Treasury has released long-awaited proposed regulations that define the entities that are “political subdivisions” eligible to issue tax-exempt bonds. The Internal Revenue Code explicitly allows States, territories, possessions of the U.S., or the District of Columbia, or “any political subdivision thereof” to issue tax-exempt bonds.

We’ll have more to say about this in coming days.  These are merely proposed regulations, so they don’t yet have the force of law. For now, it’s enough to say that this is another offering in a continuing back-and-forth between the government and the tax-exempt bond community on what “political subdivision” means (or, more precisely, what it should mean). For a description of the audit controversy that sparked these proposed regulations, go re-read Todd’s post from last May. For how “political subdivisions” fit into the broader animal kingdom of governmental entities, go re-read (or, more likely, read for the first time) this post by some guy named Hutchinson.