[Federal Register Volume 79, Number 219 (Thursday, November 13, 2014)]
[Rules and Regulations]
[Pages 67350-67351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26738]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9701]
RIN 1545-BK80


Arbitrage Rebate Overpayments on Tax-Exempt Bonds

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that provide guidance 
on the recovery of overpayments of arbitrage rebate on tax-exempt bonds 
and other tax-advantaged bonds. These final regulations provide the 
deadline for filing a claim for an arbitrage rebate overpayment and 
certain other rules. These final regulations affect issuers of tax-
exempt and tax-advantaged bonds.

DATES: Effective date: These regulations are effective on November 13, 
2014.
    Applicability date: For dates of applicability, see Sec.  1.148-
11(l)(4).

FOR FURTHER INFORMATION CONTACT: Timothy Jones at (202) 317-6980 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On September 16, 2013, the IRS published a Notice of Proposed 
Rulemaking (REG-148812-11) in the Federal Register (78 FR 56841) (the 
``Proposed Regulations''). A public hearing was scheduled for February 
5, 2014, but later was cancelled because no one requested to speak. 
However, two comments responding to the Proposed Regulations were 
received. After consideration of these comments, the Proposed 
Regulations are adopted as revised by this Treasury decision.

Explanation of Provisions and Summary of Comments

    The final regulations amend the Income Tax Regulations (26 CFR part 
1) on the arbitrage investment restrictions on tax-exempt bonds and 
other tax-advantaged bonds under section 148 of the Internal Revenue 
Code (Code). Section 1.148-3(i) of the existing Income Tax Regulations 
provides that an issuer may recover an overpayment of arbitrage rebate 
and similar payments on an issue of tax-exempt bonds if the issuer 
establishes to the satisfaction of the Commissioner that the 
overpayment occurred.
    Rev. Proc. 2008-37 (2008-2 CB 137) provides procedures for filing 
claims for the refund of arbitrage rebate and similar payments and 
imposes a deadline for filing such claims. In particular, a claim for a 
refund must be filed no later than two years after the final arbitrage 
computation date for the issue from which the claim arose. A transition 
rule applies to issues with a final computation date on or before June 
24, 2008. Like the Proposed Regulations, the final regulations include 
this two-year limitation on filing claims as well as the transition 
rule.
    The final regulations also adopt the rule in the Proposed 
Regulations that the Commissioner may request additional information to 
support a claim, specify a date for a return of that information, and 
deny the claim if the information is not returned by the date specified 
in the Commissioner's request or, if the Commissioner grants the issuer 
an extension to provide the information, by the extension date. Under 
both the Proposed Regulations and final regulations, if the 
Commissioner denies a claim because the Commissioner asserts that it 
was filed after the two-year deadline or that the information requested 
by the Commissioner was not received by the date specified in the 
request for such additional information, the issuer may appeal the 
denial to the Office of Appeals. If the Office of Appeals concludes 
that the claim was timely filed or the requested information was timely 
submitted, as applicable, the case will be returned to the Commissioner 
for further consideration of the merits of the claim.
    The final regulations amend the Proposed Regulations to take into 
account a comment received suggesting that the Proposed Regulations be 
revised to provide a minimum time period for issuers to respond to any 
request by the Commissioner for additional information. In response to 
this request, the final regulations revise the Proposed Regulations to 
provide that issuers will be given at least 21 calendar days to respond 
to a request for additional information. The 21 day period is 
consistent with the time period provided by the IRS in other instances 
for submitting additional information. See, for example, section 8.05 
of Rev. Proc. 2014-1, 2014-1 IRB 1, 31 (providing taxpayers with 21 
days to submit additional information requested by the IRS in 
connection with the evaluation of a letter ruling request).
    Another commenter questioned the Commissioner's authority to impose 
the two-year limitation on filing of claims for recovery of an 
overpayment of arbitrage rebate. The commenter also expressed a concern 
that an issuer's right to proceed to court could expire while the 
issuer's claim awaits review by the Commissioner.
    Treasury and the IRS believe that the Commissioner's authority to 
impose the two-year limitation arises from the broad grant of authority 
to prescribe regulations under section 148(i). In addition, an issuer's 
right to proceed to court cannot expire in the manner suggested by the 
commenter because sections 6532 and 7422 apply to the recovery of 
arbitrage rebate overpayments. Under section 7422, a claim for the 
recovery of an alleged arbitrage overpayment cannot be filed in any 
court until a claim for such amount has been filed with the Secretary. 
Under section 6532, a proceeding to recover an alleged overpayment of 
arbitrage generally may not begin before the expiration of six months 
from the date the claim required by section 7422 has been filed with 
the Secretary, nor after the expiration of two years from the date the 
taxpayer is notified of the claim denial. Thus, the final regulations 
adopt the two-year limitation without change.
    Certain changes made by the final regulations to the procedures for 
processing arbitrage rebate overpayment claims are not reflected in 
Rev. Proc. 2008-37. As a result, the Treasury Department and the IRS 
intend to publish guidance updating Rev. Proc. 2008-37 to take into 
account changes made by the final regulations. Comments are requested 
on whether other changes should be made to the procedures as part of 
that guidance.

Effective/Applicability Date

    In accordance with section 7805(b)(1)(C) and Rev. Proc. 2008-37, 
Sec.  1.148-3(i)(3)(i) of the final regulations applies to refund 
claims arising from an issue of bonds to which Sec.  1.148-3(i) applies 
and for which the final

[[Page 67351]]

computation date is after June 24, 2008. For purposes of applying Sec.  
1.148-3(i)(3)(i), issues for which the actual final computation date is 
on or before June 24, 2008, are deemed to have a final computation date 
of July 1, 2008. Section 1.148-3(i)(3)(ii) and (iii) of the final 
regulations apply to refund claims arising from an issue of bonds to 
which Sec.  1.148-3(i) applies and for which the final computation date 
is after September 16, 2013.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations. It is hereby certified that these 
regulations will not have a significant economic impact on a 
substantial number of small entities. Therefore, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required. The final regulations reaffirm or clarify 
filing deadlines previously published in other administrative guidance. 
Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking that preceded these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business, and no comments were received.

Drafting Information

    The principal author of these regulations is Timothy Jones, Office 
of Associate Chief Counsel (Financial Institutions and Products), IRS. 
However, other personnel from the IRS and the Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by revising 
the entry for Sec. Sec.  1.148-0 through 1.148-11 to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.148-0 through 1.148-11 also issued under 26 U.S.C. 
148(i). * * *


0
Par. 2. Section 1.148-0 is amended by adding entries to paragraph (c) 
Table of contents for Sec. Sec.  1.148-3(i)(3) and 1.148-11(k) and (l), 
and revising Sec.  1.148-11 section heading to read as follows:


Sec.  1.148-0  Scope and table of contents.

* * * * *
    (c) * * *
* * * * *


Sec.  1.148-3  General arbitrage rebate rules.

* * * * *
    (i) * * *
    (3) Time and manner for requesting refund.
* * * * *


Sec.  1.148-11  Effective/applicability dates.

* * * * *
    (k) [Reserved]
    (l) Additional arbitrage guidance updates.
    (1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) Application.

0
Par. 3. Section 1.148-3 is amended by adding paragraph (i)(3) to read 
as follows:


Sec.  1.148-3  General arbitrage rebate rules.

* * * * *
    (i) * * *
    (3) Time and manner for requesting refund. (i) An issuer must 
request a refund of an overpayment (claim) no later than the date that 
is two years after the final computation date for the issue to which 
the overpayment relates (the filing deadline). The claim must be made 
using the form provided by the Commissioner for this purpose.
    (ii) The Commissioner may request additional information to support 
a claim. The issuer must file the additional information by the date 
specified in the Commissioner's request, which date may be extended by 
the Commissioner if unusual circumstances warrant. An issuer will be 
given at least 21 calendar days to respond to a request for additional 
information.
    (iii) A claim described in either paragraph (i)(3)(iii)(A) or (B) 
of this section that has been denied by the Commissioner may be 
appealed to the Office of Appeals under this paragraph (i)(3)(iii). 
Upon a determination in favor of the issuer, the Office of Appeals must 
return the undeveloped case to the Commissioner for further 
consideration of the substance of the claim.
    (A) A claim is described in this paragraph (i)(3)(iii)(A) if the 
Commissioner asserts that the claim was filed after the filing 
deadline.
    (B) A claim is described in this paragraph (i)(3)(iii)(B) if the 
Commissioner asserts that additional information to support the claim 
was not submitted within the time specified in the request for 
information or in any extension of such specified time period.
* * * * *

0
Par. 4. Section 1.148-11 is amended by revising the section heading and 
adding reserved paragraph (k) and paragraph (l) to read as follows:


Sec.  1.148-11  Effective/applicability dates.

* * * * *
    (k) [Reserved]
    (l) Additional arbitrage guidance updates.
    (1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) Application. (i) Section 1.148-3(i)(3)(i) applies to claims 
arising from an issue of bonds to which Sec.  1.148-3(i) applies and 
for which the final computation date is after June 24, 2008. For 
purposes of this paragraph (l)(4), issues for which the actual final 
computation date is on or before June 24, 2008, are deemed to have a 
final computation date of July 1, 2008 for purposes of applying Sec.  
1.148-3(i)(3)(i).
    (ii) Section 1.148-3(i)(3)(ii) and (iii) apply to claims arising 
from an issue of bonds to which Sec.  1.148-3(i) applies and for which 
the final computation date is after September 16, 2013.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: October 17, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-26738 Filed 11-12-14; 8:45 am]
BILLING CODE 4830-01-P