SECTION 3. SCOPE AND

APPLICATION

.01 Guidance and Reliance . Pending the promulgation and effective date of future administrative or regulatory guidance, taxpayers may rely on the guidance provided in this Notice.

.02 Scope of Application . This Notice applies to any current refunding issue that is used (directly or indirectly in a series of current refunding issues) to refund Qualified Bonds described in Section 1 of this Notice if the following requirements are met:

(1) The original Qualified Bonds were issued before the Applicable Deadline, or any statutory extension of such deadline.

(2) Except as provided herein, the “issue price” (as defined in § 1.148–1(b)) of the current refunding issue is no greater than the outstanding stated principal amount of the refunded bonds. For refunded bonds originally issued with more than a de minimis amount of original issue discount or premium (as defined in § 1.148–1(b)), the present value of the refunded bonds (as determined under § 1.148–4(e)) must be used in lieu of the outstanding stated principal amount to determine the maximum issue price of the current refunding issue.

Bulletin No. 2014–5 455 January 27, 2014

asset understatements under section 6662(j). Section 6662(b)(2) applies to the portion of an underpayment of tax that is attributable to a substantial understatement of income tax.

.02 There is a substantial understatement of income tax if the amount of the understatement exceeds the greater of 10 percent of the amount of tax required to be shown on the return for the taxable year or $5,000. Section 6662(d)(1). Section 6662(d)(1)(B) provides a special rule for corporations. A corporation (other than an S corporation or a personal holding company) has a substantial understatement of income tax if the amount of the understatement exceeds the lesser of (i) 10 percent of the tax required to be shown on the return for a taxable year (or, if greater, $10,000) or (ii) $10,000,000. An understatement is the excess of the amount of tax required to be shown on the return for the taxable year over the amount of the tax that is shown on the return reduced by any rebate. Section 6662(d)(2).

.03 In the case of an item not attributable to a tax shelter, if the taxpayer has a reasonable basis for the tax treatment of the item, the amount of the understatement is reduced by the portion of the understatement attributable to any item with respect to which the relevant facts affecting the item’s tax treatment are adequately disclosed in the return or in a statement attached to the return. Section 6662(d)(2)(B)(ii). .04 Section 6694(a) imposes a penalty on a tax-return preparer who prepares a return or claim for refund reflecting an understatement of liability due to an “unreasonable position” if the tax return preparer knew (or reasonably should have known) of the position. A position (other than a position with respect to a tax shelter or a reportable transaction to which section 6662A applies) is generally treated as unreasonable unless (i) there is or was substantial authority for the position, or (ii) the position was properly disclosed in accordance with section 6662(d)(2)(B)(ii)(I) and had a reasonable basis. If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is treated as unreasonable unless it is reasonable to believe

(3) The current refunding issue meets all applicable requirements for the issuance of tax-exempt private activity bonds as Qualified Bonds (other than the Applicable Deadline), including, without limitation, the requirement under § 147(b) that the average maturity of the bonds issued as part of such issue be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced with the net proceeds of such issue.

.03 Guidance . A current refunding issue that meets the requirements of section 3.02 of this Notice may be issued after the Applicable Deadline for the issuance of the original Qualified Bonds and will be treated as an issue of Qualified Bonds. In addition, in the case of such a current refunding issue, the designation of the original Qualified Bonds by a specified State or local governmental official or state bond commission that meets the designation requirement of § 1400U– 3(b)(1)(C) for Recovery Zone Facility Bonds is treated as meeting this designation requirement for the current refunding issue without further designation or further official State or local governmental action.

.04 No Inferences . Other than bonds issued to currently refund Qualified Bonds, to which this Notice expressly applies, no inference should be drawn from this Notice that bonds issued to refund other types of bonds, such as build America bonds under § 54AA, after their statutory deadline for issuance meet the qualifications for such types of bonds.