Following the issuance of bonds, there are a number of IRS rules and regulations that must be followed for the bonds to remain tax-exempt. These rules include: the spending and investing of bond proceeds; arbitrage rebate, changes to the bond’s financing terms, the use of the bond financed facilities, and the maintenance of your 501(C)(3) status.
Continuing Disclosure: Most bond financings require some form of continuing disclosure.
On a private placement, they may be periodic reporting to the lender on certain agreed to bond covenants such as minimum debt service coverage, maximum debt to capitalization ratio or minimum days cash on hand. The Loan Agreement will spell out the covenants that need to be reported and the frequency of filing.
For publically placed bonds, reports must be filed with the Municipal Rule Making Board’s Electronic Municipal Market Access (EMMA). Items to be reported include financial information, certain operating data, and the occurrence of certain events. For more information on EMMA disclosure requirements, click here.
Whether privately or publically placed, a borrower will need to comply with IRS arbitrage rebate rules. “Arbitrage” is the profit made from investing inherently lower yielding tax-exempt bond proceeds in higher yielding taxable investments. Excess earnings must be rebated to the IRS. However, IRS rules allow certain exceptions to the rebate requirement that allows a borrower to keep the excess earnings for a limited period of time.
Because the IRS has placed a priority on the monitoring and scrutiny of tax-exempt bonds, VEHBFA requires the borrower to put a post-issuance compliance (PIC) program into place. Attachment A to a financing’s loan agreement spells out the minimum requirements for a PIC program. VEHBFA will annually survey borrowers regarding their oversight and compliance with their PIC program.
Click here for a copy of the “VEHBFA’s Post-Issuance Tax Compliance Policy and Procedures”.
Click here for a “Model Borrower Post-Issuance Compliance Procedures” in MS Word.
Click here for the “Annual Post-Issuance Compliance Certification” in MS Word.