Treasury Revises Issue Price Regulations

The Treasury Department published in the June 24, 2015 Federal Register new proposed regulations for determining the “issue price” of bonds. The same announcement also withdrew the proposed regulations published in 2013 (the “2013 proposed regulations”) relating to the determination of the issue price of bonds. The “issue price” is important because it is used in calculating the yield on bonds, which is relevant for determining compliance with a number of rules in the tax exempt bond area, including but not limited to, the yield restriction rules and arbitrage rebate rules. Generally, under existing regulations, 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. Under the existing regulations, a “substantial amount” is defined as 10%. The existing regulations also provide that for bonds for which a bona fide public offering is made, the issue price is determined as of the sale date based on reasonable expectations regarding the initial issue price. These existing rules have led to significant confusion about the proper determination of the issue price especially in those situations in which less than 10% of bonds of a maturity are sold as of the sale date.

The Treasury issued the 2013 proposed regulations to clarify the method of determining the issue price. The 2013 proposed regulations would have imposed a 25% requirement on the amount of bonds sold before the amount sold was treated as a “substantial amount,” and were also criticized as not providing sufficient certainty as to the determination of the issue price as of the sale date. Following receipt of many comments about the 2013 proposed regulations, the Treasury withdrew the 2013 proposed regulations and proposed new regulations.