From the IRS
The IRS announced a program to provide relief from debt extinguishment for certain issuers that purchase and hold their own tax-exempt bonds (Announcement 2011-19).
In 2008, during the financial crisis, the IRS issued two notices providing relief from liquidity constraints in the tax-exempt bond market. The notices allowed state and local governments to purchase and hold their own tax-exempt bonds for temporary holding periods without resulting in a retirement of the purchased tax-exempt bonds. The permitted holding period ended December 31, 2010.
Some issuers who purchased their own tax-exempt bonds were unable to resell those bonds before the December 31, 2010, deadline. Therefore, the IRS is initiating a voluntary closing agreement program (VCAP) under which it will consider requests for voluntary closing agreements from issuers of extinguished bonds.
Under a closing agreement, extinguished bonds would be treated as remaining outstanding until the earliest of (1) 180 days after the closing agreement is executed by the IRS and the issuer, (2) the date the bonds are sold to a third party, (3) the date the bonds are currently refunded, or (4) the date the bonds are canceled on the issuer’s books.
To qualify for a closing agreement, the issuer must adopt a resolution of its intent to resell or currently refund the extinguished bonds as tax-exempt bonds within the relevant closing agreement period, meet other conditions, and pay a fee.
The VCAP will accept requests through December 31, 2012.