SECTION 1. Purpose

This notice clarifies, amends, supplements, and supersedes Notice 2008–27, 2008–10 I.R.B. 543 (March 10, 2008), regarding reissuance standards for tax-exempt bonds. The Internal Revenue Service (“IRS”) and the Treasury Department expect to issue regulations under § 150 of the Internal Revenue Code of 1986, as amended (“Code”) 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. (Except as noted, section references in this notice are to the Code and the Income Tax Regulations). This notice provides interim guidance until the promulgation of such regulations. 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.

In general, this notice clarifies, amends, supplements, and supersedes Notice 2008–27, which modified certain special reissuance standards for “qualified tender bonds” under IRS Notice 88–130, 1988–2 C.B. 543, for purposes of § 103 and §§ 141 through 150, and modified certain aspects of the application of § 1.1001–3 of the Income Tax Regulations as they apply to tax-exempt bonds.

The following discussion summarizes the changes and clarifications to Notice 2008–27 made in this notice: Qualified Tender Bond Rules . With respect to the qualified tender bond provisions, this notice does the following: (1) it clarifies that the determination of whether a bond is a “qualified tender bond” is generally applied on a bond-by-bond basis, except to the extent that such test requires a determination of the weighted average maturity of the entire issue; (2) it adds qualified inflation rates and qualified inverse floating rates under § 1.1275–5(c) as

eligible interest rates for qualified tender bonds; and (3) it clarifies how the 90-day remarketing requirement in the definition of a qualified tender right operates but also provides a temporary 180-day remarketing requirement.

New Temporary Rule Allowing Gov- ernmental Issuers to Purchase Their Own Auction Rate Bonds . In order to facilitate liquidity in the tax-exempt market in light of current market conditions, this notice introduces a temporary rule which allows a governmental issuer to purchase its own tax-exempt auction rate bonds on a temporary basis without causing a retirement or extinguishment of the debt represented by the purchased tax-exempt bonds.

Certain Arbitrage Rules . This notice also adds several rules which address the consequences of certain actions for purposes of the arbitrage investment restrictions under § 148, including actions taken pursuant to this notice relating to qualified hedges, purchases of tax-exempt bonds by conduit borrowers, and sales of bonds at a market premium pursuant to a qualified interest rate mode change under this notice. This notice supplements the arbitrage rule on the treatment of minor modifications of qualified hedges from Notice 2008–27 with a rule which provides that a deemed termination of an otherwise qualified hedge under § 1.148–4(h) will not result from bonds being held by or on behalf of a governmental issuer during the 90-day permitted holding period or the temporary 180-day permitted holding period for remarketing pursuant to a qualified tender right or during the 180-day permitted holding period for temporary purchases of auction rate bonds. With respect to a conduit borrower’s purchase of tax-exempt bonds, the notice adds a special rule which provides that such a purchase will not cause a violation of a technical arbitrage restriction against purchases of tax-exempt bonds by conduit borrowers under the “program investment” definition in § 1.148–1(b) in certain circumstances. Further, with respect to certain permitted resales of bonds at a market premium upon a conversion of the interest rate to a fixed interest rate to maturity, this notice provides that, solely for arbitrage purposes, any premium properly received by

an issuer pursuant to a qualified interest rate mode change is treated as additional sale proceeds (as defined in § 1.148–1(b)).

Certain Special Rules . Finally, with respect to two special rules from Notice 2008–27 which address certain temporary waivers of interest rate caps and certain nonrecourse debt, this notice continues those rules and extends the period during which interest rate caps may be waived without resulting in a significant modification under § 1.1001–3 until October 1, 2008. Changes to Example s This notice removes certain language from Example 2 of Notice 2008–27, because that language has proven confusing. No other inference should be drawn with respect to the transaction. In addition, this notice contains an additional example illustrating the temporary 180-day qualified tender bond remarketing requirement.

Scope and Effective Date . This notice applies solely for purposes of § 103 and §§ 141 through 150. No inference should be drawn regarding whether a debt modification described in this notice would constitute an exchange for purposes of § 1001. 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 is effective as of March 25, 2008. For the scope of application of this notice, see section 8 of this notice.

This notice invites public comment on the guidance provided herein.