[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
