SECTION 1. BACKGROUND

The Treasury Department and the Internal Revenue Service (“IRS”) issued Notice 2008–41, 2008–1 C.B. 742 (April 14, 2008), as modified by Notice 2008–88, 2008–42 I.R.B. 933 (October 20, 2008), and Notice 2010–7, 2010–3 I.R.B. 296 (January 19, 2010), to provide relief from liquidity constraints in the tax-exempt bond market during the financial crisis. The notices provided certain temporary rules that allowed state and local governmental issuers to purchase and hold their own tax-exempt bonds for temporary holding periods without resulting in a retirement of the purchased tax-exempt bonds solely for the purposes of § 103 and §§ 141–150 of the Internal Revenue Code, as amended (“Code”). Section 3.2 of Notice 2010–7 provides in relevant part that the permitted holding period during which a state or local governmental issuer may hold its own tax-exempt bonds under the special rules in § 3.1 of Notice 2008–88 expires on December 31, 2010. Separately, certain special rules of continuing application allow state and local governmental issuers to hold their own “qualified tender bonds” for a temporary period pursuant to the exercise of a “qualified tender right” (as defined in § 3.2 of Notice 2008–41) without causing a reissuance or retirement of those bonds. After December 31, 2010, except for tax-exempt bonds held pursuant to rules of continuing application for qualified tender bonds, a state or local governmental issuer generally may not purchase and hold its own tax-exempt bonds without causing a retirement or extinguishment of such bonds (any such bonds so held are referred to as “extinguished bonds”).

For various reasons beyond their control, some issuers that previously purchased their own tax-exempt bonds in the financial crisis pursuant to Notices 2008–41, 2008–88, and 2010–7 were unable to resell the bonds by December 31, 2010. In addition, other issuers may currently need to purchase and hold their own tax-exempt bonds due to certain current market challenges. Some of these issuers have approached the IRS about the possibility of entering into a voluntary closing agreement that would allow them to continue to purchase or hold their own tax-exempt bonds under § 103 of the Code after December 31, 2010.