for a qualified purpose may be
reimbursed with proceeds of a qualified zone academy bond. For this
purpose, rules similar to those in Sec. 1.150-2 shall apply.
* * * * *
(j) Effective dates. Except as provided in this paragraph (j), this
section applies to a qualified zone academy bond issued on or after
January 1, 1998. Paragraph (b) and paragraph (h) of this section shall
apply to a qualified zone academy bond sold on or after July 1, 1999.
Paragraph (b) of this section as in effect
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on January 7, 1998 (See 26 CFR Part 1 as revised April 1, 1999), shall
apply to a qualified zone academy bond sold prior to July 1, 1999. This
section shall not apply to a qualified zone academy bond sold after
January 5, 2001.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Approved: June 22, 1999.
Donald C. Lubick,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 99-16621 Filed 6-30-99; 8:45 am]
BILLING CODE 4830-01-P
