Qualified Zone Academy Bonds; Obligations of
States & Political Subdivisions

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-105327-99] RIN 1545-AX03

TITLE: Qualified Zone Academy Bonds; Obligations of States and
Political Subdivisions

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: In the Rules and Regulations section of this issue of the
Federal Register, the IRS is issuing temporary regulations providing
guidance to holders and issuers of qualified zone academy bonds.
These proposed regulations would change the method of ascertaining
the qualified zone academy bond credit rate and would provide
reimbursement rules. State and local governments that issue
qualified zone academy bonds would be affected by these proposed
regulations. The text of the temporary regulations also serves as
the text of these proposed regulations. This document also provides
a notice of public hearing on these proposed regulations.

DATES: Written and electronic comments must be received by September
28, 1999. Outlines of topics to be discussed at the public hearing
scheduled for November 9, 1999, at 10 a.m. must be received by
October 19, 1999.

ADDRESSES: Send Submissions to: CC:DOM:CORP:R (REG-105327-99), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG-105327-99), 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/tax_regs/reglist.html. The public hearing
will be held in the room 2615, Internal Revenue Building, 1111
Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Timothy
L. Jones at 202-622-3980; concerning submissions of comments, the
hearing and/or to be placed on the building access list to attend
the hearing, Michael Slaughter at 202-622-7190 (not toll-free
numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 226(a) of the Taxpayer Relief Act of 1997, Public Law
105-34, 111 Stat. 788 (1997) amended the Internal Revenue Code by
redesignating section 1397E as 1397F and adding a new section 1397E.
Section 1397E authorizes a new type of debt instrument known as a
qualified zone academy bond. Temporary Regulations (T.D.8755)
interpreting section 1397E were published on January 7, 1998, 63 FR
671, as §1.1397E-1T.

Temporary regulations amending §1.1397E-1T are published in the
Rules and Regulations portion of this issue of the Federal Register.
Section 1.1397E-1T is amended by revising paragraphs (b) and (j),
redesignating paragraph (h) as paragraph (i) and adding new
paragraph (h). The text of the temporary regulations also serves as
the text of these proposed regulations. An explanation of the
regulations may be found in the preamble of 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. It has
also been determined that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not apply.

The Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply
because these regulations do not impose a collection of information
on small entities. Pursuant to section 7805(f) of the 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 or electronic comments (a
signed original and eight (8) copies, if written) that are submitted
timely to the IRS. The IRS and Treasury specifically request
comments on the clarity of the proposed regulations and how the
regulations may be made easier to understand. All comments will be
available for public inspection and copying.

A public hearing has been scheduled for November 9, 1999, beginning
at 10 a.m. in room 2615 of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10 th Street entrance,
located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors must present photo identification to enter
the building. Because of access restrictions, visitors will not be
admitted beyond the immediate entrance area more than 15 minutes
before the hearing starts.

For information about having your name placed on the building access
list to attend the hearing, see the A FOR FURTHER INFORMATION
CONTACT @ section of this preamble.

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

Persons who wish to present oral comments at the hearing must submit
written comments by September 28, 1999, and submit an outline of the
topics to be discussed and the time to be devoted to each topic
(signed original and eight (8) copies) by October 19, 1999. 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 author of these regulations is Timothy L.

Jones, Office of Assistant Chief Counsel (Financial Institutions &
Products). However, other personnel from IRS and the Treasury
Department participated in their development.

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 in part as follows:

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

Par. 2. Section 1.1397E-1 as proposed to be added at 63 FR 708 is
amended by:

1. Revising paragraphs (b) and (j);

2. Redesignating paragraph (h) as paragraph (i);

3. Adding new paragraph (h).

The revisions and addition read as follows:

§1.1397E-1 Qualified zone academy bonds.

[The text of proposed paragraphs (b), (h) and (j) is the same as the
text of §1.1397E-1T(b), (h), and (j) published elsewhere in this
issue of the Federal Register.]

Deputy Commissioner of Internal Revenue
Robert E. Wenzel

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