SIFMA Submits Comments to IRS on Definition of "Issue Price" of Tax-Exempt Bonds

SIFMA has submitted comments to the IRS on proposed U.S. Treasury regulations relating to the definition of "issue price" of tax-exempt bonds for purposes of the arbitrage rules under Section 148 of the Internal Revenue Code.

According to the letter, SIFMA disagrees with the approach to determining issue price embodied in the proposed regulations, which seeks to formalize policies previously applied through unofficial or non-precedential public statements, examination inquiries and practices of the Tax Exempt Bonds ("TEB") division of the Governmental Entities division of the Tax Exempt and Governmental Entities Division of the IRS.

SIFMA believes it would be inappropriate to abandon the longstanding principle that allows the issue price of tax-exempt bonds to be established by reference to the reasonable expectations of the transaction participants regarding the price at which the bonds will be sold pursuant to a bona fide public offering. The proposed regulations, while "well intentioned," represent an approach to defining and documenting issue price which is unworkable based on limitations on the ability of issuers, underwriters and others to monitor sales of bonds during the order period.

SIFMA encouraged the IRS to maintain the reasonable expectations principle and make refinements that take into account "the reality of market functions" as dictated both by free market processes and currently mandated securities law regulatory procedures applicable to municipal bonds.

See: SIFMA Comment Letter; SIFMA Press Release.