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Top Five Reasons to Comply with Arbitrage Regulations

By Christina L. Cromer, CPA, Principal, October 05, 2017

If you are an issuer of tax-exempt debt, there are five very good reasons to comply with the arbitrage rules of the Internal Revenue Code and related regulations.

5. It’s a valuable project-planning tool

Periodic analysis not only keeps you informed of any rebate liability that is accumulating; it also provides valuable project planning information.

4. Increasing interest rates may increase your arbitrage risk

Recent bonds have been issued at historically low interest rates. As interest rates rise, the risk of generating positive arbitrage increases. Long-term funds, such as Debt Service Reserve Funds, are more susceptible to the risk of increasing interest rates.

3. Potential loss of tax-exempt status

The IRS could declare your bonds taxable if a failure to comply with arbitrage regulations was due to willful neglect. Even If the IRS does not make a determination of willful neglect, significant late filing penalties and interest can be assessed.

2. Increased number of audits and IRS questionnaires

Post-issuance compliance continues to be an IRS priority. The Tax Exempt Bonds office of the IRS Tax Exempt and Government Entities division has developed and implemented questionnaire projects over the past few years to evaluate and promote post-issuance compliance.

1. It’s required!

Tax-exempt bond issues are subject to arbitrage compliance from the date of issuance until final maturity or redemption of the bonds.


If you have questions or need help with arbitrage compliance, please contact us at .(JavaScript must be enabled to view this email address).


Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at


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