There are many consequences to noncompliance of arbitrage rules. There are stiff penalties if arbitrage payments are late or yield restrictions are violated. Non-payment of arbitrage rebate may affect the tax-exempt status of the bonds. The IRS reserves the right to audit any tax-exempt bond for arbitrage rebate compliance even after the bonds have been fully redeemed. There are advantages to implementing an effective arbitrage reporting program. Some of the advantages are: 1. Paying rebate means investment earnings are maximized, which provides additional funds to complete projects or to pay debt service. 2. Being prepared for refinancing and IRS audits which can occur at any point during the life of the bond or beyond. 3. Being in compliance with bond document covenants. Arbitrage rebate states that all tax-exempt debt is subject to the arbitrage rebate and yield restriction requirements of the tax code. Some of the tax-exempt financings will meet an exception to the rebate regulations. Some of the tax-exempt financings will meet an exception to the rebate regulations but will still require a yield reduction payment. A small portion of tax-exempt financings will be selected for audit, at which point proof that no payment is due will be required. With all of these rules, regulations, and penalties that can occur, you will want to let the firm of Arbitrage Compliance Specialists take over these financial bonds.
There are two sets of rules. One says that arbitrage rebate requires arbitrage profits to be rebated to the federal government, but there are exceptions to Rebate. Proceeds are prohibited to be invested above the bond yield. There are also restrictions to yield restriction. Arbitrage is the profit from buying something in one market and selling it in another. As it relates to the municipal bond market, arbitrage is the profit from borrowing funds in the tax-exempt market and investing them in the taxable market. Unless an exception is available, the IRS require a payment to the US Treasury equal to all interest earned on bond proceeds in excess of the bond yield. Payments are due every five years and on final redemption date or maturity of the bond issue. Gross proceeds may not be invested at a yield materially higher than the yield on the bonds. An arbitrage group can help their clients so they have the expertise needed to make the right decisions and stay on top of things. Arbitrage compliance is very important to avoid stiff penalties.
They will rely on programs that have been designed to ensure that there is a comprehensive consideration of each regulatory or industry requirement, which might have an impact on the underlying commutations. With CPA’s and a tax attorney, you can rely on this firm to give you the best outcome for what you are trying to achieve. You will be grateful that you have hired this firm to represent your interests in order to ensure that bond compliance is achieved and that the best outcome will be realized. Trusts the company of Arbitrage Compliance Specialists