SECTION 2. BACKGROUND

A debt instrument generally is treated as retired or extinguished when an issuer acquires its own debt because a merger of the interests of the issuer and the holder occurs. Notice 2008–41 provides that under certain rules for qualified tender bonds, a bond purchased by or on behalf of a governmental issuer pursuant to a qualified tender right is not retired until the end of the 90-day period from and after the date of such purchase. In response to liquidity constraints in the tax exempt bond market, § 3.2(3)(b) of Notice 2008–41 extended the 90-day period to 180-days for any purchase by or on behalf of a governmental issuer pursuant to a qualified tender right as long as such purchase occurred before October 1, 2008.

In response to auction failures in the auction rate bond sector of the tax-exempt bond market, Notice 2008–41 provided other temporary rules. Section 4 of Notice 2008–41 allowed governmental issuers to purchase their own tax-exempt auction rate bonds on a temporary basis without

2010–3 I.R.B. 296 January 19, 2010