On March 12, 2026, the Internal Revenue Service (“IRS”) published proposed regulations to update certain arbitrage rules and definitions applicable to tax-exempt and tax-advantaged bonds, including tax-exempt municipal bonds and other federally subsidized bond programs.
The Proposed Regulations are available under REG-117298-21 in the Federal Register and are intended to update and clarify existing Treasury Regulations governing the issuance and administration of these bonds. Updates in the Proposed Regulations include clarifications on the:
- Time and manner for requesting refunds of overpayment of rebate
- Special transition rules for transferred proceeds
- Limitation on allocations to expenditures
- IRS address for filing defeasance notices
Additionally, the proposed regulations would revise the provision addressing certain perpetual State guarantee funds, the definition of tax-exempt bond, and the definition of refunding issue.
In general, the proposed regulations are proposed to apply to bonds sold on or after the date 90 days after the date of publication of final regulations in the Federal Register, however a few of the provisions would apply sooner.
At this stage, the guidance is still proposed and subject to a comment period. Comments on the proposed regulations, and requests for a public hearing, are due May 11, 2026.
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