For Tax Professionals  
REG-110965-97 January 21, 1998

Obligations of States & Political Subdivisions

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-110965-97] RIN 1545-AV47

TITLE: Obligations of States and Political Subdivisions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Partial withdrawal of notice of proposed rulemaking; notice
of proposed rulemaking by cross-reference to temporary regulations;
and notice of public hearing.

SUMMARY: This document withdraws portions of the notice of proposed
rulemaking published in the Federal Register (59 FR 67658) on
December 30, 1994. In the Rules and Regulations section of this
issue of the Federal Register, the IRS is issuing temporary
regulations that provide guidance to state and local governments
that issue bonds for output facilities and to certain
nongovernmental persons that are engaged in the local furnishing of
electric energy or gas using facilities financed with state or local
bonds. These proposed regulations reflect changes made by the Tax
Reform Act of 1986 and the Small Business Job Protection Act of
1996. The text of those temporary regulations also serves as the
text of these proposed regulations. This document provides a notice
of public hearing on these proposed regulations.

DATES: Written comments must be received by April 22, 1998.

Outlines of topics to be discussed at the public hearing scheduled
for April 28, 1998, at 10 a.m. must be received by April 7, 1998.

ADDRESSES: Send Submissions to: CC:DOM:CORP:R (REG-110965-97), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-110965- 97),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue
NW, Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the "Tax Regs" option
on the IRS Home Page, or by submitting comments directly to the IRS
Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/comments.html. The public
hearing will be held in the Auditorium, Internal Revenue Building,
1111 Constitution Avenue NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Allan
B. Seller, 202-622-3980; concerning submissions and the hearing,
Michael L. Slaughter, Jr., 202-622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Proposed regulations 1.141-7 and 1.141-8, published on December
30, 1994 (59 FR 67658) addressed the application of the private
activity bond tests of section 141(b)(2) to output contract for
output facilities and the application of the $15 million limitation
on output facility financings of section 141(b)(4). These proposed
sections are withdrawn. These sections were issued as part of
proposed regulations under 1.141-0 through 1.141-16, Definition of
Private Activity Bonds, which were finalized in part in TD 8712
published in the Federal Register on January 16, 1997.

Sections 1.141-7T, 1.141-8T, 1.141-15T, 1.142(f)(4)-1T, and 1.150-5T
published in the Rules and Regulations portion of this issue of the
Federal Register are issued to provide guidance on certain aspects
of the private activity bond restrictions under section 141 of the
Internal Revenue Code.

The text of those temporary regulations also serves as the text of
these proposed regulations. The preamble to the temporary
regulations explains the temporary regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required.

It has also 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 do not have a
significant impact on a substantial number of small entities.

This certification is based upon the fact that in the years 1987
through 1993 a total of 61 different state or local government
issuers of exempt facility bonds issued under section 142(f) for the
local furnishing of electric energy or gas filed information returns
with the Internal Revenue Service under section 149(e).

Further, an election under section 142(f)(4) is in no event required
to be filed with the Internal Revenue Service more than once by a
person engaged in the local furnishing of electric energy or gas.
Therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. Chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue 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 business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments that are
submitted timely (a signed original and eight (8) copies) to the
IRS. All comments will be available for public inspection and
copying.

A public hearing has been scheduled for April 28, 1998, at 10 a.m.
in the Auditorium, Internal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC. Because of access restrictions, visitors
will not be admitted beyond the lobby more than 15 minutes before
the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must
submit written comments by April 22, 1998 and submit an outline of
the topics to be discussed and the time to be devoted to each topic
by April 7, 1998.

A period of 10 minutes will be allotted to each person for making
comments.

An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed.

Copies of the agenda will be available free of charge at the
hearing.

Drafting Information

The principal authors of these regulations are Michael G.

Bailey and Allan Seller, Office of the Assistant Chief Counsel
(Financial Institutions and Products), and Nancy M. Lashnits,
formerly of that office. However, other personnel from the IRS and
Treasury Department participated in their development.

Partial withdrawal of Notice of Proposed Rulemaking Under the
authority of 26 U.S.C. 7805, 1.141-7 and 1.141-8 in the notice of
proposed rulemaking that was published on December 30, 1994 (59 FR
67658) are withdrawn.

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 as
follows:

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

Par. 2. Section 1.141-7 is added to read as follows:

1.141-7 Special rules for output facilities.

[The text of this proposed section is the same as the text of
1.141-7T published elsewhere in this issue of the Federal
Register.] Par. 3. Section 1.141-8 is amended by adding the text of
the section to read as follows:

1.141-8 $15 million limitation for output facilities.

[The text of this proposed section is the same as the text of
1.141-8T published elsewhere in this issue of the Federal
Register.] Par. 4. Section 1.141-15 is amended by adding paragraphs
(f) through (i) to read as follows:

1.141-15 Effective dates.

* * * * *

(f) through (i) [The text of proposed paragraphs (f) through (i) are
the same as the text of 1.141-15T(f) through (i) published
elsewhere in this issue of the Federal Register.] Par. 5. Section
1.142(f)(4)-1 is added to read as follows:

1.142(f)(4)-1 Manner of making election to terminate tax-exempt
bond financing.

[The text of this proposed section is the same as the text of
1.142(f)(4)-1T published elsewhere in this issue of the Federal
Register.]

Par. 6. Section 1.150-5 is added to read as follows:

1.150-5 Filing notices and elections.

[The text of this proposed section is the same as the text of
1.150-5T published elsewhere in this issue of the Federal
Register.]

Michael P. Dolan
Deputy Commissioner of Internal Revenue


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