Tax-Exempt Bond Provisions of HR2775, the tax simplification bill introduced by House Ways and Means Chairman Dan Rostenkowski, D-Ill.
EXPLANATION OF BOND PROVISIONS
1. Overview
Interest on state and local government bonds generally is excluded from gross income for purposes of the regular individual and corporate income taxes if the proceeds of the bonds are used to finance direct activities of these governmental units (Code sec. 103).
Unlike the interest on governmental bonds, described above, interest on private activity bonds generally is taxable. A private activity bond is a bond issued by a state or local governmental unit acting as a conduit to provide financing for private parties in a manner violating either (a) a private business use and payment test or (b) a private loan restriction. However, interest on private activity bods is not taxable if (a) the financed activity is specified in the Code and (b) at least 95% of the net proceeds of the bond issue are used to finance the specified activity.
Issuers of state and local government bonds must satisfy numerous other requirements, including arbitrage restrictions (for all such bonds) and annual state volume limitations (for most private activity bonds) for the interest on their bonds to be excluded from gross income.
2. Provisions of the bill
a. Repeal of unrelated and disproportionate use limit (sec. 201 of the bill and sec. 141(b) of the Code)
Present Law
Bonds issued by states and local governmental units are private activity bonds if (1) more than 10% of the proceeds of the issue of which they are part satisfy a private business use and payment test or (2) more than 5% ($5 million, if less) of the proceeds are used to finance loans to persons other than states or local governments. The 10% private business limits are reduced to 5% in the case of certain use that is unrelated to a governmental use also being financed with the proceeds of the issue (the "unrelated and disproportionate use limit").
Reasons for Simplification
Whether a private business use is related to a governmental activity also being financed with a bond issue may be a complex facts and circumstances determination. In light of the general 10% limit on private business use, the private loan restriction, and the state volume limit requirement for larger governmental bond issues, the complexity associated with this determination may be eliminated without sacrificing the federal policy of strictly limiting use of governmental bond proceeds to finance private activities not specifically approved by the Congress.
Explanation of Provision
The bill repeals the 5% unrelated and disproportionate use limit.
Effective Date
This provision applies to bonds issued after the date of enactment.
b. Simplification of arbitrage rebate requirement for smaller issuers of governmental bonds (sec. 202 of the bill and sec. 148 of Code)
Present Law
Subject to limited exceptions, arbitrage profits from investing bond proceeds in investments unrelated to the governmental purpose of the borrowing must be rebated to the federal government. The rebate requirement does not apply to governmental bonds issued by issuers with general taxing powers if they issue $5 million or fewer of such bonds during the calendar year when the bonds are issued.
Reasons for Simplification
The federal policy addressed by the arbitrage rebate requirement is the elimination of earlier and larger issuance of tax-exempt bonds to obtain a financial advantage by investing funds borrowed at lower tax-exempt rates in higher yielding taxable investments. Compliance with the rebate requirement may necessitate adherence to accounting practices different from those used generally for governmental operations.
The exception from the arbitrage rebate requirement for governmental bonds issued by smaller governmental units reflects a balancing of the policy of preventing arbitrage-motivated bond issuance with the desire to make the administrative responsibilities necessary to comply with the rebate requirement easily manageable. Increasing the current $5 million annual issuance limit defining eligible governments to $10 million is appropriate.
Explanation of Provision
The bill increases the $5 million annual issuance limit for small issuers whose governmental bonds are not subject to rebate to $10 million.
Effective Date
This provision applies to bonds issued in calendar years beginning after the date of enactment.
c. Repeal of 150% of debt service limit (sec. 203 of the bill and sec. 148 of the Code)
Present Law
Issuers of all tax-exempt bonds generally are subject to two sets of arbitrage restrictions on investment of their bond proceeds. The first set requires that tax-exempt bond proceeds not be invested at a yield materially higher (generally defined as 0.125 percentage points) than the bond yield. Exceptions are provided to this restriction for investments during any of several "temporary periods" pending use of the proceeds and, throughout the term of the issue, for proceeds invested as part of a reasonably required reserve or replacement fund or a "minor" portion of the issue proceeds.
Except for temporary periods and amounts held pending use to pay current debt service, present law also limits the amount of the proceeds of private activity bonds (other than qualified 501(c)(3) bonds) that may be invested at any time at materially higher yields during a bond year to 150% of the debt service for that bond year. This restriction affects primarily investments in reasonably required reserve or replacement funds. Present law further restricts the amount of proceeds from the sale of bonds that may be invested in reserve funds to 10% of such proceeds.
The second set of arbitrage restrictions requires that generally all arbitrage profits earned on investments unrelated to the governmental purpose of the borrowing must be related to the federal government. Arbitrage profits include all earnings (in excess of bond yield) deprived from the investment of bond proceeds (and subsequent earnings on any such earnings).
Reasons for Simplification
The 150% of debt service limit was enacted before enactment of the arbitrage rebate requirement and the 10% limit on the size of reasonably required reserve or replacement funds. It was intended to eliminate arbitrage-motivated activities available from investment of such reserve funds. Provided that comprehensive yield restriction and rebate requirements and the overall present law size limit on reserve funds are maintained, the 150% of debt service yield restriction limit could be viewed as duplicative.
Explanation of Provision
The bill repeals the 150% of debt service yield restriction.
Effective Date
This provision applies to bonds issued after the date of enactment.
d. Election to terminate most post-initial temporary period rebate liability for certain bonds (sec. 204 of the bill and sec. 148 of the Code)
Present Law
Issuers of all tax-exempt bonds generally are subject to two sets of arbitrage requirements with respect to investment of their bond proceeds. First, tax-exempt bond proceeds may not be invested at a yield materially higher (generally defined as 0.125 percentage points) than the bond yield. Exceptions are provided to this restriction for investments during any of several "temporary periods" pending use of the proceeds and, throughout the term of the issue, for proceeds invested as part of a reasonably required reserve or replacement fund or a "minor" portion of the issue proceeds.
Second, generally all arbitrage profits earned on investments unrelated to the governmental purpose of the borrowing must be rebated to the federal government. Arbitrage profits generally include all earnings (in excess of bond yield) derived from the investment of bond proceeds (and subsequent earnings on any such earnings).
Reasons for Simplification
Arbitrage-motivated bond issuance may be expected to occur as a result of lower tax-exempt borrowing costs relative to higher yielding taxable investments if issuers are allowed to earn and retain profits on substantial amounts of bond proceeds during extended periods. Tax-exempt bond issuers have been subject to a yield restriction requirement since 1969. The arbitrage rebate requirement was first enacted in 1980 (qualified mortgage bonds) and 1984 (most industrial development bonds). The requirement was extended to all other bonds in 1986.
Familiarity with the long-standing yield restriction requirement by bond issuers may make compliance with that requirement easier than compliance with the newer rebate requirement. If periods when arbitrage profits may be earned on substantial amounts of bond proceeds and retained by issuers are eliminated or substantially curtailed through an expanded yield restriction requirement, the arbitratge rebate requirement likewise may be eliminated or substantially curtailed. Such a provision should simplify administrative compliance with the arbitrage restrictions without increasing federal revenue loss from unnecessary issuance of tax-exempt bonds.
Statutorily limiting periods when rebate liability exists also relieves issuers of the administrative complexity associated with calculating arbitrage payments. Under present law, issuers must perform these calculations even if they restrict the yield on investments so that no arbitrage profits are earned (or rebate owed).
Explanation of Provision
The bill allows issuers of bonds (other than tax and revenue anticipation notes and advance refunding bonds) to elect to terminate prospective application of the arbitrage rebate requirement to certain bond proceeds, and to comply instead with a yield restriction requirement similar to that which applies to the bonds under present law. (1)
The election generally applies to all proceeds of an issue other than proceeds invested in a bona fide debt service fund or a reserve or replacement fund (e.g., a "4R" fund). However, issuers may elect to apply the provision to proceeds invested in reserve or replacement funds. (2)
The current refunding of bonds with respect to which an election has been made does not terminate the election with respect to the refunded bonds; rather, the current refuding bonds "step into the shoes" of the refunded bonds. (3)
The election (including the election for reserve or replacement funds) must be made no later than 90 days after the expiration of the initials temporary period applicable to the bonds. If the election is made, these issuers will be liable for rebate or arbitrage profits earned through the end of the 90-day period after expiration of that initial three- or five-year temporary period, or if earlier, substantial completion of the governmental spending purposes of the issue.
Issuers will make a final payment of their rebate liability on proceeds subject to the election 60 days after the date on which the election is effective.
After the election is effective, issuers must forego any further periods of unrestricted yield (i.e., further temporary periods) and, except as described below, restrict the yield on nonpurpose investments of bond proceeds to a yield that does not exceed the yield on the issue of which the bonds are a part. The yield restriction requirement does not apply to proceeds invested during the following newly prescribed, exclusive temporary periods:
(1) Proceeds held during the minimum notice period prescribed by the Treasury Department state and local government series ("SLGS") obligation program immediately preceding their use to purchase SLGS;
(2) Proceeds invested during a period not exceeding 10 days immediately preceding their use to redeem bonds; and
(3) In the case of other proceeds, periods not exceeding five consecutive days, subject to a maximum of 15 days during any 12-month period.
Effective Date
This provision applies to bonds issued after the date of enactment.
LEGISLATIVE LANGUAGE OF HR2775
TITLE II -- TAX-EXEMPT BOND PROVISIONS
SEC. 201. REPEAL OF DISPROPORTIONATE PRIVATE BUSINESS USE TEST.
(a) IN GENERAL. -- Subsection (b) of section 141 (relating to private business tests) is amended by striking paragraph (3) and by redesignating paragraphs (4) through (9) as paragraphs (3) through (8), respectively.
(b) CONFORMING AMENDMENTS.
(1) Paragraph (2) of section 141(d) is amended by striking subsection (b)(4) and inserting subsection (b)(3).
(2) Paragraph (2) of section 142(c) is amended by striking section 141(b)(6) and inserting section 141(b)(5).
(3) Subsections (k)(3) and (m)(1) of section 146 and section 149(f)(4)(B)(i) are each amended by striking section 141(b)(5) and inserting section 141(b)(4).
SEC. 202. EXPANDED EXCEPTION
FROM REBATE FOR ISSUERS ISSUING
$10,000,000 OR LESS OF BONDS.
Subparagraph (D) of section 148(f) (relating to exception for governmental units issuing $5,000,000 or less of bonds) amended by striking $5,000,000 each place it appears (including the heading) and inserting $10,000,000.
SEC. 203. REPEAL OF DEBT SERVICE-BASED
LIMITATION ON INVESTMENT IN
CERTAIN NONPURPOSE INVESTMENTS.
Subsection (d) of section 148 (relating to special rules for reasonably required reserve or replacement fund) is amended by striking paragraph (3).
SEC. 204. ELECTION OUT OF REBATE
REQUIREMENT AFTER INITIAL TEMPORARY
PERIOD.
Paragraph (4) of section 148(f) (relating to required rebate to the United States) is amended by striking subparagraphs (E) and inserting the following:
(E) EXCEPTION FROM REBATE AFTER
INITIAL TEMPORATY PERIOD.
(i) IN GENERAL. -- At the election of the issuer with respect to an issue
(I) paragraph (2) shall not apply to earnings to which this subparagraph applies,
(II) the yield restriction under subsection (c) shall be treated as met only if the yield on the gross proceeds yielding such earnings does not exceed the yield on the issue, and
(III) the temporary periods specified in clause (iii) shall be the only temporary periods applicable under subsection (c) to the proceeds yielding such earnings.
(ii) EARNINGS TO WHICH EXCEPTION APPLIES. -- This subparagraph shall apply to earnings which accrue after the date the election under clause (i) is effective other than, (I) earnings on any reserve or replacement fund (unless the issuer elects to have this subclause not apply), and
(II) earnings on any bona fide debt service fund.
(iii) TEMPORARY PERIODS. -- The temporary periods specified in this clause are --
(I) 5 days in the case of proceeds not described in subclause (II) or (III).
(II) in the case of proceeds used to redeem bonds, the 10-day period ending on the date so used, and
(III) in the case of proceeds used to purchase any obligation under the State and Local Government Series Obligation Program of the Department of Treasury, the minimum notice period under such program for such purchase.
Subclause (I) shall apply to not more than 15 days during a calendar year with respect to an amount of proceeds.
(iv) ISSUES TO WHICH EXCEPTION DOES NOT APPLY. -- This subparagraph shall not apply to any portion of an issue which consits of
(I) tax or revenue anticipation bonds, or
(II) bonds issued to advance refund any bonds.
Any such portion shall be treated as a separate issue for purposes of this subparagraph.
(v) CURRENT REFUNDINGS. -- If any portion of an issue is used to refund (other than advance refund) any issue and any election under this subparagraph was made with respect to the refunded issue --
(I) such election shall apply to the refunding bonds, and
(II) the initial temporary period for the refunding bonds shall end not later than the date such election became effective for the refunded bonds.
(vi) ELECTION. -- Any election under this subparagraph shall be made not later than 90 days after the earlier of the end of the initial temorary period or the date of the substantial completion of the governmental spending purposes of the issue. The election under clause (i) shall be effective as specified in the election (but not earlier than the first day of such 90 days), and the election under clause (ii) shall be effective on the date the election under clause (i) is effective. Such elections, once made, shall be irrevocable.
(vii) FINAL PAYMENT OF REBATE. -- The last installment under paragraph (3) of amounts required to be paid with respect to gross proceeds to which an election under the subparagraph has been made shall be paid not later than 60 days after the end of the 90 days referred to in clause (vi).
(viii) REGULATIONS. -- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subparagraph.
SEC. 205. EFFECTIVE DATE.
(a) IN GENERAL. -- Except as provided in subsection (b), the amendments made by this title shall apply to bonds issued after the date of the enactment of this act.
(b) SMALL ISSUER EXPANSION. -- The amendment made by section 202 shall apply to bonds issued in calendar years beginning after the date of the enactment of this act.
Tax-Exempt Bond Provisions of HR2777, the Tax Simplification Bill Introduced Jointly by House Ways and Means Chairman Dan Rostenkowski, D-Ill., and Senate Finance Committee Chairman Lloyd Bentsen, D-Tex.
EXPLANATION OF BOND PROVISIONS
1. Overview
Interest on state and local government bonds generally is excluded from gross income for purposes of the regular individual and corporate income taxes if the proceeds of the bonds are used to finance direct activities of the issuing governmental units (sec. 103).
Unlike the interest on governmental bonds, described above, interest on private-activity bonds generally is taxable. A private-activity bond is a bond issued by a state or local governmental unit acting as a conduit to provide financing for a private party (or private parties) in a manner violating either (a) a private business use and payment test or (b) a private loan restriction. However, interest on private-activity bonds generally is not taxable if (a) the financed activity is specified in the code, (b) at least 95% of the net proceeds of the bond issue are used to finance the specified activity, and (c) numerous other requirements, including annual state volume limitations (for most private-activity bonds) are satisfied.
Both private-activity bonds and governmental bonds also must satisfy arbitrage restriction requirements for interest to be excluded from gross income. Interest on private-activity bonds (other than qualified 501(c)(3) bonds) issued after Aug. 7, 1986, is a preference item under the individual and corporate alternative minimum taxes. Additionally, interest on all state and local government bonds is included in determining a corporation's adjusted current earnings preference.
2. Issues under continuing review
It is expected that Congress will continue to review as the subject of possible legislative projects additional simplification options in two areas affecting state and local government bonds. These issues are --
a. Possible statutory rules for use by governmental units maintaining non-arbitrage motivated commingled accounting practices in determining their arbitrage rebate liability; and
b. Possible penalty alternatives to loss of tax exemption for selected violations of the rules governing qualification for tax exemption.
3. Provisions of the bill
a. Simplification of arbitrage rebate requirement for governmental bonds (sec. 431 of the bill and sec. 148 of the code)
Present Law
Subject to limited exceptions, arbitrage profits from investing bond proceeds in investments unrelated to the governmental purpose of the borrowing must be rebated to the federal government. No rebate is required if the gross proceeds of an issue are spent for the governmental purpose of the borrowing within six months after issuance.
This six-month exception is deemed to be satisfied by issuers of governmental bonds (other than tax and revenue anticipation notes) and qualified 501(c)(3) bonds if (1) all proceeds other than an amount not exceeding the lesser of 5% or $100,000 are so spent within six months and (2) the remaining proceeds are spent within one year after the bonds are issued.
Reasons for Simplification
The principal federal policy concern underlying the arbitrage rebate requirement is the earlier and larger than necessary issuance of tax-exempt bonds to take advantage of the opportunity to profit by investing funds borrowed at low-cost tax-exempt rates in higher-yielding taxable investments. If at least 95% of the proceeds of an issue are spent within six months, and the remainder within one year, opportunities for arbitrage profit are significantly limited. In the case of larger issues, the administrative complexity of calculating rebate liability on relatively small amounts of proceeds, e.g., $100,000 of proceeds, is greater than the potential for arbitrage abuse from eliminating the rebate requirement.
Explanation of Provision
The bill deletes the $100,000 limit on proceeds that may remain unspent after six months for certain governmental and qualified 501(c)(3) bonds otherwise exempt from the rebate requirement. Thus, if at least 95% of the proceeds of these bonds is spent within six months after the issuance, and the remainder is spent within one year, the six-month exception is deemed to be satisfied.
Effective Date
This provision applies to bonds issued after the date of enactment.
b. Simplification of compliance with 24-month arbitrage rebate exception for construction bonds (sec. 432 of the bill and sec. 148 of the code)
Present Law
In general, arbitrage profits from investing bond proceeds in investments unrelated to the governmental purpose of the borrowing must be rebated to the federal government. An exception is provided for certain construction bond issues if the bonds are governmental bonds, qualified 501(c)(3) bonds, or exempt-facility private-activity bonds for governmentally owned property.
The exception is satisfied only if the available construction proceeds of the issue are spent at least at specified rates during the 24-month period after the bonds are issued. The exception does not apply to bond proceeds invested after the 24-month expenditure period as part of a reasonably required reserve or replacement fund or a bona fide debt service fund or to certain other investments (e.g., sinking funds). Issuers of these construction bonds also may elect to comply with a penalty regime in lieu of rebating if they fail to satisfy the exception's spending requirements.
Reasons for Simplification
Bond proceeds invested in a bona fide debt service fund generally must be spent at least annually for current debt service. The short-term nature of investments in such funds results in only limited potential for generating arbitrage profits. If the spending requirements of the 24-month rebate exception are satisfied, the administrative complexity of calculating rebate on these proceeds outweighs the other federal policy concerns addressed by the rebate requirement. Further, this provision will conform the rules on these funds for issuers satisfying the six-month and 24-month expenditure exceptions to the rebate requirement.
Explanation of Provision
The bill exempts earnings on bond proceeds invested in bona fide debt service funds from the arbitrage rebate requirement and the spending and penalty requirements of the 24-month exception if the spending requirements of that exception are satisfied.
Effective Date
This provision applies to bonds issued after the date of enactment.
c. Automatic extension of initial temporary period for certain construction bonds (sec. 433 of the bill and sec. 148 of the code)
Present Law
Issuers of all tax-exempt bonds generally are subject to two sets of arbitrage requirements with respect to investment of their bond proceeds. First, tax-exempt bond proceeds may not be invested at a yield materially higher (generally defined as 0.125 percentage points) than the bond yield. Exceptions are provided to this restriction for investments during any of several "temporary periods" pending use of the proceeds and, throughout the term of the issue, for proceeds invested as part of a reasonably required reserve or replacement fund or a "minor" portion of the issue proceeds.
Second, generally all arbitrage profits earned on investments unrelated to the governmental purpose of the borrowing must be rebated to the federla government. Arbitrage profits generally include all earnings (in excess of bond yield) derived from the investment of bond proceeds (and subsequent earnings on any such earnings).
Reasons for Simplification
Notwithstanding the arbitrage rebate requirement, requiring yield restriction following initial temporary periods is an important factor in curbing earlier issuance of bonds than otherwise would occur. Provided that issuers expenditure requirement so that the opportunities for tax-motivated arbitrage are limited, however, reliance on the rebate requirement for limited additional periods will allow issuers to continue to pursue more flexible and liquid investments while construction activities are being completed. Automatically allowing an additional 12-month period, where substantially all of the proceeds have been spent, will relieve issuers from the burden of seeking ruling from the IRS without increasing the opportunity for arbitrage-motivated investments.
Explanation of Provision
The bill provides that the initial temporary period for construction bonds is automatically extended for a period of 12 months if at least 85% of the available construction proceeds are spent within the original initial temporary period and the issuer reasonably expects to spend the remaining proceeds within the 12-month extension period. Construction bonds eligible for this automatic extension include only those bonds currently eligible for the 24-month rebate expenditure exception, described above.
The bill allows bond proceeds to be invested without yield restriction during this additional period. The arbitrage rebate or 1.5% penalty requirement will continue to apply to unspent proceeds during the extension period.
Effective Date
This provision applies to bonds issued after the date of enactment.
d. Simultaneously issuance of certain discrete issues not aggregated (sec. 434 of the bill)
Present Law
In certain cases, the Treasury Department treats multiple issues of tax-exempt bonds paid from substantially the same source of funds as a single issue in applying the conde's tax-exempt bond restrictions when the bonds are issued within a relatively short period of time (31 days) and pursuant to a common plan of marketing.
Reasons for Simplification
Requiring issuers that simultaneously issue discrete issues of tax and revenue anticipation notes ("TRANs") and other governmental bonds to separate issuance of discrete non-arbitrage motivated issues by 31 days adds administrative complexity and increases their costs of issuance.
Explanation of Provision
The bill provides that discrete issues of governmental bonds issued simultaneously will not be treated as a single issue in cases where one of the issues is a TRAN reasonably expected to satisfy the arbitrage rebate safe harbor of section 148(f)(4)(B)(iii).
Effective Date
This provision applies to bonds issued after the date of enactment.
e. Authority for Treasury Department to exempt certain taxpayers from tax-exempt interest reporting requirement (sec. 435 of the bill and sec. 6012 of the code)
Present Law
Present law requires all individuals to report on their income tax returns the amount of interest on state and local government bond interest they receive.
Reasons for Simplification
The Internal Revenue Service should be authorized to exempt taxpayers from requirements to compile and report information on income tax returns if the Secretary determines that such information is not useful to the administration of the tax laws.
Explanation of Provision
The bill authorizes the Internal Revenue Service to provide exceptions from the requirements that taxpayers report interest on state and local government bonds on their federal income tax returns in cases where the Secretary determines that such information is not useful to the administration of the tax laws.
Effective Date
This provision is effective for taxable years beginning after the date of enactment.
f. Repeal of deadwood provisions (sec. 436 of the bill and sec. 148 of the code)
Present Law
Present law includes special exceptions to the arbitrage rebate and pooled financing temporary period rules for certain qualified student loan bonds. This exception applied only to bonds issued before January 1, 1989.
Explanation of Provision
The bill deletes these special exceptions as "deadwood."
Effective Date
This provision applies to bonds issued after the date of enactment.
LEGISLATIVE LANGUAGE OF HR2777
Subtitle D -- Tax-Exempt Bond Provisions
SEC. 431. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER ONE-YEAR EXCEPTION FROM REBATE.
Subcause (I) of setion 148 (f)(4)(B)(ii)(relating to additional period for certain bonds) is amended by striking "the lesser of 5% of the proceeds of the issue of $100,000" and inserting "5% of the proceeds of the issue."
SEC. 432. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE FUND UNDER CONSTRUCTION BOND RULES.
Subparagraph (c) of Section 148(f)(4) is amended by adding at the end thereof the following new clause; "(xvii) TREATMENT OF BONA FIDE DEBT SERVICE FUNDS. -- If the spending requirements of clause (ii) are met with respect to the available construction proceeds of a construction issue, then paragraph (2) shall not apply to earnings to a bona fide debt service fund for such issue."
SEC. 433. AUTOMATIC EXTENSION OF INITIAL TEMPORARY PERIOD FOR CONSTRUCTION ISSUES.
subsection (c) of section 148 (relating to temporary period exception) is amended by adding at the end thereof the following new paragraph:
(3) EXTENSION OF INITIAL TEMPORARY PERIOD FOR CONSTRUCTION ISSUES --If--
(A) at least 85% of the available construction proceeds (as defined in subsection (f)(4)(C) of a construction issue (as defined in such subsection) are spent as of the close of the initial temporary period (determined without regard to this paragraph), and
(B) the issuer reasonably expects (as of one close such period) that the remaining aviilable construction proceeds of such issue will be spent within one year after the close of such period, then such initial temporary period shall be extended one year."
SEC. 434. AGGREGATION OF ISSUES RULES NOT TO APPLY TO TAX OR REVENUE ANTICIPATION BONDS.
Section 150 (relating to definition and special rules) is amended by adding at the end thereof the following new subsection: (f) TAX OR REVENUE ANTICIPATION BONDS TREATED AS SEPARATE ISSUES.-- For purposes of this part, if -- (1) all of the bonds which are part of an issue are qualified 501(c)(3) bonds or bonds which are not private-activity bonds, and (2) any portion of such issue consists of tax or revenue anticipation bonds which are reasonably expected to meet the requirements of section 148(f)(4)(B)(iii), then such portion shall, subject to appropriate allocations specified in regulations prescribed by the Secretary, be treated as a separate issue." SEC. 435. AUTHORITY TO TERMINATE REQUIRED INCLUSION OF TAX-EXEMPT INTEREST ON RETURN.
Subsection (d) of section 6012 (relating to tax-exempt interest required to be shown on return) is amended by adding at the end thereof of the following new sentence: "The Secretary may by regulations provide that the preceding sentence shall not apply in any case in which the Secretary determines that the disclosure of such interest is not useful for tax administration."
SEC. 436. REPEAL OF EXPIRED PROVISIONS.
(a) Paragraph (2) section 148 (c) is amended by striking subparagraph (B) and by redesignating a subparagraphs (C), (D)< and (E) as subparagraph (B), (C), and (D), respectively.
(b) Paragraph (4) of section 148 (f) is amended by striking subparagraph (E).
SEC. 437. EFFECTIVE DATE.
(a) IN GENERAL -- Except as provided as provided in subsection (b), the amendments made by this subtitle shall apply to bonds issued after the date of the enactment of this Act.
(b) INTEREST REPORTING -- The amendment made by section 435 shall apply to taxable years beginning after the date of the enactment of this act.
Footnotes
(1) In the case of pooled financing bonds, the election is made separately by the issuer of the pooled financing bonds and by borrowers from the pool.
(2) This selection is not available to construction bond issues with respect to which an election to pay penalties in lieu of rebate is made (sec. 148(f)($)(C)(vii) and (viii)).
(3) In the case of a high-to-low refunding, the yield restriction requirement is adjusted to reflect the lower yield on the refunding bonds.
