SECTION 1. PURPOSE

This revenue procedure provides an election that will facilitate the substitution of newly issued debt instruments for outstanding debt instruments. Under the election, taxpayers can treat a substitution of debt instruments, in certain circumstances, as a realization event for federal income tax purposes even though it does not result in a significant modification under § 1.1001–3 of the Income Tax Regulations (and, therefore, is not otherwise an exchange for purposes of § 1.1001–1(a)). Under section 4 of this revenue procedure, taxpayers do not recognize any realized gain or loss on the date of the substitution. Instead, the gain or loss generally is taken into account as income or deductions over the term of the new debt instruments.

This revenue procedure modifies and supersedes Rev. Proc. 99–18, 1999–1 C.B. 736, which, as modified by Rev. Proc. 2000–29, 2000–28 I.R.B. 113, applies to substitutions that occur on or

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after March 1, 1999. The significant changes to Rev. Proc. 99–18 are as follows:

.01 The newly issued debt may be debt issued in a qualified reopening;

.02 The outstanding debt may have been issued with premium; and

.03 The determination of whether a substitution does or does not result in a significant modification may be made on the substitution date or, in most cases, on the date that is two business days before the date on which the substitution offer commences.