The Internal Revenue Service issued a revenue procedure that provides guidance on the treatment of taxpayers who accept certain types of settlements of potential legal claims relating to auction rate securities.

In general, an auction rate security is a security in which the payment rate is reset periodically (typically every seven to 28 days), pursuant to an auction rate-setting process, or a similar remarketing agent rate-setting process, that is designed to produce the minimum payment rate necessary to enable all interested sellers to sell the security to willing buyers at a price equal to the par amount of the security, plus accrued but unpaid periodic payments.

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