SECTION 1. Purpose.

The Internal Revenue Service (“IRS”) and the Treasury Department expect to issue regulations under § 150 of the Internal Revenue Code of 1986 to modify and clarify the determination of when tax-exempt bonds are treated as reissued or retired solely for purposes of § 103 and §§ 141 through 150. This notice provides interim guidance until the promulgation of such regulations. This notice modifies certain special reissuance standards for “qualified tender bonds” under IRS Notice 88–130, 1988–2 C.B. 543. This notice also modifies certain aspects of the application of § 1.1001–3 of the Income Tax Regulations on debt modifications as they apply to tax-exempt bonds solely for purposes of § 103 and §§ 141 through 150. This notice provides three special rules which address certain temporary waivers of interest rate caps, certain nonrecourse debt, and certain modifications of qualified hedges. In part, this notice is intended to provide greater certainty and flexibility to address certain potential Federal tax issues that have arisen in the tax-exempt bond market as a result of recent rating agency downgrades of major municipal bond insurers and failures of auctions in the auction rate bond sector of the tax-exempt bond market.

This notice applies solely for purposes of § 103 and §§ 141 through 150 of the Code. No inference should be drawn regarding whether a debt modification described in this notice would constitute an exchange for purposes of § 1001 of the Code. In addition, no inference should be drawn about whether similar consequences would obtain if a transaction falls outside the scope of this notice.

This notice invites public comment on the guidance provided herein.