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Current refundings for certain targeted state, local, Indian tribal government bond programs

State, local, Indian tribal government bond programs

The IRS today released an advance version of Notice 2019-39 concerning the issuance of tax-exempt state and local bonds under section 103 and tax-exempt Indian tribal government bonds under section 7871 in current refunding issues to refund original bonds issued in eligible targeted bond programs as defined in the notice.


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Congress from time to time enacts legislation to authorize the issuance of special tax-exempt state, local or Indian tribal government bonds in order to provide disaster relief or to promote economic development or redevelopment in underserved areas in targeted circumstances.  Examples of such targeted bond programs include Gulf Opportunity Zone bonds issued under former section 1400(N); Recovery Zone Facility Bonds issued under former section 1400U-3; and Tribal Economic Development Bonds issued by Indian tribal governments under section 7871(f). Bonds issued under these and other targeted programs are referred to in the notice as “qualified bonds.”

As is the case generally for tax-exempt private activity bonds issued under section 141(e), the amount of an issuance of qualified bonds is typically subject to a volume cap limitation. Although section 146(i) generally authorizes current refunding issues of qualified private activity bonds without the allocation of additional volume cap if the amount of the refunding bonds does not exceed the outstanding amount of the refunded bonds, the authorizing legislation for targeted bond programs often does not address the permissibility of issuing bonds in a current refunding to refund bonds originally issued under the programs. As a result, it may not be clear whether original qualified bonds issued under these targeted programs can be currently refunded without the allocation of additional volume cap. In addition, the authorizing legislation for a targeted bond program sometimes imposes a deadline after which original bonds cannot be issued, and it may not be clear whether bonds issued after the deadline to currently refund original qualified bonds issued before the deadline will be treated as qualified bonds. 

Notice 2019-39

The purpose of Notice 2019-39 [PDF 23 KB] is to reduce or eliminate the need for separate program-by-program guidance on the volume cap and issuance deadline questions for current refunding of original qualified bonds issued under legislation that does not address the permissibility of current refunding bonds. The notice states that any current refunding issue the proceeds of which are used (directly or indirectly in a series of current refunding issues) to refund original qualified bonds qualifies for issuance as an issue of tax-exempt qualified bonds without regard to any bond volume cap or issuance time deadline for the original qualified bonds if certain requirements set out in the notice are met.

The guidance provided in Notice 2019-39 supersedes Notice 2012-3 and Notice 2014-9 and applies to current refunding issues that are issued on or after May 22, 2019. In addition, issuers may apply Notice 2019-39 to current refunding issues that are issued before May 22, 2019.

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