Reopenings of Treasury Securities & Other
Debt Instruments; Original Issue Discount

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8934] RIN 1545-AX60

TITLE: Reopenings of Treasury Securities and Other Debt Instruments;
Original Issue Discount

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the
federal income tax treatment of debt instruments issued in certain
reopenings. The final regulations provide guidance to holders and
issuers of these debt instruments .

DATES: Effective Date: These regulations are effective March 13,
2001. Applicability DATES: For dates of applicability, see
§§1.163-7(f), 1.1275-1(f), 1.1275-2(d), and 1.1275-2(k)
(5).

FOR FURTHER INFORMATION CONTACT: William E. Blanchard, (202)
622-3950 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background On November 5, 1999, temporary regulations were published
in the Federa Register (64 FR 60342) that revised the rules for when
a reopening of Treasury securities is a qualified reopening. The
temporary regulations eliminated the acute, protracted shortage
requirement that was in §1.1275-2(d). See §1.1275-2T(d) of
the. Temporary Income Tax Regulations. As a result, additional
Treasury securities issued in a reopening are part of the same issue
as the original Treasury securities if (1) the additional Treasury
securities have the same terms as the original Treasury securities,
and (2) the additional Treasury securities are issued not more than
one year after the original Treasury securities were first issued to
the public.

On November 5, 1999, proposed regulations (REG-115932-99) also were
published in the Federal Register (64 FR 60395) that, for the first
time, provided rules for reopenings of debt instruments other than
Treasury securities. See §1.1275-2(k) of the proposed Income
Tax Regulations.

Although a public hearing on the proposed regulations was held on
March 22, 2000, no one testified at the hearing. Eight comment
letters, however, were received on the proposed regulations. The
proposed regulations, with certain changes to respond to the
comments, are adopted as final regulations. Explanation of
Provisions

Reopenings

A. General description

In certain circumstances, an issuer would like to reopen an existing
issue of debt instruments (that is, sell additional amounts of debt
instruments with terms that are identical to the terms of the
original debt instruments and with the same CUSIP number and tax
characteristics as the original debt instruments). In most cases,
the purpose of the reopening is to create a large, liquid issue of
debt instruments. However, during periods of rising market interest
rates, the original issue discount (OID) provisions of the Code can
effectively prohibit reopenings, especially if the additional debt
instruments are not considered part of the same issue as the
original debt instruments. If the debt instruments sold in the
reopening are considered part of the original issue, they have OID
only to the extent the debt instruments in the original issue have
OID. Thus, if the original debt instruments were issued without OID,
the subsequently sold debt instruments also do not have OID. In this
case, any discount on the subsequently sold debt instruments
generally is market discount, not OID. Conversely, if the
subsequently sold debt instruments are a separate issue for tax
purposes, any discount that arises as part of their issuance is OID
if it equals or exceeds the OID de minimis amount for the debt
instruments.

The holder and issuer have different consequences depending upon
whether the discount is characterized as OID or market discount. For
a holder, the primary difference is whether the holder has to
include the discount in income on a current basis as it accrues. If
it is OID, the holder must include the accruals in income currently;
if it is market discount, the holder generally does not have to
include discount in income until the debt instrument is disposed of
or redeemed. In general, an issuer's interest deduction does not
depend on whether the discount is OID or market discount.

However, the issuer's reporting obligations depend on whether the
discount is OID or market discount. If the subsequently sold debt
instruments are part of a separate issue and if the discount is OID,
the issuer (or a broker or middleman) generally is required under
section 6049 to make OID information reports for these debt
instruments. To comply with this reporting obligation, the issuer
must be able to distinguish the subsequently sold debt instruments
(which require OID information reports) from the. Originally sold
debt instruments. As a practical matter, the only way the
subsequently sold debt instruments can be distinguished is if they
are assigned new CUSIP numbers. The different tax treatment and the
assignment of new CUSIP numbers prevents the debt instruments from
being fungible and, thereby, defeats the purpose of the reopening.

B. Proposed regulations

In an attempt to strike a balance between the tax policy concern
about the conversion of OID into market discount and the need to
have the tax rules reflect current capital market practices, the
proposed regulations specified when debt instruments issued in a
reopening are considered part of the same issue as the original debt
instruments (a qualified reopening). (As noted above,
§1.1275-2T(d) provides rules to determine when a reopening of
Treasury securities is a qualified reopening.) Under
§1.1275-2(k) of the proposed regulations, a reopening of debt
instruments is a qualified reopening if: (1) the original debt
instruments are publicly traded; (2) the issue date of the
additional debt instruments (treated as if they were a separate
issue) is not more than six months after the issue date of the
original debt instruments; (3) seven days before the date on which
the price of the additional debt instruments is established, the
yield of the original debt instruments (based on their fair market
value) is not more than 107.5 percent of the yield of the original
debt instruments on their issue date; and (4) the yield of the
additional debt instruments (based on the sales price of the
additional debt instruments) is no more than 115 percent of the
yield of the original debt instruments on their issue date. For
purposes of the yield tests, if the original debt instruments were
issued with no more than a de minimis amount of OID,. The coupon
rate of the original debt instruments is used rather than the yield.
A qualified reopening also includes a reopening of original debt
instruments if the first two conditions described above are met and
the additional debt instruments (treated as a separate issue) are
issued with no more than a de minimis amount of OID. A qualified
reopening, however, does not include a reopening of tax-exempt
obligations or contingent payment debt instruments.

The 107.5 percent test was designed to give some relief to the
reopening of relatively short-term issues (that is, issues with a
remaining term of ten years or less), which tend to be the most
impacted by the OID de minimis rules. In addition, the 107. percent
test, which is tested seven days before the anticipated pricing
date, would give the issuer an indication as to whether the
reopening would be a qualified reopening. The 115 percent test was
designed to prevent, in a situation in which interest rates were to
move sharply upward in the period between the announcement date and
the issue date, a conversion of a significant amount of OID into
market discount.

C. Final regulations

(1) Fixed Reopening Period

Commentators suggested that the final regulations extend the one-
year rule for reopenings of Treasury securities to other issuers. In
support of this change, commentators stated that different rules
will impede the ability of U.S. issuers to compete with foreign
issuers for investors' funds and will affect the ability of non-
Treasury issuers to make their dollar-denominated issues attractive
alternatives to U.S. Treasury securities as benchmarks for
prevailing market interest rates. They also stated that an extended
period (from six to twelve months) is often required in order to
aggregate sufficient debt issuances to create a large liquid issue
and that many holders of reopened debt instruments are tax-
indifferent parties.

If the one-year rule is not adopted in the final regulations, some
commentators suggested that the final regulations provide a fixed
period of less than one year in which there would be no restrictions
on reopenings (for example, a period of six months for non-Treasury
securities with an original maturity of less than ten years and nine
months for non-Treasury securities with an original maturity of at
least ten years). In addition, other commentators suggested that the
final regulations extend the one-year rule to reopenings of issuers
whose securities are treated as government securities for U.S.
securities law purposes.

After careful consideration of these comments, the IRS and the
Treasury Department have decided not to adopt these suggestions.
Congress adopted different statutory regimes for OID and market
discount. The IRS and the Treasury Department believe that adopting
the commentators' suggestions would not strike the appropriate
balance between the statutory scheme and providing some flexibility
for issuers. Additionally, the reopening of Treasury securities does
not produce a potential mismatch between the issuer's interest
deductions and the holder's income inclusions.

(2) Yield Test

Commentators suggested that the two-part yield test be replaced with
a single yield test. According to the commentators, by the time a
reopening is priced, dealers, traders, and investors have arranged
their affairs in reliance on the issue coming to market, and the
issuer has earmarked the proceeds for use in its business. In
addition, many of the participants have arranged hedges and other
transactions around the.-reopening. In those cases in which the
second-yield test would not be met (which would be caused by
unexpected market volatility), a cancelled reopening could generate
lost economic costs for these capital market participants. In
addition, the second test would create marketing and credibility
concerns for issuers.

Most of the commentators suggested that any yield test should be
applied either on the pricing date or the announcement date.
According to one commentator, the yield test should be applied by an
issuer on a single date that is the announcement date for the
reopening transaction, provided the pricing date for the transaction
occurs thereafter within a period consistent with customary
commercial practice. Although customary commercial practice may vary
somewhat by issuer and market, the period between the announcement
date and the pricing date is usually five business days or less. The
yield test should allow issuers to presume that a transaction is
consistent with customary commercial practice if the period between
the announcement date and the pricing date is five business days or
less.

For public transactions, the commentators suggested that the
announcement date can be defined as the date that the reopening
transaction is publicly announced through one or more media,
including a press release, a news item posted on a public messaging
service such as Reuters, Telerate, or Bloomberg, or a posting on the
issuer's public web site. (Because the transaction is a reopening,
the payment terms of the securities to be issued will be known in
advance based on the prior issue.) A test based on a public
announcement date would be fairly easy to administer for both
issuers and the government. Moreover, if an announced reopening
transaction is not priced within a customary commercial time frame,
it is likely that the transaction will be.re- evaluated and
subsequently re-announced on a later date that could serve as the
appropriate announcement date for the yield test.

According to another commentator, each reopening should be tested on
the earlier of the pricing date or the announcement date of a
reopening. The term announcement date could be defined as the later
of seven days before pricing or the date on which an issuer's intent
to reopen a security is reported on the standard electronic news
services used by security broker-dealers. This rule would
accommodate issuers who announce and price reopenings on the same
day as well as Treasury and non-Treasury issuers who announce
reopenings up to 7 days before pricing.

According to a third commentator, an issuer should be permitted to
satisfy any yield test by demonstrating that the test was satisfied
on any one of the seven days prior to the date on which the price of
the additional debt instruments was established. Based on historical
evidence, the commentators stated that the 107.5 pecent test in the
proposed regulations would not have been met in a number of cases in
which a reopening would be economically desirable. Therefore, the
commentators suggested that any yield test should be based on 115
percent of the yield rather than 107.5 percent of the yield. While a
115 percent test also would not be met in a number of cases, the
commentators stated that the 115 percent figure used in the proposed
regulations represents an acceptable middle ground. (However, some
commentators stated that a 115 percent test would be too low to
qualify many reopenings of sovereign debt issued by emerging market
governments.)

In response to the comments, the final regulations adopt a single
yield test to determine if the reopening is a qualified reopening.
Under the final regulations, the yield test is satisfied if, on the
date on which the price of the additional debt instruments is
established (or, if earlier, the announcement date), the yield of
the original debt instruments (based on their fair market value) is
not more than 110 percent of the yield of the original debt
instruments on their issue date (or, if the original debt
instruments were issued with no more than a de minimis amount of
OID, the coupon rate). For purposes of the yield test, the
announcement date is the later of seven days before the date on
which the price of the additional debt instruments is established or
the date on which the issuer's intent to reopen a security is
publicly announced through one or more media, including an
announcement reported on the standard electronic news services used
by security broker-dealers (for example, Reuters, Telerate, or
Bloomberg). The test rate of 110 percent in the final regulations
reflects a compromise between the 107.5 percent test rate in the
proposed regulations and the 115 percent test rate suggested by the
commentators.

(3) Six-Month Period

Some of the commentators suggested that the six-month period be
extended to one year. According to the commentators, many issuers
have specific funding needs that arise sporadically over the course
of a year or, in the case of foreign sovereign issuers, are often
fiscally constrained from reopening issues within a six-month
period. Therefore, an extended period (from six to twelve months) is
required in order to aggregate sufficient debt issuances to create a
large, liquid issue. Because theextension of the six-month period
would increase the likelihood of the conversion of OID into market
discount, the final regulations do not adopt this suggestion.

4) De Minimis Test

Some of the commentators suggested that the final regulations
clarify the treatment of reopened debt instruments that are issued
with no more than a de minimis amount of OID after the expiration of
the six-month period (a de facto qualified reopening). According to
the commentators, the proposed regulations apparently are stricter
than current law in limiting a de facto qualified reopening to one
in which the reopened securities are issued within six months after
the issue date of the original debt instruments. As a result, there
is uncertainty in the debt markets where none existed for these
securities.

The final regulations provide that a reopening (including a
reopening of Treasury securities) is a qualified reopening if the
original debt instruments are publicly traded and the additional
debt instruments are issued with no more than a de minimis amount of
OID (determined without the application of §1.1275-2(k)). As a
result, the de minimis test is no longer limited to the six-month
period after the issue date of the original debt instruments.

(5) Reopenings after the Six-Month Period

Some of the commentators suggested that the final regulations allow
a reopening occurring after the expiration of the fixed reopening
period to be a qualified reopening if the reopening satisfies a
yield test that would limit the amount of OID converted into market
discount. In the experience of the commentators, as longer-term debt
securities progress in age, they become less liquid as compared with
shorter-term debt securities of equal remaining life. (For example,
a thirty-year debt issue with five years of remaining life generally
can be expected to be less liquid than an otherwise identical new
five-year issue.) The ability to reopen a security throughout its
life would help issuers increase the liquidity of their longer-term
issues as needed to address such competitive concerns. This ability
would be highly valuable to private sector and government-sponsored
enterprise issuers; therefore, it would be appropriate to allow it
so long as a yield test ultimately limits the amount of OID that can
be converted into market discount. For example, the final
regulations could permit an issuer (including the Treasury
Department) to reopen a security after the fixed reopening period if
a 10 percent yield-change test is met.

The final regulations do not adopt this suggestion. The IRS and the
Treasury Department believe that the changes to the de minimis test
described above provide the appropriate relief for debt instruments
reopened after the six-month period.

D. Treasury securities

The final regulations concerning reopenings of Treasury securities
are generally the same as the temporary regulations. See
§1.1275-2(d)(2). In addition, under the final regulations, if a
reopening of Treasury securities is not a qualified reopening under
§1.1275-2(d)(2) (for example, because the reopening date is
more than one year after the issue date of the original Treasury
securities), the reopening is a qualified reopening under
§1.1275-2(k) if the additional Treasury securities are issued
with no more than a de minimis amount of OID (determined without the
application of §1.1275- 2(k)).

E. Issuer's treatment

The proposed regulations require the issuer to take into account, as
an adjustment to its interest expense, any difference between the
amounts paid by the.-holders to acquire the additional debt
instruments issued in a qualified reopening and the adjusted issue
price of the original debt instruments. This difference would either
increase or decrease the adjusted issue prices of all of the debt
instruments in the issue (both original and additional) with respect
to the issuer (but not the holder). The issuer would then, as of the
reopening date, recompute the yield of the debt instruments in the
issue based on this aggregate adjusted issue price and the remaining
payment schedule of the debt instruments. The issuer would use this
recomputed yield for purposes of applying the constant yield method
to determine its accruals of interest expense over the remaining
term of the debt instruments in the issue.

One commentator suggested that the adjusted issue price of the
combined debt instruments simply should be the sum of the issuer's
adjusted issue price in the original debt instruments on the
reopening date and the issue price of the additional debt
instruments determined as if they were a separate issue. The final
regulations do not adopt this suggestion; the rule in the proposed
regulations is more accurate than the rule suggested by the
commentator. The same commentator also suggested that the final
regulations state that, for purposes of determining the adjusted
issue price of the combined debt instruments, pre-issuance accrued
interest on the additional debt instruments for which the issuer is
compensated at issuance is not treated as part of the issue price of
the additional debt instruments. In effect, this suggestion would
make the rule in §1.1273-2(m) mandatory for debt instruments
issued in a qualified reopening. Under § 1.1273-2(m), a
taxpayer can choose to determine the issue price of a debt
instrument by excluding pre-issuance accrued interest. There does
not seem.to be a compelling reason to make this rule mandatory for
debt instruments issued in a qualified reopening when it is not
mandatory for other debt instruments. As a result, the final
regulations do not adopt this suggestion.

F. Effective date

The rules in the final regulations for qualified reopenings (other
than for Treasury reopenings subject to §1.1275-2(d)) apply to
debt instruments that are part of a reopening where the reopening
date is on or after March 13, 2001.

Definition of Issue

The proposed regulations define the term issue as two or more debt
instruments that (1) have the same credit and payment terms, (2) are
issued either pursuant to a common plan or as part of a single
transaction or a series of related transactions, and (3) are issued
within a period of 13 days beginning with the date on which the
first debt instrument that would be part of the issue is issued to a
person other than a bond house, broker, or similar person acting in
the capacity of an underwriter, placement agent, or wholesaler. The
final regulations generally are the same as the proposed regulations
but for the additional requirement that the debt instruments be
issued on or after March 13, 2001. The final regulations also
provide certain transition rules if the debt instruments are issued
prior to March 13, 2001.

Issue Price of Treasury Securities

Under §1.1275-2T(d)(1), the issue price of an issue of Treasury
securities auctioned before November 2, 1998, is the average price
of the securities sold, and the issue price of an issue of Treasury
securities auctioned on or after November 2, 1998, is the price of
the securities sold at auction. The change to the definition of
issue price.for Treasury securities in the temporary regulations
reflected the Treasury Department's switch on November 2, 1998, from
an average price auction to a single price auction for selling
Treasury securities. However, in order to accommodate all types of
auction techniques and because the rule for an average price
auction, when applied to a single price auction, produces the same
result as the rule for a single price auction, the final regulations
provide that the issue price of an issue of Treasury securities is
the average price of the securities sold.

Special Analyses

It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
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 and,
because the regulations do not impose a collection of information on
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f) of the Code, the notice
of proposed rulemaking preceding these regulations was submitted to
the Chief Counsel for Advocacy of the Small Business Administration
for comment on its impact on small business.

Drafting Information

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

Paragraph 1. The authority citation for part 1 is amended by
removing the entry for §1.1275-2T to read in part as follows:

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

Par. 2. Section 1.163-7 is amended by:

1. Revising paragraph (e).

2. Adding a new paragraph (f).

The revision and addition read as follows: §1.163-7 Deduction
for OID on certain debt instruments.

* * * * *

(e) Qualified reopening--

(1) In general. In a qualified reopening of an issue of debt
instruments, if a holder pays more or less than the adjusted issue
price of the original debt instruments to acquire an additional debt
instrument, the issuer treats this difference as an adjustment to
the issuer's interest expense for the original and additional debt
instruments. As provided by paragraphs (e)(2) through (5) of this
section, the adjustment is taken into account over the term of the
instrument using constant yield principles.

(2) Positive adjustment. If the difference is positive (that is, the
holder pays more than the adjusted issue price of the original debt
instrument), then, with respect to.the issuer but not the holder,
the difference increases the aggregate adjusted issue prices of all
of the debt instruments in the issue, both original and additional.

(3) Negative adjustment. If the difference is negative (that is, the
holder pays less than the adjusted issue price of the original debt
instrument), then, with respect to the issuer but not the holder,
the difference reduces the aggregate adjusted issue prices of all of
the debt instruments in the issue, both original and additional.

(4) Determination of issuer's interest accruals. As of the reopening
date, the issuer must redetermine the yield of the debt instruments
in the issue for purposes of applying the constant yield method
described in §1.1272-1(b) to determine the issuer's accruals of
interest expense over the remaining term of the debt instruments in
the issue. This redetermined yield is based on the aggregate
adjusted issue prices of the debt instruments in the issue (as
determined under this paragraph (e)) and the remaining payment
schedule of the debt instruments in the issue. If the aggregate
adjusted issue prices of the debt instruments in the issue (as
determined under this paragraph (e)) are less than the aggregate
stated redemption price at maturity of the instruments (determined
as of the reopening date) by a de minimis amount (within the meaning
of §1.1273-1(d)), the issuer may use the rules in paragraph (b)
of this section to determine the issuer's accruals of interest
expense.

(5) Effect of adjustments on issuer's adjusted issue price. The
adjustments made under this paragraph (e) are taken into account for
purposes of determining the issuer's adjusted issue price under
§1.1275-1(b).

(6) Definitions. The terms additional debt instrument, original debt
instrument, qualified reopening, and reopening date have the same
meanings as in §1.1275-2(k)..( f) Effective dates. This section
(other than paragraph (e) of this section) applies to debt
instruments issued on or after April 4, 1994. Taxpayers, however,
may rely on this section (other than paragraph (e) of this section)
for debt instruments issued after December 21, 1992, and before
April 4, 1994. Paragraph (e) of this section applies to qualified
reopenings where the reopening date is on or after March 13, 2001.
Par. 3. In §1.1271-0, paragraph (b) is amended by:

1. Adding entries for paragraphs (f)(1), (f)(2), (f)(3), and (f)(4)
of §1.1275-1.

2. Removing the language "[Reserved]" from the entry for paragraph
(d) and adding entries for paragraph (d) of §1.1275-2.

3. Adding entries for paragraph (k) of §1.1275-2.

4. Removing the entries for §1.1275-2T.

5. Removing the language "[Reserved]" from the entry for paragraph
(g) and adding an entry for paragraph (g) of §1.1275-7. The
revisions and additions read as follows: §1.1271-0 Original
issue discount; effective date; table of contents.

* * * * *

(b) * * *

* * * * *

§1.1275-1 Definitions.

* * * * *

(f) Issue.

(1) Debt instruments issued on or after March 13, 2001.

(2) Debt instruments issued before March 13, 2001..

(3) Transition rule.

(4) Cross-references for reopening and aggregation rules.

* * * * *

§1.1275-2 Special rules relating to debt instruments.

* * * * *

(d) Special rules for Treasury securities.

(1) Issue price and issue date.

(2) Reopenings of Treasury securities.

* * * * *

(k) Reopenings.

(1) In general.

(2) Definitions.

(3) Qualified reopening.

(4) Issuer's treatment of a qualified reopening.

(5) Effective date.

* * * * *

§1.1275-7 Inflation-indexed debt instruments.

* * * * *

(g) Reopenings.

* * * * *

Par. 4. In §1.1275-1, paragraph (f) is revised to read as
follows: §1.1275-1 Definitions.

* * * * *

(f) Issue--(1) Debt instruments issued on or after March 13, 2001.
Except as provided in paragraph (f)(3) of this section, two or more
debt instruments are part of the same issue if the debt
instruments--

(i) Have the same credit and payment terms;.

(ii) Are issued either pursuant to a common plan or as part of a
single transaction or a series of related transactions;

(iii) Are issued within a period of thirteen days beginning with the
date on which the first debt instrument that would be part of the
issue is issued to a person other than a bond house, broker, or
similar person or organization acting in the capacity of an
underwriter, placement agent, or wholesaler; and

(iv) Are issued on or after March 13, 2001.

(2) Debt instruments issued before March 13, 2001. Except as
provided in paragraph (f)(3) of this section, two or more debt
instruments are part of the same issue if the debt instruments--

(i) Have the same credit and payment terms;

(ii) Are sold reasonably close in time either pursuant to a common
plan or as part of a single transaction or a series of related
transactions; and

(iii) Are issued on or after April 4, 1994, and before March 13,
2001.

(3) Transition rule. If the issue date of any of the debt
instruments that would be part of the same issue (determined as if
each debt instrument were part of a separate issue) is on or after
March 13, 2001, then the definition of the term issue in paragraph
(f)(1) of this section applies rather than the definition in
paragraph (f)(2) of this section to determine if the debt
instruments are part of the same issue.

(4) Cross-references for reopening and aggregation rules. See
§1.1275-2(d) and (k) for rules that treat debt instruments
issued in certain reopenings as part of an issue of original
(outstanding) debt instruments. See §1.1275-2(c) for rules that
treat two ormore debt instruments as a single debt instrument.

* * * * *

Par. 5. In §1.1275-2, paragraph (d) is revised and paragraph
(k) is added to read as follows: §1.1275-2 Special rules
relating to debt instruments.

* * * * *

(d) Special rules for Treasury securities--(1) Issue price and issue
date. The issue price of an issue of Treasury securities is the
average price of the securities sold. The issue date of an issue of
Treasury securities is the first settlement date on which a
substantial amount of the securities in the issue is sold. For an
issue of Treasury securities sold from November 1, 1998, to March
13, 2001, the issue price of the issue is the price of the
securities sold at auction.

(2) Reopenings of Treasury securities--

(i) Treatment of additional Treasury securities. Notwithstanding
§1.1275-1(f), additional Treasury securities issued in a
qualified reopening are part of the same issue as the original
Treasury securities. As a result, the additional Treasury securities
have the same issue price, issue date, and (with respect to holders)
the same adjusted issue price as the original Treasury securities.
This paragraph (d)(2) applies to qualified reopenings that occur on
or after March 25, 1992.

(ii) Definitions--(A) Additional Treasury securities. Additional
Treasury securities are Treasury securities with terms that are in
all respects identical to the terms of the original Treasury
securities..

(B) Original Treasury securities. Original Treasury securities are
securities comprising any issue of outstanding Treasury securities.

(c) Qualified reopening--reopenings on or after March 13, 2001. For
a reopening of Treasury securities that occurs on or after March 13,
2001, a qualified reopening is a reopening that occurs not more than
one year after the original Treasury securities were first issued to
the public or, under paragraph (k)(3)(iii) of this section, a
reopening in which the additional Treasury securities are issued
with no more than a de minimis amount of OID.

(d) Qualified reopening--reopenings before March 13, 2001. For a
reopening of Treasury securities that occurs before March 13, 2001,
a qualified reopening is a reopening that occurs not more than one
year after the original Treasury securities were first issued to the
public. However, for a reopening of Treasury securities (other than
Treasury Inflation-Indexed Securities) that occurred prior to
November 5, 1999, a qualified reopening is a reopening of Treasury
securities that satisfied the preceding sentence and that was
intended to alleviate an acute, protracted shortage of the original
Treasury securities.

* * * * *

(k) Reopenings--

(1) In general. Notwithstanding §1.1275-1(f), additional debt
instruments issued in a qualified reopening are part of the same
issue as the original debt instruments. As a result, the additional
debt instruments have the same issue date, the same issue price, and
(with respect to holders) the same adjusted issue price as the
original debt instruments..

(2) Definitions--

(i) Original debt instruments. Original debt instruments are debt
instruments comprising any single issue of outstanding debt
instruments. For purposes of determining whether a particular
reopening is a qualified reopening, debt instruments issued in prior
qualified reopenings are treated as original debt instruments and
debt instruments issued in the particular reopening are not so
treated.

(ii) Additional debt instruments. Additional debt instruments are
debt instruments that, without the application of this paragraph
(k)--

(A) Are part of a single issue of debt instruments;

(B) Are not part of the same issue as the original debt instruments;
and

(C) Have terms that are in all respects identical to the terms of
the original debt instruments as of the reopening date.

(iii) Reopening date. The reopening date is the issue date of the
additional debt instruments (determined without the application of
this paragraph (k)).

(iv) Announcement date. The announcement date is the later of seven
days before the date on which the price of the additional debt
instruments is established or the date on which the issuer's intent
to reopen a security is publicly announced through one or more
media, including an announcement reported on the standard electronic
news services used by security broker-dealers (for example, Reuters,
Telerate, or Bloomberg).

(3) Qualified reopening--

(i) Definition. A qualified reopening is a reopening of original
debt instruments that is described in paragraph (k)(3)(ii) or (iii)
of this section. In addition, see paragraph (d)(2) of this section
to determine if a reopening of Treasury securities is a qualified
reopening..

(ii) Reopening within six months. A reopening is described in this
paragraph

(k)(3)(ii) if--

(A) The original debt instruments are publicly traded (within the
meaning of §1.1273-2(f));

(B) The reopening date of the additional debt instruments is not
more than six months after the issue date of the original debt
instruments; and

(C) On the date on which the price of the additional debt
instruments is established (or, if earlier, the announcement date),
the yield of the original debt instruments (based on their fair
market value) is not more than 110 percent of the yield of the
original debt instruments on their issue date (or, if the original
debt instruments were issued with no more than a de minimis amount
of OID, the coupon rate).

(iii) Reopening with de minimis OID. A reopening (including a
reopening of Treasury securities) is described in this paragraph (k)
(3)(iii) if--

(A) The original debt instruments are publicly traded (within the
meaning of §1.1273-2(f)); and

(B) The additional debt instruments are issued with no more than a
de minimis amount of OID (determined without the application of this
paragraph (k)).

(iv) Exceptions. This paragraph (k)(3) does not apply to a reopening
of tax-exempt obligations (as defined in section 1275(a)(3)) or
contingent payment debt instruments (within the meaning of
§1.1275-4).

(4) Issuer's treatment of a qualified reopening. See
§1.163-7(e) for the issuer's treatment of the debt instruments
that are part of a qualified reopening..

(5) Effective date. This paragraph (k) applies to debt instruments
that are part of a reopening where the reopening date is on or after
March 13, 2001. §1.1275-2T [Removed ]

Par. 6. Section 1.1275-2T is removed.

Par. 7. In §1.1275-7, paragraph (g) is added to read as
follows: §1.1275-7 Inflation-indexed debt instruments.

* * * * *

(g) Reopenings. For rules concerning a reopening of Treasury
Inflation-Indexed Securities, see paragraphs (d)(2) and (k)(3)(iii)
of §1.1275-2.

* * * * *

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

Approved: December 29, 2000

Jonathan Talisman
Assistant Secretary of the Treasury

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