A bill to amend the Internal Revenue Code of 1986 to restore treatment of State and local bonds which are guaranteed by a Federal home loan bank as not federally guaranteed for purposes of determining their tax-exempt status.

S3941, introduced in the Senate on February 26, 2026, and referred to the Committee on Finance, is a technical amendment to the Internal Revenue Code. It specifically addresses Section 149(b), which determines whether a bond is federally guaranteed and thus loses tax-exempt status. The bill explicitly states that guarantees from Federal Home Loan Banks (FHLBs) do not constitute a federal guarantee. This is a restoration of prior treatment following a 2021 IRS ruling (Notice 2021-34) that created uncertainty about the tax-exempt status of such bonds. The bill has four cosponsors, including both Republicans and a Democrat, and an identical House companion (HR7769), indicating bipartisan support and a clear legislative path. No funding is authorized; the bill solely clarifies tax treatment. The direct market impact is a reduction in uncertainty for municipal bond issuers and investors. Approximately $1.7 trillion in municipal bonds are outstanding, and a portion are backed by FHLB letters of credit or guarantees. If these bonds were deemed federally guaranteed, they would become taxable, increasing their yields and reducing their value. The MINT Act prevents this outcome. For retail investors holding broad municipal bond ETFs like (iShares National Muni Bond ETF) and (SPDR Nuveen Bloomberg Municipal Bond ETF), the bill removes a key risk factor. The legislative timeline: the bill must pass the Senate Finance Committee, the full Senate, and then the House (where the identical HR7769 is pending in Ways and Means). Given early-stage status and no hearings yet, passage is likely in the current Congress but not guaranteed. The main risk is competing priorities. However, the narrow scope and bipartisan support suggest a high probability of eventual enactment.