Arbitrage Rebate Services Overview


What is Arbitrage Rebate?


Arbitrage refers to the excess interest income that issuers may earn through investing tax-exempt bond proceeds in higher yielding taxable securities. Section 148 of the Internal Revenue Code of 1986, referred to as the Arbitrage Regulations, permits a tax-exempt issuer to earn arbitrage only in specified circumstances, and in most cases requires any arbitrage profit to be paid to the U.S. Treasury. The IRS requires that arbitrage calculations be completed no later than five years from the date of a bond’s issuance, every five years thereafter, and upon final maturity. Compliance with complex arbitrage rebate rules can divert the staff of tax-exempt bond issuers from important organizational responsibilities. Incorrect calculations can jeopardize the outcome of an IRS audit. By outsourcing these responsibilities to AMTEC, savings, efficiencies and confidence in an issuer’s tax compliance efforts are immediately realized. In addition, you’ll receive comprehensive and unlimited support from us in the event of an IRS audit.

Learn more about arbitrage rebate and the importance of taking an active approach to arbitrage calculations.

Free Tax-Exempt Bond Arbitrage Compliance Review


In 2011, the IRS began placing increased emphasis on a tax-exempt issuer’s establishment of written procedures that help ensure all nonqualified bonds are remediated according to the requirements of the Tax Code and Arbitrage Regulations. To assist issuers in preparing for closer scrutiny by the IRS in this area, AMTEC has assembled documentation to fulfill an IRS request for evidence of compliance. Each AMTEC client receives a package that provides detailed information regarding all key elements of an effective post-issuance compliance program, a written procedures document, and a resolution to adopt such a program that can be easily implemented.

In addition, to ensure an issuer’s compliance with all aspects of the Arbitrage Regulations, AMTEC provides a comprehensive review of all of an issuer’s tax-exempt bonds that includes an analysis of which debt issuances require arbitrage rebate and/or yield restriction calculations. This review includes, but is not limited to, the following elements:

  • Verification that each issue is subject to the rebate requirements and/or the yield reduction rules based upon the expenditure pattern of the proceeds;
  • Extensive review of the Arbitrage Certificate and/or Tax Regulatory Agreement prepared by bond counsel (it is mandatory that bond issuers adhere to counsel’s instructions in this document as it is their determination that legally provides and secures the tax-exempt status of the bonds);
  • Review of the process that the issuer utilizes regarding the investment of all gross proceeds of the bonds (to determine if the project proceeds of each tax-exempt issue were expended during the Temporary Period);
  • Summary of the proactive steps that can be taken should any of an issuer’s bonds be selected for a random IRS audit review;
  • Assurance by AMTEC for any third-party (IRS, auditors, bond counsel) inquiry. AMTEC will immediately provide step-by-step recommendations so the proper effort is made to remedy any inadvertent non-compliant procedures that occurred prior to AMTEC’s engagement in conjunction with usage of the bond proceeds; and
  • Full reporting to the issuer of AMTEC’s professional findings for every aspect of the issuer’s bond issuance process. This would include a full analysis and any associated recommendations to timely remedy any non-compliant steps taken that will require immediate attention. If upon completion of the AMTEC review, it is discovered that there is a required arbitrage rebate and/or yield restriction calculation that should be completed for full compliance, AMTEC will promptly inform the issuer of the situation and request approval before preparation and completion of the associated and required calculations.

To initiate AMTEC’s free review of your bond issues (including recommendations for which debt issuances may or may not require arbitrage rebate / yield restriction calculations) contact Mike Scarfo, Senior Vice President, at 888-999-8038 or mscarfo@amteccorp.com.

Arbitrage and Yield Restriction Calculations


The AMTEC arbitrage rebate and yield restriction calculations process includes, but is not limited to, the following:

  • Determination of the quantitative value of a spending exception when one account has generated a rebate liability;
  • Providing the issuer with all schedules, results and projections for the issuer’s status regarding any qualification of a rebate spending exception;
  • A completed walk-through of how to proactively manage a potential rebate liability as well as full guidance and consultation for how, when and where to make the rebate payment;
  • Unlimited consultation for no additional fee with any other members of the issuer’s staff and/or any outside advisors with respect to the rebate calculation results;
  • Determination and testing of all ending balance valuation methodologies acceptable under the Arbitrage Regulations, in an effort to legally calculate the rebate at the issuer’s most advantageous method;
  • Safeguarding of all financial records for a period of six years after the final redemption date of each issue;
  • Assistance in the planning stages of new bond issues to discuss possible rebate exceptions, and the pro-forma testing of anticipated expenditures of proceeds for rebate exception purposes based on a variety of investment scenarios; and
  • Identification of any yield restrictions for all proceeds following the end of the Temporary Period. Based upon the classification and use for certain bond proceeds, there are multiple, specific yield restriction rules issuers must follow. AMTEC will review all funds and identify if they are subject to yield restriction and require a calculation. Furthermore, AMTEC will provide the issuer with an explanation of the reason for the yield restriction, the permissible rate of the yield restriction, and how to assure future compliance for the yield restricted funds PRIOR to preparing any yield restriction calculations.