SECTION 1. PURPOSE — Internal Revenue Bulletin 2001-34

This revenue procedure sets forth a safe harbor under which an issue of tax or revenue anticipation bonds will not be

August 20, 2001 188 2001–34 I.R.B.

are working capital expenditures that are subject to the proceeds-spent-last rule in § 1.148–6(d)(3)(i) and are ineligible for any exception to that rule.

Section 1.148–10(a)(1) provides that bonds of an issue are arbitrage bonds if an abusive arbitrage device under § 1.148–10(a)(2) is used in connection with the issue.
Section 1.148–10(a)(2) provides that any action is an abusive arbitrage device if the action has the effect of (i) enabling the issuer to exploit the difference between tax-exempt and taxable interest rates to obtain a material financial advantage and (ii) overburdening the tax-exempt bond market.
Section 1.148–10(a)(4) provides that an action overburdens the tax-exempt bond market if it results in issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the bonds, based on all the facts and circumstances.
Under § 1.148–10(a)(4), one factor evidencing that bonds may remain outstanding longer than necessary is a term that exceeds the safe harbors against the creation of replacement proceeds under § 1.148–1(c)(4)(i)(B). This factor may be outweighed by other factors, however, such as long-term financial distress.
Section 1.148–1(c)(4)(i)(A) provides that certain replacement proceeds arise to the extent that the issuer reasonably expects as of the issue date that the term of the issue will be longer than is reasonably necessary for the governmental purposes of the issue and that there will be available amounts during the period that the issue remains outstanding longer than necessary. Whether an issue is outstanding longer than necessary is determined under § 1.148–10.
Section 1.148–1(c)(4)(i)(B)(1) provides a safe harbor against the creation of replacement proceeds under § 1.148–1 (c)(4)(i)(A) for the portion of an issue that finances restricted working capital expenditures. This safe harbor is met if that portion is not outstanding longer than 2 years.
Section 1.148–1(c)(4)(i)(B)(2) provides a safe harbor against the creation of replacement proceeds under § 1.148–1(c)(4)(i)(A) for the portion of an

issue (including a refunding issue) that finances or refinances capital projects. This safe harbor is met if that portion has a weighted average maturity that does not exceed 120 percent of the average reasonably expected economic life of the financed capital projects.

Section 1.148–10(d) contains examples illustrating the application of the anti-abuse rules of § 1.148–10. Example 2(i) describes a particular transaction in which an issue is deemed to have a longer weighted average maturity than necessary, notwithstanding that the issue satisfies the safe harbor against the creation of replacement proceeds in § 1.148–1(c) (4)(i)(B)(2).