Trusted Bond Compliance Services
At Arbitrage Compliance Specialists (ACS), our expertise lies in helping state and local governments navigate the intricate web of tax laws that govern tax-exempt bonds. Our clients count on us to remain in compliance with the latest regulations and settle their accounts with the IRS in a timely, accurate way.
As specialists in this unique area of the tax code, we provide a comprehensive range of services to help you square away any compliance issues you may be facing BEFORE they threaten your tax-exempt status. With over 35 years in the business, we offer skillful expertise in taking on the complexities of municipal bond arbitrage and associated rebates.
Why choose ACS?
Our clients choose us for our unrivaled experience. They stay with us for our principled approach and relentless commitment to service. You’ll appreciate how our CPAs take the time to explain the finer points of arbitrage reporting and educate you about your best options.
Expertise
Our team offers extraordinary expertise in bond compliance and arbitrage services. Our bond reporting program is not only comprehensive, but incredibly accurate and efficient.
Independence
As an independent firm, we provide expert advice and only represent the interests of our clients.
Collaboration
We collaborate with your finance team, helping you solve complex arbitrage challenges and achieve beneficial results. We also share insights through training, education and open communication.
Analytics
Our unique analytics platform provides incredibly accurate arbitrage rebate analyses and ensures each calculation reflects the lowest permissible arbitrage liability allowed by law.
Municipal Bond Arbitrage and Rebates Explained
In the world of municipal bonds, arbitrage is profiting by investing proceeds from low-interest debt into investments with higher rates of return. In accordance with established arbitrage compliance rules (IRC Section 148), you must rebate these profits to the IRS. Failure to comply can result in substantial penalties and even the loss of a bond’s tax-exempt status.
Determining rebate amounts is a multifaceted process that involves calculating a bond’s true yield, allowable earnings and the future value of investment earnings. The risks of taking on these complex calculations yourself and not keeping up with filing requirements is why most local governments seek expert assistance in these matters.
Our Comprehensive Bond Compliance Services
ACS provides a full suite of pre- and post-issuance compliances services:
• Arbitrage Rebate Calculations
• Yield Restriction Calculations
• Spending Exception Calculations
• Ongoing Bond Compliance
• Form 8038 Prep
Look for ACS at These Conferences
CGFOA 2024 Annual Conference
Colorado Government Finance Officers Association
November 19th – 22nd, 2024
Colorado Springs, CO
GFOA’s 119th Annual Conference
Government Finance Officers Association
June 29th – July 1st, 2025
Washington, DC
FAQs
What is Arbitrage Rebate?
Arbitrage is earned when proceeds of a tax-exempt or tax-advantaged bond issue are invested above the bond yield, the average yield issuers pay to their bondholders. At its most basic level, this liability to the U.S. Treasury is the excess earnings received from investments when the average rate of return is above the bond yield.
What steps should I take to adhere to Arbitrage Rebate and Yield Restriction Rules?
Keeping quality records is critical to staying in compliance. The IRS requires that issuers maintain a daily transaction detail. Funds invested in established bank accounts will easily satisfy this requirement. Issuers maintaining records separately, on the other hand, should equip data with a running balance that captures deposits, expenditures, and interest earnings by date. Issuers ought to be mindful of IRS-required reporting deadlines upon each new bond issuance. Arbitrage and yield restriction liabilities must be computed at least once every five years from the date of issuance, as well as on the issue’s final maturity date. Arbitrage earnings and yield reduction payments must be paid, or “rebated”, to the United States Treasury within 60 days of each reporting date. Preparation is key. We recommend annual reporting to all of our clients. Completing annual reports has the advantage of allowing the issuer to encumber liabilities in their books and records before a payment is due.
Should I be aware of any exemptions from the rebate requirement?
Yes! There are two major exceptions to arbitrage rebate that every issuer should know: the small- issuer exception and the spending exception. As you may have guessed, the small issuer exception to rebate is based on the size of your debt issuances. Governmental issuers expecting to issue less than $5 million of tax-exempt bonds in a calendar year may be exempt from the rebate requirements. This threshold increases to $15 million for bonds issued to build public schools. The spending exception to rebate is available to issuers meeting certain time thresholds for expending bond proceeds.
The three spending exceptions are the:
1. 6-month spending exception
2. 18-month spending exception and
3. 2-year spending exception
If the proceeds of an issue are invested above the bond yield, meeting a spending exception allows the issuer to keep all of its interest earnings. Who doesn’t love a little extra spending money?
Contact us
One of our expert analysts will be happy to contact you about your bond compliance needs.