There was a collective sigh of relief from bond lawyers across the country today, as the Department of the Treasury announced that it intends to withdraw in their entirety the regulations proposed by the IRS on political subdivisions, originally published on February 23, 2016. A copy of Treasury’s press release announcing the decision can be accessed here.
The political subdivision regulations were met with immediate criticism from municipal finance professionals. The criticism directed at IRS representatives attending the 2016 Tax and Securities Law Institute sponsored by the National Association of Bond Lawyers was particularly animated. Treasury in its announcement appears to have admitted that the proposal was flawed, stating that the “regulations would have been costly and burdensome.”
While this news is a welcome development, municipal issuers and their advisors should be aware that the definition of a “political subdivision” may be the topic of proposed regulations in the future. In a report prepared by Treasury in connection with the announcement, it was noted that Treasury and the IRS “will continue to study the legal issues relating to political subdivisions,” and “may propose more targeted guidance in the future.”