View all text of Subjgrp 1 [§ 1.141-1 - § 1.150-5]
§ 1.150-3 - Retirement standards for state and local bonds.
(a) General purpose and scope. This section provides rules to determine when a tax-exempt bond is retired solely for purposes of sections 103 and 141 through 150 of the Internal Revenue Code (Code).
(b) Retirement of a tax-exempt bond—(1) General rules. Except as otherwise provided in paragraph (c) of this section, a tax-exempt bond is retired when:
(i) A significant modification of the bond occurs under § 1.1001-3;
(ii) The issuer or its agent acquires the bond in a manner that extinguishes the bond; or
(iii) The bond is otherwise redeemed (for example, redeemed at maturity).
(2) Elective retirement. In guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(a) of this chapter), the Commissioner may set forth specific circumstances under which an issuer may elect to treat a tax-exempt bond as retired for purposes of sections 103 and 141 through 150 of the Code.
(c) Exceptions to general rules for retirement of a tax-exempt bond—(1) Qualified tender right disregarded for certain purposes. In applying § 1.1001-3 to a qualified tender bond for purposes of paragraph (b)(1)(i) of this section, both the existence and exercise of a qualified tender right are disregarded for purposes of determining whether an alteration of the interest rate or interest rate mode that occurs pursuant to the terms of the bond is a modification. Thus, an issuer's exercise of an option to alter the interest rate or interest rate mode on a qualified tender bond generally is not a modification under § 1.1001-3 because the alteration occurs by operation of the terms of the bond and the holder's resulting right to put the bond to the issuer or the issuer's agent pursuant to the disregarded qualified tender right does not prevent the issuer's option from qualifying as a unilateral option under § 1.1001-3(c)(3) that would not give rise to a modification.
(2) Acquisition pursuant to a qualified tender right. An acquisition of a qualified tender bond by the issuer or its agent does not result in the retirement of the bond under paragraph (b)(1)(ii) of this section if the acquisition is pursuant to the operation of a qualified tender right and neither the issuer nor its agent continues to hold the bond after the close of the 90-day period beginning on the date of the tender.
(3) Acquisition of a tax-exempt bond by a guarantor or liquidity facility provider. An acquisition of a tax-exempt bond by a guarantor or liquidity facility provider acting on the issuer's behalf does not result in the retirement of the bond under paragraph (b)(1)(ii) of this section if the acquisition is pursuant to the terms of the guarantee or liquidity facility and the guarantor or liquidity facility provider is not a related party (as defined in § 1.150-1(b)) to the issuer.
(d) Effect of retirement. If a bond is retired pursuant to paragraph (b)(1)(i) of this section (that is, in a transaction treated as an exchange of the bond for a bond with modified terms), the bond is treated as a new bond issued at the time of the modification as determined under § 1.1001-3. If the issuer or its agent resells a bond retired pursuant to paragraph (b)(1)(ii) of this section, the bond is treated as a new bond issued on the date of resale. The rules of § 1.150-1(d) apply to determine if the new bond is part of a refunding issue.
(e) Definitions. For purposes of this section, the following definitions apply:
(1) Issuer means the State or local governmental unit (as defined in § 1.103-1) that actually issues the tax-exempt bond and any related party (as defined in § 1.150-1(b)) to the actual issuer (as distinguished, for example, from a conduit borrower that is not a related party to the actual issuer).
(2) Qualified tender bond means a tax-exempt bond that, pursuant to the terms of the bond, has all of the following features:
(i) During each authorized interest rate mode, the bond bears interest at a fixed interest rate, a qualified floating rate under § 1.1275-5(b), or an objective rate for a tax-exempt bond under § 1.1275-5(c)(5);
(ii) Interest on the bond is unconditionally payable (as defined in § 1.1273-1(c)(1)(ii)) at periodic intervals of no more than one year;
(iii) The bond has a stated maturity date that is not later than 40 years after the issue date of the bond; and
(iv) The bond includes a qualified tender right.
(3) Qualified tender right means a right or obligation of a holder of a tax-exempt bond pursuant to the terms of the bond to tender the bond for purchase as described in this paragraph (e)(3). The purchaser under the tender may be the issuer, its agent, or another party. The tender right is available on at least one date before the stated maturity date. For each such tender, the purchase price of the bond is equal to par (plus any accrued interest). Following each such tender, the issuer, its agent, or another party either redeems the bond or uses reasonable best efforts to resell the bond within the 90-day period beginning on the date of the tender. Upon any such resale, the resale price of the bond is equal to the par amount of the bond (plus any accrued interest), except that, if the tender right is exercised in connection with a conversion of the interest rate mode on the bond to a fixed rate for the remaining term of the bond, the bond may be resold at any price, including a premium price above the par amount of the bond or a discount price below the par amount of the bond (plus any accrued interest). Any premium received by the issuer pursuant to such a resale is treated solely for purposes of the arbitrage investment restrictions under section 148 of the Code as additional sale proceeds of the bonds.
(f) Applicability date—(1) General applicability. This section applies to events occurring and actions taken with respect to bonds on or after December 30, 2025.
(2) Permissive applicability. An issuer may choose to apply this section to events occurring and actions taken with respect to bonds on or after December 30, 2024.