Arbitrage Compliance Specialists

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 bondholders). At its most basic level, the 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 for compliance. The IRS requires issuers to maintain daily transaction detail. Funds invested in established bank accounts typically satisfy this requirement. If records are maintained separately, include a running balance that captures deposits, expenditures, and interest earnings by date. Issuers should also be mindful of IRS-required reporting deadlines upon each new bond issuance.nnArbitrage and yield restriction liabilities must be computed at least once every five years from the date of issuance, and again on the issue’s final maturity date. Arbitrage

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. The small-issuer exception 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; this threshold increases to $15 million for bonds issued to build public schools.nnThe spending exception to rebate is available to issuers meeting specific time thresholds for expending bond proceeds:n- 6-month spending exceptionn- 18-month spending exceptionn- 2-year s