SECTION 2. BACKGROUND

Congress from time to time enacts statutory program provisions under the Code or special legislation to authorize various targeted bond programs that permit the issuance of State, local, or Indian tribal government bonds the interest on which is excluded from the gross income of the holders (“tax-exempt bonds”) to facilitate lower borrowing costs, subject to bond volume caps or issuance time deadlines, or both (“targeted bond programs”). Targeted bond programs often involve incentives to provide disaster relief or to promote economic development or redevelopment in underserved areas in targeted circumstances.

Examples of targeted bond programs include the following: (1) certain tax-exempt exempt facility bonds and qualified mortgage bonds known as “GO Zone Bonds” issued under former § 1400(N) for a defined portion of the Hurricane Katrina disaster area known as the “Gulf Opportunity Zone,” subject to a bond volume cap (population-based formula) and an

issuance time deadline (before January 1, 2012); (2) tax-exempt bonds issued under §§ 702(d)(1) and 704(a) of the Heartland Disaster Tax Relief Act of 2008, Pub. L. No. 110-343, 122 Stat. 3912, 3913, 3919 (2008), to provide relief in the Midwestern and Hurricane Ike Disaster Areas, subject to bond volume caps (population-based formulas) and an issuance time deadline (before January 1, 2013); (3) certain tax-exempt exempt facility bonds known as “Recovery Zone Facility Bonds” issued under former § 1400U-3 for projects in certain defined “Recovery Zones,” subject to a bond volume cap ($15 billion nationally) and an issuance time deadline (before January 1, 2011); and (4) Tribal Economic Development Bonds issued by Indian tribal governments under § 7871(f) to finance eligible projects on Indian reservations under program qualification parameters comparable to those that apply to State and local governments under § 103, subject to a bond volume cap ($2 billion).

In the case of the general ongoing program for tax-exempt qualified private activity bonds under § 141(e) that are subject to volume caps, § 146(i) generally authorizes current refunding issues without additional volume cap if the amount of the refunding bonds does not exceed the outstanding amount of the refunded bonds. However, the statutory provisions authorizing targeted bond programs often do not address the permissibility of issuing bonds in current refunding issues ² to refund or refinance bonds originally issued pursuant to these programs. As a result, questions have arisen regarding whether original bonds issued under these targeted bond programs may be refinanced in current refunding issues without additional volume cap and whether such current refunding issues may be issued after an issuance time deadline for the original bonds.

Current refunding issues within appropriate size limits that do not increase the outstanding amount of tax-exempt bonds generally are favored transactions for economic and policy purposes because these transactions are done primarily to reduce

borrowing costs and these transactions also reduce the Federal costs of the associated tax benefit. Previous published guidance permits current refunding issues for several targeted bond programs. See, e.g., Notice 2012-3, 2012-3 I.R.B. 289 (GO Zone, Midwest, and Hurricane Ike Disaster Area Bonds); Notice 2014-9, 2014-5 I.R.B. 455 (Recovery Zone Facility Bonds); see also Notice 2003-40, 20032 C.B. 10 (treatment of current refunding issues and other tax issues regarding New York Liberty Bonds).

The purpose of this notice is to reduce or eliminate the need for separate program-by-program guidance on this favored type of refinancing for each such program, subject to applicable statutory restrictions.