This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

27302 

Vol. 83, No. 113 

Tuesday, June 12, 2018 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–106977–18] 

RIN 1545–BO77 

Arbitrage Investment Restrictions on 

Tax-Exempt Bonds 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations regarding the 

arbitrage investment restrictions under 

section 148 of the Internal Revenue 

Code (Code) applicable to tax-exempt 

bonds and other tax-advantaged bonds 

issued by State and local governments. 

The proposed regulations would clarify 

existing regulations regarding the 

definition of ‘‘investment-type 

property’’ covered by arbitrage 

restrictions by expressly providing an 

exception for investments in capital 

projects that are used in furtherance of 

the public purposes of the bonds. The 

proposed regulations affect State and 

local governmental issuers of these 

bonds and potential investors in capital 

projects financed with these bonds. 

DATES: Comments and requests for a 

public hearing must be received by 

September 10, 2018. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–106977–18), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand-delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to CC:PA:LPD:PR (REG–106977– 

18), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW, 

Washington, DC 20224, or sent 

electronically via the Federal 

eRulemaking Portal at 

www.regulations.gov (REG–106977–18). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Spence Hanemann, (202) 317–6980; 

concerning submissions of comments 

and requesting a hearing, Regina L. 

Johnson, (202) 317–6901 (not toll-free 

numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) on the 

arbitrage investment restrictions under 

section 148 of the Code (Proposed 

Regulations). 

1. In General 

In general, under section 103, interest 

received by holders of eligible bonds 

issued by State and local governments is 

exempt from Federal income tax. As a 

result, tax-exempt State or local bonds 

generally have lower borrowing costs. 

To qualify for the tax exemption, State 

or local bonds must satisfy various 

eligibility requirements under sections 

141 to 150, including the arbitrage 

investment restrictions under section 

148. The arbitrage investment 

restrictions under section 148 limit the 

investment of proceeds of tax-exempt 

bonds in higher yielding investments 

and require rebate to the Federal 

government of certain excess earnings 

on higher yielding investments. 

On June 18, 1993, the Department of 

the Treasury (Treasury Department) and 

the IRS published comprehensive final 

regulations in the Federal Register (TD 

8476, 58 FR 33510) on the arbitrage 

investment restrictions and related 

provisions for tax-exempt bonds under 

sections 103, 148, 149, and 150 and, 

since that time, those final regulations 

have been amended in certain limited 

respects (these 1993 regulations and the 

amendments thereto collectively are 

referred to as the Existing Regulations). 

2. Investment Property Covered by 

Arbitrage Restrictions 

Section 148(a) defines a taxable 

‘‘arbitrage bond’’ generally to mean any 

bond issued as part of an issue any 

portion of the proceeds of which are 

reasonably expected to be used or are 

intentionally used to acquire ‘‘higher 

yielding investments’’ or to replace 

funds so used. Section 148(b)(1) defines 

the term ‘‘higher yielding investments’’ 

to mean any ‘‘investment property’’ that 

produces a yield over the term of the 

issue that is materially higher than the 

yield on the issue. Section 148(b)(2) 

defines the term ‘‘investment property’’ 

to include any security (within the 

meaning of section 165(g)(2)(A) or (B)), 

any obligation, any annuity contract, 

certain residential real property for 

family units located outside the 

jurisdiction of the issuer that is financed 

with bonds other than private activity 

bonds, and any ‘‘investment-type 

property.’’ 

Section 1.148–1(e)(1) of the Existing 

Regulations defines a catch-all category 

of ‘‘investment-type property’’ to 

include any property (other than 

securities, obligations, annuity 

contracts, and covered residential real 

property for family units under section 

148(b)(2)(A), (B), (C), and (E)) ‘‘that is 

held principally as a passive vehicle for 

the production of income.’’ For this 

purpose, § 1.148–1(e)(1) of the Existing 

Regulations provides that the 

production of income includes any 

benefit based on the time value of 

money. 

Explanation of Provisions 

1. Proposed § 1.148–1(e)(4): Exception to 

Investment-Type Property Definition for 

Certain Capital Projects 

Institutional investors have suggested 

clarification of the scope of the 

regulatory definition of investment-type 

property under § 1.148–1(e)(1) to ensure 

that the definition does not impede 

greater capital investment in public 

infrastructure. 

The legislative history to the Tax 

Reform Act of 1986, Public Law 99–514, 

100 Stat. 2085, indicates that Congress 

intended to limit the scope of the 

arbitrage restriction on investment-type 

property so that it did not extend to 

investments in capital projects in 

furtherance of the public purposes of 

the bonds. In this regard, the House 

Report to the Tax Reform Act of 1986 

included the following statement about 

the intended scope of the definition of 

investment-type property: ‘‘The 

restriction would not apply, however, to 

real or tangible personal property 

acquired with bond proceeds for reasons 

other than investment (e.g., courthouse 

facilities financed with bond 

proceeds).’’ H.R. Rep. No. 99–426, at 

552 (1985), 1986–3 (vol. 2) C.B. 457; see 

also S. Rep. No. 99–313, at 844 (1986), 

1986–3 (vol. 3) C.B. 682 (containing a 

statement substantially identical to that 

in the House report); H.R. Rep. No. 99– 


pmangrum on DSK30RV082PROD with PROPOSALS
Federal Register / Vol. 83, No. 113 / Tuesday, June 12, 2018 / Proposed Rules 27303 

841, at II–747 (1986) (Conf. Rep.), 1986– 

3 (vol. 4) C.B. 608 (stating that the 

conference agreement follows the House 

bill and the Senate amendment on this 

restriction). 

To clarify the scope of the investmenttype property definition consistent with 

Congressional intent reflected in the 

legislative history, the Proposed 

Regulations would provide an express 

exception to the definition of 

investment-type property for capital 

projects that further the public purposes 

for which the tax-exempt bonds were 

issued. For example, investment-type 

property does not include a courthouse 

financed with governmental bonds or an 

eligible exempt facility under section 

142, such as a public road, financed 

with private activity bonds. 

2. Applicability Dates and Reliance 

The proposed amendments to the 

definition of investment-type property 

in the Proposed Regulations are 

proposed to apply to bonds sold on or 

after the date that is 90 days after the 

date of publication of a Treasury 

Decision adopting these rules as final 

regulations in the Federal Register. 

Issuers may apply the Proposed 

Regulations to bonds that are sold before 

the applicability date provided in a 

Treasury Decision adopting these rules 

as final regulations in the Federal 

Register. 

Special Analyses 

This regulation is not subject to 

review under section 6(b) of Executive 

Order 12866 pursuant to the 

Memorandum of Agreement (April 11, 

2018) between the Department of the 

Treasury and the Office of Management 

and Budget regarding review of tax 

regulations. Because these regulations 

do not impose a collection of 

information on small entities, the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) does not apply. Pursuant to 

section 7805(f) of the Code, this notice 

of proposed rulemaking will be 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small entities. 

Comments and Requests for Public 

Hearing 

Before the Proposed Regulations are 

adopted as final regulations, 

consideration will be given to any 

comments that are submitted timely to 

the IRS as prescribed in this preamble 

under the ADDRESSES heading. The 

Treasury Department and the IRS 

request comments on all aspects of the 

proposed rules. All comments will be 

available at www.regulations.gov or 

upon request. A public hearing will be 

scheduled if requested in writing by any 

person that timely submits written 

comments. If a public hearing is 

scheduled, notice of the date, time, and 

place for the hearing will be published 

in the Federal Register. 

Drafting Information 

The principal authors of these 

regulations are Spence Hanemann of the 

Office of Associate Chief Counsel 

(Financial Institutions and Products) 

and Vicky Tsilas, formerly of the Office 

of Associate Chief Counsel (Financial 

Institutions and Products). However, 

other personnel from the Treasury 

Department and the IRS participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.148–0(c) is amended 

by adding entries for §§ 1.148–1(e)(4) 

and 1.148–11(n) to read as follows: 

§ 1.148–0 Scope and table of contents. 

* * * * * 

(c) * * * 

§ 1.148–1 Definitions and elections. 

* * * * * 

(e) * * * 

(4) Exception for certain capital 

projects. 

* * * * * 

§ 1.148–11 Effective/applicability dates. 

* * * * * 

(n) Investment-type property. 

■ Par. 3. Section 1.148–1 is amended 

by: 

■ 1. Revising the first sentence of 

paragraph (e)(1). 

■ 2. Adding paragraph (e)(4). 

The revision and addition read as 

follows: 

§ 1.148–1 Definitions and elections. 

* * * * * 

(e) Investment-type property—(1) In 

general. Except as otherwise provided 

in this paragraph (e), investment-type 

property includes any property, other 

than property described in section 

148(b)(2)(A), (B), (C), or (E), that is held 

principally as a passive vehicle for the 

production of income. * * * 

* * * * * 

(4) Exception for certain capital 

projects. Investment-type property does 

not include real property or tangible 

personal property (for example, land, 

buildings, and equipment) that is used 

in furtherance of the public purposes for 

which the tax-exempt bonds are issued. 

For example, investment-type property 

does not include a courthouse financed 

with governmental bonds or an eligible 

exempt facility under section 142, such 

as a public road, financed with private 

activity bonds. 

* * * * * 

■ Par. 4. Section 1.148–11 is amended 

by adding paragraph (n) to read as 

follows: 

§ 1.148–11 Effective/applicability dates. 

* * * * * 

(n) Investment-type property. Section 

1.148–1(e)(1) and (4) apply to bonds 

sold on or after the date that is 90 days 

after the date of publication of a 

Treasury Decision adopting these rules 

as final regulations in the Federal 

Register. 

Kirsten Wielobob, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2018–12565 Filed 6–11–18; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Part 15 

[FAR Case 2017–006; Docket No. 2017– 

0006, Sequence No. 1] 

RIN 9000–AN53 

Federal Acquisition Regulation: 

Exception From Certified Cost or 

Pricing Data Requirements—Adequate 

Price Competition 

AGENCY: Department of Defense (DoD), 

General Services Administration (GSA), 

and the National Aeronautics and Space 

Administration (NASA). 

ACTION: Proposed rule. 

SUMMARY: DoD, GSA, and NASA are 

proposing to amend the Federal 

Acquisition Regulation (FAR) to provide 

guidance to DoD, NASA, and the Coast 

Guard, consistent with a section of the 

National Defense Authorization Act for 


pmangrum on DSK30RV082PROD with PROPOSALS