Tax-Exempt Bonds: Post-Issuance Compliance

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Does your district have outstanding tax-exempt bond obligations? If yes, the IRS is interested in:

  • Whether you have earned more investment earnings on the bond proceeds than is permitted
  • Whether you have spent or will spend the bond proceeds too slowly
  • Whether you have failed to make any rebate payments to the IRS (if required)
  • Whether you have used the bond proceeds and any property financed with bond proceeds improperly

In the last year, the IRS has taken a much more active role in post-issuance compliance enforcement and training activities. The IRS says:

“The on-going nature of post-issuance compliance requirements applicable to tax-advantaged bonds requires issuers to actively monitor compliance throughout the entire period the bonds remain outstanding. The due diligence will significantly improve the issuer’s ability to identify noncompliance and prevent violations from occurring, or timely correct identified violations (when prevention is not possible), to ensure the continued tax-advantaged status of the bonds.”

The IRS provides the following guidance for those with outstanding tax-exempt bond obligations. In order to preserve the tax-exempt status of a water district’s bond issues, the water district must:

  • Adopt written procedures reasonably expected to timely identify noncompliance
  • Adopt written procedures ensuring that the issuer will take steps to timely correct noncompliance
  • Identify the official or employee responsible for the due diligence reviews
  • Train the responsible official/employee
  • Retain adequate records to substantiate compliance (e.g. records relating to expenditure of proceeds)
  • Conduct due diligence reviews at regular intervals in order to determine compliance with arbitrage and rebate requirements as well as use restrictions on the bond proceeds and property financed with bond proceeds

To obtain a sample district policy, get more information on post-issuance compliance matters or get assistance developing a post-issuance compliance policy, please contact Lee Bragg.