Proposed Rule2026-04798
Guidance on Tax-Exempt Refunding Bonds
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 12, 2026
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations that would update certain arbitrage rules and definitions applicable to tax-exempt and other tax-advantaged bonds by clarifying the time and manner for requesting refunds of overpayment of rebate to the United States, the special transition rule for transferred proceeds, the limitation on allocations to expenditures, and the IRS address for filing defeasance notices. These proposed regulations would also revise the provision addressing certain perpetual State guarantee funds, the definition of tax-exempt bond, and the definition of refunding issue. The proposed regulations would affect issuers of tax-advantaged bonds.
Full Text
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<title>Federal Register, Volume 91 Issue 48 (Thursday, March 12, 2026)</title>
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[Federal Register Volume 91, Number 48 (Thursday, March 12, 2026)]
[Proposed Rules]
[Pages 12118-12123]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-04798]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-117298-21]
RIN 1545-BQ20
Guidance on Tax-Exempt Refunding Bonds
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that would update
certain arbitrage rules and definitions applicable to tax-exempt and
other tax-advantaged bonds by clarifying the time and manner for
requesting refunds of overpayment of rebate to the United States, the
special transition rule for transferred proceeds, the limitation on
allocations to expenditures, and the IRS address for filing defeasance
notices. These proposed regulations would also revise the provision
addressing certain perpetual State guarantee funds, the definition of
tax-exempt bond, and the definition of refunding issue. The proposed
regulations would affect issuers of tax-advantaged bonds.
DATES: Electronic or written comments and requests for a public hearing
must be received by May 11, 2026.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-117298-21) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comment submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-117298-21),
Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Brian Choi of the Office of Associate Chief Counsel (Financial
Institutions and Products), (202) 317-3154 (not a toll-free number);
concerning submission of comments or request for a public hearing,
Publications and Regulations Section at (202) 317-6901 (not a toll-free
number) or by email at <a href="/cdn-cgi/l/email-protection#d4a4a1b6b8bdb7bcb1b5a6bdbab3a794bda6a7fab3bba2"><span class="__cf_email__" data-cfemail="d3a3a6b1bfbab0bbb6b2a1babdb4a093baa1a0fdb4bca5">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed regulations under sections 148 and
150 of the Internal Revenue Code (Code) that would amend the Income Tax
Regulations (26 CFR part 1). Section 148(i) provides an express
delegation of authority for the Secretary of the Treasury or the
Secretary's delegate (Secretary) to prescribe such regulations as may
be necessary or appropriate to carry out the purposes of section 148.
The proposed regulations are also issued under the express delegation
of authority under section 7805(a) of the Code, which authorizes the
Secretary to ``prescribe all needful rules and regulations for the
enforcement of [the Code], including all rules and regulations as may
be necessary by reason of any alteration of law in relation to internal
revenue.''
Background
On June 18, 1993, the Treasury Department and the IRS published
comprehensive final regulations (TD 8476) in the Federal Register (58
FR 33510) on the arbitrage investment restrictions and related
provisions for bonds the interest on which is exempt from Federal
income tax under section 103 of the Code (tax-exempt bonds). The 1993
final regulations have been amended in certain limited respects and, as
amended, are referred to as the ``existing regulations'' in this
preamble.
The exclusion from gross income under section 103 of the interest
on a State or local bond does not extend to an arbitrage bond. Section
148 defines an ``arbitrage bond'' and generally prohibits the
investment of tax-exempt bond proceeds in investments producing a yield
that is materially higher than the yield on the bond issue. See section
148(a) through (e) and (g). The rules related to this prohibition
commonly are referred to as the ``yield restriction rules.'' In
situations in which higher yielding investments of bond proceeds are
permitted, section 148(f) provides, with certain exceptions, that bonds
of an issue will be treated as arbitrage bonds and therefore not tax-
exempt, unless the issuer rebates to the United States at specific
intervals the yield on investments that is in excess of the yield on
the issue. The rules related to this provision are commonly referred to
as the ``rebate rules.'' Failure to meet the requirements of either of
these sets of rules results in the bonds of an issue being arbitrage
bonds under section 148.
Explanation of Provisions
These proposed regulations would update the existing regulations to
reflect a statutory change, clarify aspects of the existing
regulations, and provide rules for situations not addressed in the
existing regulations.
1. Section 1.148-2 Removal of Provision Regarding 150 Percent Debt
Service Limitation
The Tax Reduction Act of 1997, Public Law 105-34, section 1443, 111
Stat. 787, 1054 (1997), amended section 148(d), which provides special
arbitrage rules for reasonably required reserve or replacement funds
applicable to tax-exempt bonds, by striking section 148(d)(3) (former
section 148(d)(3)), which had imposed a limitation on investment in
``nonpurpose investments'' applicable to bonds issued on or before
August 5, 1997. These proposed regulations would remove existing Sec.
1.148-2(f)(2)(iv), which relates to former section 148(d)(3).
2. Section 1.148-3 Amendment to Rules for Recovery of Overpayments of
Rebate
Section 1.148-3(i)(1) of the existing regulations provides that, in
general, an
[[Page 12119]]
issuer may recover an overpayment for an issue of tax-exempt bonds by
establishing to the satisfaction of the Commissioner of Internal
Revenue that the overpayment occurred. An overpayment is the excess of
the amount paid to the United States for an issue under section 148
over the sum of the ``rebate amount'' for the issue (as defined in
existing Sec. Sec. 1.148-1(b) and 1.148-3(b)) as of the most recent
``computation date'' (as defined in existing Sec. 1.148-3(e)) and all
amounts that are otherwise required to be paid under section 148 as of
the date the recovery is requested by the issuer. These amounts include
overpayments of arbitrage rebates, penalties in lieu of arbitrage
rebates, and yield reduction payments.
Existing Sec. 1.148-3(i)(3)(i) provides that an issuer must
request a refund of an overpayment (claim) no later than the date that
is two years after the final computation date for the issue to which
the overpayment relates (filing deadline). Existing Sec. 1.148-3(e)(2)
provides that the final computation date generally is the date that an
issue is discharged (for example, retired at maturity or redeemed
earlier). Existing Sec. 1.148-3(g) provides that each rebate payment
must be paid no later than 60 days after the computation date to which
the payment relates.
In certain circumstances involving payments to the United States
made under section 148 after the final computation date, the filing
deadline in the existing regulations may not provide an adequate
opportunity for issuers of tax-advantaged bonds to recover such
overpayments. Rev. Proc. 2024-37, 2024-41 I.R.B. 755 (October 7, 2024),
extended the time for filing claims to ensure that issuers have a
reasonable opportunity to recover overpayments made both before and
after the final computation date. Section 4.02 of Rev. Proc. 2024-37
provides that an issuer must file a claim with respect to an issue of
bonds no later than two years after (1) the date that is 60 days after
the final computation date of the issue to which the payment relates;
or (2) with respect to the portion of the overpayment paid more than 60
days after the final computation date, the date that the payment was
made to the United States. These proposed regulations would amend
existing Sec. 1.148-3(i)(3)(i) to reflect the revised filing deadline
provided in Rev. Proc. 2024-37.
3. Section 1.148-5 Amendment to the Special Transition Rule for
Transferred Proceeds
Existing Sec. 1.148-5 provides rules for computing the yield and
value of investments allocated to an issue for various purposes under
section 148. See existing Sec. 1.148-5(a). In general, under existing
Sec. 1.148-5(d)(1), the value of an investment on a date must be
determined consistently for all purposes of section 148 on that date
using one of three valuation methods: (1) outstanding principal amount
plus accrued unpaid interest for a plain par investment; (2) present
value for a fixed rate investment; or (3) fair market value for any
investment. In certain instances, existing Sec. 1.148-5(d)(2) and (3)
require investments to be valued at present value or fair market value.
Existing Sec. 1.150-1(d) defines a ``refunding issue'' generally
to mean an issue of obligations the proceeds of which are used to pay
principal, interest, or redemption price on another issue, provided the
obligor of one issue is also the obligor of the other issue or a
related party (as defined in existing Sec. 1.150-1(b)) with respect to
the obligor of the other issue. Pursuant to existing Sec. 1.148-
9(b)(1), when proceeds of a refunding issue discharge any of the
outstanding principal of a prior issue, proceeds of the prior issue
become transferred proceeds of the refunding issue and cease to be
proceeds of the prior issue. Under existing Sec. 1.148-9(c)(1)(ii),
when proceeds of a prior issue become transferred proceeds of a
refunding issue, investments (and the related payments and receipts) of
proceeds of the prior issue are allocated to the transferred proceeds.
Existing Sec. 1.148-5(d)(4) provides that the value of a ``nonpurpose
investment'' (defined in existing Sec. 1.148-1(b)) that is allocated
to transferred proceeds of a refunding issue on a transfer date may not
exceed the value of that investment on the transfer date used for
purposes of applying the arbitrage restrictions to the refunded issue.
Questions have been raised about the meaning of the phrase
``arbitrage restrictions'' in existing Sec. 1.148-5(d)(4), which the
existing regulations do not define. Some issuers have interpreted that
phrase to refer only to the yield restriction rules and not to the
rebate rules. The Treasury Department and the IRS disagree with such an
interpretation. If this special rule for transferred proceeds is not
applied for all purposes of section 148, an issuer could, for example,
avoid rebating excess investment yield by refunding the bonds and using
a different valuation method for investments than was used in
determining rebate for the prior issue. Proposed Sec. 1.148-5(d)(4)
would clarify that the limit under this special transition rule for
transferred proceeds is the value of that investment on the transfer
date used for all purposes of applying section 148 to the refunded
issue.
4. Section 1.148-6 Amendment to Allocation to Expenditures
Existing Sec. 1.148-6(d)(1)(i) provides reasonable accounting
methods for allocating funds from different sources to expenditures for
the same governmental purpose. Existing Sec. 1.148-6(d)(1)(ii)
provides that an allocation of gross proceeds of an issue to an
expenditure must involve a current outlay of cash for a governmental
purpose of the issue. A ``current outlay of cash'' means an outlay
reasonably expected to occur not later than five banking days after the
date as of which the allocation of gross proceeds to the expenditure is
made. Existing Sec. 1.148-6(d)(1)(iii) generally requires the issuer
to account for the allocation of proceeds to expenditures not later
than 18 months after the later of the date the expenditure is paid or
the date the project, if any, that is financed by the issue is placed
in service. This allocation must be made in any event by the date 60
days after the fifth anniversary of the issue date or the date 60 days
after the retirement of the issue, if earlier.
There have been questions about whether an issuer can allocate from
a source of funds that the issuer receives after the cash outlay but
before the deadline to account for its allocations. These questions
evidence a confusion between the period allowed for making allocations
(the timing rule in existing Sec. 1.148-6(d)(1)(iii)) and the date as
of which the allocation to the expenditure is made under the current
outlay of cash requirement in existing Sec. 1.148-6(d)(1)(ii). The
timing rule allows an issuer an extended period in which to do its
accounting for expenditures of gross proceeds; this rule does not
change the sources of funds that an issuer had available on the
reasonably expected date of the cash outlay. Proposed Sec. 1.148-
6(d)(1)(ii) would eliminate this confusion by clarifying that to
allocate funds from a specific source to an expenditure, those funds
must be held by or on behalf of the issuer on the date of the cash
outlay.
[[Page 12120]]
5. Section 1.148-11 Amendment to Transition Rule for Certain State
Guarantee Funds
Existing Sec. 1.148-11(d)(1) provides a rule that allows certain
State perpetual trust funds (for example, certain State permanent
school funds) to pledge funds to guarantee tax-exempt bonds without
resulting in arbitrage-restricted replacement proceeds. The demand for
public school bond guarantees continues to grow as student populations
expand and existing school buildings age. As a result, certain State
perpetual trust funds were approaching the limited capacity under
existing Sec. 1.148-11(d)(1) to provide such guarantees without
resulting in arbitrage-restricted replacement proceeds. In Notice 2023-
39, 2023-22 I.R.B. 877 (May 30, 2023), the Treasury Department and the
IRS stated their intent to propose regulations to revise the
determination of the amount of tax-exempt bonds that such funds could
guarantee under this special rule and requested comments on the interim
guidance set forth in the Notice. The comments received supported the
revision to the regulations. Accordingly, proposed Sec. 1.148-
11(d)(1)(i) would include this proposed change and would revise the
cross-reference in Sec. 1.148-11(d)(1)(i)(E) by substituting
paragraphs (d)(1)(i)(A) through (d)(1)(i)(C) for paragraphs (d)(1)(i)
through (d)(1)(iii).
6. Section 1.150-1 Amendments to Definitions
a. Amendment to the Definition of Tax-Exempt Bond
Existing Sec. 1.150-1(b) defines ``tax-exempt bond'' to mean any
bond the interest on which is excludable from gross income under
section 103(a). For purposes of section 148, the definition also
includes a certificate of indebtedness issued by the United States
Treasury pursuant to the Demand Deposit State and Local Government
Series program described in 31 CFR part 344 (the SLGS regulations).
Existing Sec. 1.148-1(c)(4)(ii)(E) defines ``eligible tax-exempt
bonds'' for purposes of the safe harbor for longer-term working capital
financings in existing Sec. 1.148-1(c)(4)(ii). This definition
similarly includes a certificate of indebtedness issued pursuant to the
Demand Deposit State and Local Government Series program described in
the SLGS regulations.
Section 344.7(b) of the SLGS regulations provides that at any time
the Secretary determines that issuance of obligations sufficient to
conduct the orderly financing operations of the United States cannot be
made without exceeding the statutory debt limit, the Bureau of the
Fiscal Service may invest any unredeemed Demand Deposit securities in
special 90-day certificates of indebtedness. When regular Treasury
borrowing operations resume, the special 90-day certificates of
indebtedness, along with accrued interest, are reinvested in Demand
Deposit securities. The Treasury Department and the IRS have determined
that the involuntary conversion of a Demand Deposit security into
special 90-day certificates of indebtedness during a debt limit
contingency may lead to a failure to comply with the rules under
section 148, such as the yield restriction rules, which would result in
an arbitrage bond. To address this situation, proposed Sec. 1.150-
1(b)(2) would add the special 90-day certificate of indebtedness to the
definition of tax-exempt bond for purposes of section 148. Proposed
Sec. 1.148-1(c)(4)(ii)(E)(3) similarly would amend the safe harbor for
longer-term working capital financings to add the special 90-day
certificate of indebtedness to the definition of eligible tax-exempt
bonds.
b. Amendment to the Definition of Refunding Issue
Existing Sec. 1.150-1(d) defines a ``refunding issue'' generally
to mean an issue of obligations the proceeds of which are used to pay
principal, interest, or redemption price on another issue, provided the
obligor of one issue is also the obligor of the other issue or a
related party with respect to the obligor of the other issue.
For this purpose, if proceeds are used to finance a purpose
investment (as defined in existing Sec. 1.148-1(b)), the obligor means
the conduit borrower of the purpose investment rather than the actual
issuer of the bonds, except that, for qualified mortgage loans,
qualified student loans, and similar program investments (as defined in
existing Sec. 1.148-1), the obligor does not include the ultimate
recipients of the loans (for example, the homeowner or the student).
Existing Sec. 1.150-1(d)(2)(iii) provides, with one exception, that
the use of the proceeds of an issue that refunds a purpose investment
by the actual issuer of the conduit financing issue determines whether
that issue is also a refunding of the issue that originally financed
the purpose investment. Existing Sec. 1.150-1 does not provide a
definition of ``proceeds'' for this purpose.
Questions have arisen regarding the determination of whether an
issue that is used to refinance qualified student loans is a refunding
issue. Issuers have expressed concern that if the borrowers of the
refinancing loans repay their original loans and the issuer then uses
the funds to redeem the bonds that financed the original loans, the
bonds might be treated as refunding bonds and, because this redemption
would often occur more than 90 days after the issuance of the bonds
used for refinancing the qualified student loans, potentially treated
as advance refunding bonds the interest on which would not be exempt
from Federal income tax. This would prevent issuers from issuing tax-
exempt bonds to refinance the qualified student loans of their existing
borrowers. In Notice 2024-32, 2024-16 I.R.B. 897 (April 15, 2024), the
Treasury Department and the IRS provided that an issue is not a
refunding issue to the extent that the actual issuer reasonably expects
as of the issue date of the issue to use net proceeds of the issue
within two years of the issue date to refinance one or more obligations
that are qualified student loans. Proposed Sec. 1.150-1(d)(2)(iii)(C)
would add this provision to the special rules for purpose investments.
This special rule would apply even if the actual issuer's ultimate use
of the proceeds lent to the borrowers is the payment of principal,
interest, or redemption price on another issue.
Another question that has arisen concerns whether the use of
investment proceeds from the repayments of qualified student loans or
qualified mortgage loans allocated to one issue to redeem bonds of
another issue, a practice sometimes referred to as ``cross-calling,''
results in bonds of the former issue being treated as taxable advance
refunding bonds. An issuer engaged in cross-calling first uses proceeds
of the issue to make qualified student loans or qualified mortgage
loans and then uses the repayments of the loans to redeem bonds,
generally selecting bonds with the highest interest rates. In Notice
2024-32, the Treasury Department and the IRS defined ``proceeds'' for
purposes of determining whether an issue is a refunding issue to
include any sales proceeds, investment proceeds, or transferred
proceeds (all as defined in existing Sec. 1.148-1(b)), but the
definition expressly excludes investment proceeds (or transferred
proceeds allocable to investment proceeds) received from investing in a
qualified student loan or qualified mortgage loan. Proposed Sec.
1.150-1(d)(6) would add this definition.
[[Page 12121]]
7. Section 1.150-5 Amending the Address for Filing Notices and
Elections
Existing Sec. 1.150-5(a) provides that certain notices and
elections must be filed with the Internal Revenue Service, 1111
Constitution Avenue NW, Attention: T:GE:TEB:O, Washington, DC 20024 or
such other place designated by publication of a notice in the Internal
Revenue Bulletin. The address specified in the existing regulations is
outdated, and the use of this outdated address is inefficient because
it delays appropriate routing of the notices and elections. Proposed
Sec. 1.150-5(a) would delete the specified address and expand the
options for publication of the address to include any publication in
the Internal Revenue Bulletin or on the IRS website, such as at <a href="https://www.irs.gov/bondsmailing">https://www.irs.gov/bondsmailing</a> or a successor IRS web page. These revisions
will increase efficiency by facilitating the timely receipt of the
filings by the IRS and permit the IRS to more efficiently publish any
address changes for the filings of the specified notices and elections.
Proposed Applicability Dates
In general, the proposed regulations are proposed to apply to bonds
sold on or after the date 90 days after the date of publication of
final regulations in the Federal Register. However, the removal of
existing Sec. 1.148-2(f)(2)(iv) is proposed to apply as of the date of
publication of final regulations in the Federal Register. Proposed
Sec. 1.148-3(i)(3)(i) is proposed to apply to claims arising from an
issue of bonds to which Sec. 1.148-3(i) will apply and that are filed
with the IRS on or after the date of publication of final regulations
in the Federal Register. Proposed Sec. 1.150-5(a) is proposed to apply
to notices and elections filed after the date 30 days after the date of
publication of final regulations in the Federal Register. Issuers of
tax advantaged bonds may rely on proposed Sec. 1.150-1(b)(2), which
would add the special 90-day certificate of indebtedness to the
definition of tax-exempt bond for purposes of section 148, and proposed
Sec. 1.148-1(c)(4)(ii)(E)(3), which would amend the safe harbor for
longer-term working capital financings to add the special 90-day
certificate of indebtedness to the definition of eligible tax-exempt
bonds, prior to the applicability date of the final regulations.
Special Analyses
I. Regulatory Planning and Review
These proposed regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement
(July 4, 2025) between the Treasury Department and the Office of
Management and Budget regarding review of tax regulations.
The Executive Order 14192 designation for this proposed rule, if
finalized, is expected to be deregulatory.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these proposed regulations would not have a
significant economic impact on a substantial number of small entities.
The proposed regulations would affect State and local governments that
issue tax-exempt bonds. States are not considered small entities for
purposes of the Regulatory Flexibility Act, but small governmental
jurisdictions (jurisdictions with populations less than 50,000) are
considered small entities. The Treasury Department and the IRS do not
have data on how many small governmental jurisdictions may be affected
by these proposed regulations, but it may be a substantial number. Even
if a substantial number of small entities were affected, the economic
impact of these regulations would not be significant. These proposed
regulations would clarify existing final regulations, incorporate a
statutory change and integrate guidance published in Rev. Proc. 2024-
37, Notice 2023-39, and Notice 2024-32. Therefore, these proposed
regulations would not create significant additional obligations for, or
impose any meaningful economic impact on, a substantial number of small
entities. Accordingly, the Secretary certifies that the proposed
regulations would not have a significant economic impact on a
substantial number of small entities and a regulatory flexibility
analysis under the Regulatory Flexibility Act is not required.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. These proposed rules do not include any Federal mandate that
may result in expenditures by State, local, or Tribal governments, or
by the private sector in excess of that threshold.
IV. Submission to the Small Business Administration
Pursuant to section 7805(f) of the Code, these proposed regulations
have been submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small business.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ADDRESSES heading.
The Treasury Department and the IRS request comments on all aspects of
the proposed regulations. Any comments submitted will be made available
at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. A public hearing will
be scheduled if requested in writing by any person who timely submits
electronic or written comments. Requests for a public hearing are
encouraged to be made electronically. If a public hearing is scheduled,
notice of the date, time, and place for the hearing will be published
in the Federal Register.
Availability of IRS Documents
The IRS Revenue Procedure and Notices cited in this preamble are
published in the Internal Revenue Bulletin and available from the
Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal authors of these regulations are Brian Choi and Zoran
Stojanovic of the Office of Associate Chief Counsel (Financial
Institutions and Products). However, other personnel from the Treasury
Department and the IRS participated in their development.
[[Page 12122]]
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.148-0 through 1.148-11 also issued under 26 U.S.C.
148(i).
* * * * *
0
Par. 2. Section 1.148-0 is amended, in paragraph (c), in the table of
contents for Sec. 1.148-11, by revising the section heading for Sec.
1.148-11 and adding entries for Sec. 1.148-11(o) and (p) to read as
follows:
Sec. 1.148-0 Scope and table of contents.
* * * * *
(c) * * *
Sec. 1.148-11 Applicability dates.
* * * * *
(o) Certain clarifying amendments.
(p) Removal of Sec. 1.148-2(f)(2)(iv).
0
Par. 3. Section 1.148-1 is amended by revising paragraph
(c)(4)(ii)(E)(3) to read as follows:
Sec. 1.148-1 Definitions and elections.
* * * * *
(c) * * *
(4) * * *
(ii) * * *
(E) * * *
(3) A certificate of indebtedness, including a special 90-day
certificate of indebtedness, issued by the United States Treasury
pursuant to the Demand Deposit State and Local Government Series
program described in 31 CFR part 344.
* * * * *
Sec. 1.148-2 [Amended]
0
Par. 4. Section 1.148-2 is amended by removing paragraph (f)(2)(iv).
0
Par. 5. Section 1.148-3 is amended by revising paragraph (i)(3)(i) to
read as follows:
Sec. 1.148-3 General arbitrage rebate rules.
* * * * *
(i) * * *
(3) * * *
(i) An issuer must request a refund of an overpayment (claim) using
the form provided by the Commissioner for this purpose. The claim must
be made with respect to an issue of bonds no later than the date
(filing deadline) that is two years after--
(A) The date that is 60 days after the final computation date of
the issue to which the payment relates; or
(B) With respect to the portion of the overpayment paid more than
60 days after the final computation date, the date that the payment was
made to the United States.
* * * * *
0
Par. 6. Section 1.148-5 is amended by revising paragraph (d)(4) to read
as follows:
Sec. 1.148-5 Yield and valuation of investments.
* * * * *
(d) * * *
(4) Special transition rule for transferred proceeds. The value of
a nonpurpose investment that is allocated to transferred proceeds of a
refunding issue on a transfer date may not exceed the value of that
investment on the transfer date used for purposes of applying section
148 to the refunded issue.
* * * * *
0
Par. 7. Section 1.148-6 is amended by adding a sentence to the end of
paragraph (d)(1)(ii) to read as follows:
Sec. 1.148-6 General allocation and accounting rules.
* * * * *
(d) * * *
(1) * * *
(ii) * * * To allocate funds from a specific source to an
expenditure, those funds must be held by or on behalf of the issuer on
the date of the cash outlay.
* * * * *
0
Par. 8. Section 1.148-11 is amended by:
0
1. Revising the section heading.
0
2. Revising paragraphs (d)(1)(i)(E) and (F), and (k)(3)(i).
0
3. Adding paragraphs (o) and (p).
The revisions and additions read as follows:
Sec. 1.148-11 Applicability dates.
* * * * *
(d) * * *
(1) * * *
(i) * * *
(E) The fund satisfied each of the requirements of paragraphs
(d)(1)(i)(A) through (C) of this section on August 16, 1986; and
(F) As of the sale date of the bonds to be guaranteed, the amount
of the bonds to be guaranteed by the fund plus the then-outstanding
amount of bonds previously guaranteed by the fund does not exceed a
total amount equal to 500 percent of the total costs of the assets held
by the fund.
* * * * *
(k) * * *
(3) * * *
(i) Section 1.148-3(i)(3)(i) applies to claims arising from an
issue of bonds to which Sec. 1.148-3(i) applies and that are filed
with the Internal Revenue Service on or after [the date of publication
of final regulations in the Federal Register].
* * * * *
(o) Certain clarifying amendments. Sections 1.148-
1(c)(4)(ii)(E)(3), 1.148-5(d)(4), 1.148-6(d)(1)(ii), and paragraphs
(d)(1)(i)(E) and (F) of this section apply to bonds sold on or after
[the date 90 days after the date of publication of final regulations in
the Federal Register].
(p) Removal of Sec. 1.148-2(f)(2)(iv). The removal of Sec. 1.148-
2(f)(2)(iv) applies as of [the date of publication of final regulations
in the Federal Register].
0
Par. 9. Section 1.150-1 is amended by:
0
1. Adding paragraph (a)(5).
0
2. In paragraph (b), revising the definition of Tax-exempt bond.
0
3. Revising paragraphs (d)(1) and (d)(2)(iii)(A).
0
4. Redesignating paragraph (d)(2)(iii)(C) as paragraph (d)(2)(iii)(D).
0
5. Adding new paragraph (d)(2)(iii)(C) and paragraph (d)(6).
The additions and revisions read as follows:
Sec. 1.150-1 Definitions.
(a) * * *
(5) Applicability date for special rules for purpose investments
and definition of proceeds. The definition of tax-exempt bond in
paragraph (b) of this section and paragraphs (d)(1), (d)(2)(iii)(A) and
(C), and (d)(6) of this section apply to bonds sold on or after [the
date 90 days after the date of publication of final regulations in the
Federal Register].
(b) * * *
Tax-exempt bond means any bond the interest on which is excludable
from gross income under section 103(a). For purposes of section 148,
tax-exempt bond includes:
(1) An interest in a regulated investment company to the extent
that at least 95 percent of the income to the holder of the interest is
interest that is excludable from gross income under section 103; and
(2) A certificate of indebtedness, including a special 90-day
certificate of indebtedness, issued by the United States Treasury
pursuant to the Demand Deposit State and Local Government
[[Page 12123]]
Series program described in 31 CFR part 344.
* * * * *
(d) * * *
(1) General definition of refunding issue. Refunding issue means an
issue of obligations the proceeds (as defined in paragraph (d)(6) of
this section) of which are used to pay principal, interest, or
redemption price on another issue (a prior issue, as more particularly
defined in paragraph (d)(5) of this section), including the issuance
costs, accrued interest, capitalized interest on the refunding issue, a
reserve or replacement fund, or similar costs, if any, properly
allocable to that refunding issue.
(2) * * *
(iii) * * *
(A) Refunding of a conduit financing issue by a conduit loan
refunding issue. Except as provided in paragraphs (d)(2)(iii)(B) and
(C) of this section, the use of the proceeds of an issue that is used
to refund an obligation that is a purpose investment (a conduit
refunding issue) by the actual issuer of the conduit financing issue
determines whether the conduit refunding issue is a refunding of the
conduit financing issue (in addition to a refunding of the obligation
that is the purpose investment).
* * * * *
(C) Issue used to refinance qualified student loans. An issue is
not a refunding issue to the extent that the actual issuer reasonably
expects as of the issue date of the issue to use net proceeds of the
issue within two years of the issue date to refinance one or more
obligations that are qualified student loans (as defined in paragraph
(b) of this section).
* * * * *
(6) Definition of proceeds. For purposes of this paragraph (d),
proceeds means any sale proceeds, investment proceeds, or transferred
proceeds (all as defined in Sec. 1.148-1(b)), except that proceeds
does not include investment proceeds (or transferred proceeds allocable
to investment proceeds) received from investing in a qualified mortgage
loan or a qualified student loan.
* * * * *
0
Par. 10. Section 1.150-5 is revised to read as follows:
Sec. 1.150-5 Filing notices and elections.
(a) In general. Notices and elections under the following sections
must be filed with the Internal Revenue Service at such place
designated by guidance published in the Internal Revenue Bulletin (see
Sec. 601.601(d) of this chapter) or on the IRS website (<a href="https://www.irs.gov">https://www.irs.gov</a>)--
(1) Section 1.141-12(d)(4);
(2) Section 1.142(f)(4)-1; and
(3) Section 1.142-2(c)(2).
(b) Applicability date. This section applies to notices and
elections filed on or after [the date 30 days after the date of
publication of final regulations in the Federal Register].
Frank J. Bisignano,
Chief Executive Officer.
[FR Doc. 2026-04798 Filed 3-11-26; 8:45 am]
BILLING CODE 4831-GV-P
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</html>Indexed from Federal Register on March 12, 2026.
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