H.R. 3108 What happens if this passes and is signed by W?

[AndyH]

Does anyone know if the IRS has decided upon a formula for a new rate for 1/1/2004, or what the lead time might be? Might there be a temporary notice to give us something to work with if there is need for a period of public comment?

[MGB]

In my last meeting with Treasury a few weeks ago, they stated they will be ready to issue rates very quickly (a week or two?) once it passes. That was conditioned on the language in the House or Senate bills not being changed in conference. There actually was a change. The Treasury had been focusing on the top two quality grades. The conference made it the top three quality grades. That shouldn't slow them down too much, they have been gathering data on all bonds.

It is expected they will choose a small group of well-known broad indices and directly average them with no adjustments. However, they want to make numerous adjustments (option adjusting, non-US in index, etc.). The adjustments will be put into a proposed regulation for future determinations of the rate. In the meantime, they will publish the current (and back to the late 90s) rates for awhile based on a simple average.

It is conceivable they could be ready for the first release a day after the President signs, but that is unlikely, given the numerous levels of bureacracy for signoffs even after they come up with it.

[david rigby]

Thanks for the explanation. Approximately, what is the impact? about 100 basis points above current level?

[AndyH]

YES 78-19!

[MGB]

I am expecting 100 basis points. But, Treasury has enough latitude to come up with something different. I just put out to clients a Client Action Bulletin stating "6.3% to 6.6%, probably at the middle of that range". 100 basis points would be just over 6.5%.

[AndyH]

Thank you. Very helpful and timely as usual.