SECTION 1. Purpose

This notice provides guidance regarding the effect of adding certain liquidity facilities to support certain auction rate preferred stock on the equity character of the stock for Federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”). (Except as noted, section references in this notice are to the Code.) Previously, in Rev. Rul. 90–27, 1990–1 C.B. 50, the Internal Revenue Service (“IRS”) ruled that certain auction rate preferred stock qualified as equity for Federal income tax purposes, but that ruling did not address the question of the effect of guarantees or liquidity facilities on such equity character. This notice is intended to provide greater certainty and flexibility regarding certain Federal tax issues that have arisen in connection with efforts to address liquidity needs in the auction rate securities market as a result of recent significant auction failures in this market.