SECTION 3. Reissuance Standards for

State and Local Bonds

3.1. Scope and General Rules . The IRS and the Treasury Department expect to promulgate regulations under § 150 to provide guidance on whether tax-exempt bonds are treated as reissued or retired solely for purposes of § 103 and §§ 141 through 150. Specifically, for purposes of § 103 and §§ 141 through 150 only, in the case of a qualified tender bond (as defined herein), any qualified interest rate mode change (as defined herein) and any qualified tender right (as defined herein) will not be treated as a modification under § 1.1001–3. Therefore, for these purposes, a qualified tender bond will not be treated as reissued or retired solely as a result of a qualified interest rate mode change or the existence or exercise of any qualified tender right. Further, in applying § 1.1001–3 to modifications of tax-exempt bonds, any interest rate variance directly resulting from a qualified interest rate mode change will not be treated as a modification under § 1.1001–3, and thus such interest rate variances need not be tested under the change in yield rule for determining significant modifications un

der § 1.1001–3(e)(2). Except as otherwise specifically provided in this notice, the determination of whether any modification to an issue of tax-exempt bonds causes a reissuance or retirement of the tax-exempt bonds for purposes of § 103 and §§ 141 through 150 is based on whether the modifications are significant modifications under § 1.1001–3.

Except as expressly provided herein in the special rules for the treatment of “qualified interest rate mode changes” and “qualified tender rights” on “qualified tender bonds” (all as redefined herein) under § 3 of this notice, the special temporary rule allowing governmental issuers to purchase their own tax-exempt auction rate bonds for a limited holding period under § 4 of this notice, the special arbitrage rules under § 5 of this notice, and the other special rules under § 6 of this notice, a tax-exempt bond generally is treated as reissued or retired on the first date on which: (1) a significant modification to the terms of the bond occurs under § 1.1001–3 or a disposition of the bond otherwise occurs under section 1001; (2) the bond is purchased or otherwise acquired by or on behalf of a governmental issuer (as defined herein); or (3) the bond is otherwise retired or redeemed.

For purposes of determining whether a bond is purchased or otherwise acquired by or on behalf of a governmental issuer, except as otherwise expressly provided in § 3.2(3) and § 4 of this notice, a bond is treated as purchased or otherwise acquired by or on behalf of a person if the bond is purchased or otherwise acquired by that person in a manner that liquidates the bondholder’s investment.

A purchase of a tax-exempt bond by a third-party guarantor or third-party liquidity facility provider pursuant to the terms of a third-party guarantee or third-party liquidity facility is not treated as a purchase or other acquisition by or on behalf of a governmental issuer. Similarly, a purchase of a tax-exempt bond by a conduit borrower that is not a governmental issuer is not treated as a purchase or other acquisition by or on behalf of the governmental issuer.

3.2. Definitions and Operating Rules . The following definitions and special operating rules apply for purposes of this notice only:

2008–15 I.R.B. 744 April 14, 2008

fund the bond with a refunding bond, tender the bond for purchase in a qualified tender right in its capacity as a bondholder, or otherwise resell the bond during this 180-day period. After the end of this 180-day period, however, a governmental issuer generally may not hold its own bond without causing a retirement of such bond under the general rules in § 3.1 of this notice.