WASHINGTON -- The Internal Revenue Service must propose rewritten and consolidated arbitrage rules by the end of the year in order to publish them in final form before some of the rules expire on June 30, 1993, agency officials said this week.

"As a practical matter, in order to meet the [deadline] on June 30, 1993, we have to propose them this year," an IRS official said.

The IRS promised last May that it would simplify and consolidate all of its arbitrage rules by June 30, 1993. The agency's goal is to make the arbitrage rules more workable and to eliminate the overlap and inconsistencies of the rebate and yield restriction requirements.

But the IRS must issue proposed rules before it can issue them in final form. After the rules are proposed, time must be set aside for written public comments to be filed, a public hearing to be held and possible revisions to be made, the IRS official said.

"We intend to rely on the public process in proposing these regulations," he said.

The most recent arbitrage rules issued by the IRS were proposed in January and early February and were not issued in final form until almost five months later. Most industry officials thought the IRS acted with unprecedented speed in finalizing these rules, which cover allocation and accounting, transferred proceeds, and the two-year rebate relief law.

The IRS set a June 30, 1993, expiration date for these rules and the May 1989 rebate rules, even though they were published in final form, and promised to simplify and consolidate all the arbitrage rules before that date.

Rewriting the arbitrage rules is at the top of the Treasury Department's list of regulatory priorities for the Treasury and IRS in 1992.

The IRS official said that members of the bond community who have suggestions on how the rules on rebate and yield restriction should be simplified and integrated should submit comments to the IRS as soon as possible.

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