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Tax-Exempt Bonds and Post-Issuance Compliance: What You Need to Know

By Timothy A. Stratton, Attorney, Gust Rosenfeld P.L.C.

The Internal Revenue Service (IRS) requires that records of tax-exempt bond financings be maintained for as long as the bonds are outstanding, plus three years. In a typical financing of 20 years or more, these records may span the careers of multiple legal counsel, administrators and other members of the finance team. Therefore, issuers of tax-exempt bonds may benefit from having a written post-issuance compliance policy.

Policy Components
It is important that issuers have a written post-issuance compliance policy and procedure in place to demonstrate compliance in the event the IRS conducts an examination. The policy should:

  • Designate a single person to have overall compliance responsibility;
  • Track how bond proceeds are invested and expended;
  • Track the use of bond-financed facilities;
  • Provide for the calculation and payment of any required arbitrage rebate;
  • State the types of records that should be retained, who is responsible for maintaining the records and for how long.

    In addition to the above policy requirements, issuers of Build America Bonds and/or Qualified School Construction Bonds will have other requirements unique to such bonds.

    Public v. Private Use
    As a general rule, tax-exempt bond proceeds must be used to finance governmental activities. There are limited circumstances where tax-exempt bond proceed scan be used in a way that benefits private entities such as businesses, individuals and organizations. It is important that the use and future use of facilities financed with tax-exempt bonds be closely monitored to ensure no inadvertent private use is taking place.

    A well-crafted records retention and post-closing compliance policy will assist officials in complying with these rules. Please contact any Gust Rosenfeld Public Finance attorney for assistance preparing such a policy.

  • For More Information
    For more information, please contact Tim Stratton using the contact information below.

    Timothy A. Stratton - 602.257.7465 - tstratton@gustlaw.com
    Tim practices in the areas of public finance and municipal law.

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