On June 7, new IRS regulations that change the way state and local governments issue tax-exempt bonds went into effect. The new rules change the way municipal issuers determine the issue price of tax-exempt bonds they issue, and amend existing IRS regulations under Section 148 of the Internal Revenue Code. The new rules have produced immediate changes to many common documents used by municipal issuers and their advisors in municipal bond transactions.
The new rules amend Section 1.148-1 of the Code of Federal Regulations, 26 C.F.R. Section 1.148-1, by adding new subsection (f) to include a new definition for issue price. Previously, the definition of issue price was contained in Subsection 1.148-1(b), and provided that issue price carried the meaning given that term in Sections 1273 and 1274 of the code, and that “generally, the issue price of bonds that are publicly offered is the first price at which a substantial amount of the bonds is sold to the public.” A “substantial amount” was defined to mean 10 percent.
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