WASHINGTON -- Internal Revenue Service officials say they may try to end uncertainty among tax-exempt issuer over whether to use the actual price or face amount of bonds in calculating allocations under the privateactivity volume cap.

Confusion arose this summer after the IRS issued a private-letter ruling saying the California Pollution Control Finance Authority could have obtained a cap allocation for the actual issue price, rather than the face amount, of bonds it issued at a discount in 1992 and 1993.

The roling prompted officials in other states with discounted bonds to wonder if they could rely on the decision, even though IRS policy states that private-letter rulings do not set precedents. Issuers of bonds sold at a premium, meanwhile, wanted to know if the ruling meant they would be forced to obtain allocations for issue price, which for them is higher than face amount.

The IRS is aware of issuer concerns and is "currently considering whether it is best to deal all at once or serially with the frequent references in the taxexempt bond provisions of the code to the 'amount' or 'face amount' of bonds," said Timothy L. Jones, an official with the agency's tax-exempt bond branch, in a Sept. 29 letter to officials in fhio's department of development.

In a separate letter to the Ohio agency, another IRS official said that until the service makes a decision on the matter, state officials in doubt about volume cap allocations should request private-letter rulings.

"Pending further guidance concerning the volume cap rules in Section 146, please be aware that our private-letter ruling program is available to you to resolve questions about specific bond issues," said James F. Malloy, the IRS assistant chief counsel for financial institutions and products.

In their letters, neither Jones nor Malloy offered a timetable for when the IRS would decide whether to do something about the cap allocation question. Earlier this week IRS officials declined comment on the matter.

At issue is a private-letter ruling the California authority received in June. In that ruling, the IRS was attempting to clarify a vague section of the Tax Reform Act of 1986, which created the volume cap requirement. Under that provision, states are permitted to issue annually an "aggregate amount" of private-activity bonds equal to $50 per capita, or $150 million. whichever is greater. The law, however. does not further explain the term "aggregate amount."

As standard practice, issuers had been interpreting the law to require that volume cap allocations be obtained for the face amount of an issue, even though an original-issue discount would lower the amount received by the issuer.

In 1992 and 1993 the California authority obtained cap allocations for, and then sold, two issues with a total face amount of $636.7 million. In its ruling the IRS-said the authority needed an allocation based only on the actual issue price, which was about $630.3 million, because the bonds were sold at a discount. The roling allowed the authority to carry forward the difference of about $6.4 million and use it on other projects.

Shortly after the ruling became public, Ohio's department of development wrote to both the IRS and Treasury urging a swift resolution of the volume cap allocation question.

The situation "cries out for the prompt issuance of guidance on which we all may rely," said Thomas C. Washbuth, chief legal counsel for the department. in a Sept. 6 letter to the IRS's Malloy.

An association representing private-activity bond issuers says it will keep the heat on the IRS to reach some kind of conclusion.

"We intend on following up to get a ruling from the IRS," said David Hobson. the executive director of the Council of Development Finance Agencies.

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