Upon the issuance of bonds, the issuer and borrower have a significant number of post-issuance obligations with regard to monitoring a bond issue for compliance with federal tax rules in order to maintain the tax-exempt status on the bonds. The intent of UCSFA is to ensure that all charter school borrowers that issue tax-exempt bonds through the Authority are aware of and comply with the post-issuance obligations required under the federal tax rules.
A few examples of the many post-issuance compliance obligations include:
• Tracking the proceeds of a tax-exempt bond issuance to ensure that they are used for qualified purposes.
• Keeping detailed records of all expenditures and investments related to bond funds.
• Ensuring the project financed is used in a manner consistent with the legal requirements.
• Providing annual required disclosure information regarding the project’s financial and operating status.
IRS Recommended Actions
It is essential that borrowers develop and maintain a robust post-issuance compliance program to track their compliance with all applicable requirements. The Internal Revenue Service (“IRS”) recommends that material tax records be retained for the life of a bond issue, plus three years. Borrowers that have effective post-issuance tax compliance programs in place are more likely to be able to successfully respond to any possible IRS inquiry. In addition, borrowers with an established program will be well positioned to effectively judge the possible benefits of future refunding opportunities.
The most important step in a compliance monitoring program is to consult with members of the finance team, including bond counsel, at the time of bond issuance to determine the borrower’s obligations. Compliance responsibilities last, at minimum, for the length of the bond term.
Below are a number of useful links to various resources on the topic of post-issuance compliance.
- Internal Revenue Service’s site for the tax-exempt bond community.
- After The Bonds Are Issued: Then What? – Here’s an article provided on the IRS website discussing the post-issuance compliance responsibilities of borrowers.
- Post-Issuance Compliance checklist provided by the Government Finance Officers Association (“GFOA”) and the National Association of Bond Lawyers (“NABL”).