TAX NEWS

May 6, 2020

2020 COVID-19 RELIEF FOR CERTAIN TAX-FAVORED BONDS

The U.S. Treasury Department (the “Treasury”) has released two pieces of guidance intended to alleviate pressures brought to certain areas of the tax-exempt bond market by the pandemic outbreak of COVID-19. 

The first guidance item, Notice 2020-25, is issued in recognition of the need for liquidity and stability in the short-term tax-exempt bond market, itself a limited subset of the market, caused by signifcant market disruption.  When issuers purchase their own debt, for federal income tax purposes, that debt is generally treated as retired.  If an issuer desires to subsequently sell that debt in the same or different form for the same project, that original debt is treated as reissued and the interest thereon does not necessarily retain tax-exempt status.  Under the new guidance, Treasury temporarily allows issuers of qualified tender bonds (generally, bonds with short-term modes) and tax-exempt commercial paper to buy and hold their debt for a period no longer than 180 days.  In no event, can the holding period extend beyond December 31, 2020.  Likewise, a hedge that was a qualified hedge for arbitrage purposes is not deemed terminated as a result of a purchase that occurs in accordance with the application of Notice 2020-25.  Only debt that meets the requirements of a qualified tender bond or tax-exempt commercial paper can rely on the relief provided by this Notice. 

The second guidance item, Rev. Proc. 2020-21, is intended to provide temporary relief to issuers of qualified 501(c)(3) bonds and private activity bonds.  Generally, to qualify for exempt status, these bonds are subject to a public approval requirement process, pursuant to which a public hearing must be held prior to the approval of issuance of the bonds.  The hearing must take place in a location that provides a reasonable opportunity for interested individuals to express their views about the proposed issue of bonds and the nature and location of the project intended to be financed.   The revenue procedure provides that for the period beginning on May 4, 2020 and ending on December 31, 2020, a public hearing is presumed to be held in a reasonably convenient location if it is held via toll-free teleconference.  Other services, such as non-toll-free telephone numbers or internet-based meetings are not, by themselves, sufficient to satisfy the public hearing requirement.  These other services can be, however, used to supplement toll-free teleconferences.  Issuers that have held hearings telephonically prior to May 4, 2020 can rely on the relief proided by this revenue procedure if held via a toll-free number in response to the COVID-19 pandemic.

For additional information and a more in-depth analysis of any particular fact situation, please contact Stefano Taverna at (214) 754‑9277 or staverna@mphlegal.com, or Hal Flanagan at (214) 754‑9273 or hflanagan@mphlegal.com.

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This Tax Law Update was provided by McCall’s Tax Department.  It is intended for informational and marketing purposes only, and it is not to be construed as legal advice to any person or with regard to any matter.  While we hope that this Update is helpful to you, McCall is not responsible for any specific transaction or reporting position taken by any person after review hereof.