The Concern:Increased IRS ScrutinyThe IRS has recently announced the change of the Issue Price Rules for establishing the arbitrage yield on tax-exempt bonds. The new rules will become effective on June 7, 2017. The change will create the need for new procedures and certifications from market participants upon closing of a tax-exempt bond issuance. Who is Affected:Issuers, Bond Counsels, and Municipal AdvisorsThe new Issue Price Rules require issuers to maintain reasonable documentation to support both the method for determining issue price and the price determinations. Issuers, along with their counsel and advisors, must determine the appropriate method of calculation and document the issue price accordingly. The Solution:An Automated Bond Tracking SystemMuniPriceTracker is an independent, automated bond tracking system that provides issuers, bond counsels, and advisors the reasonable documentation necessary to support issue price determinations. Comprehensive reports are easy to review and add to the transaction file. Get the information you need to meet the new Issue Price Rules from MuniPriceTracker. BackgroundThe new Issue Price Rules have been in development since 2013. Multiple iterations have been proposed by the IRS, with substantial comments and revisions occurring with each new version, including the Final Rules. The new Issue Price Rules seem workable for the tax-exempt marketplace, although more scrutiny is likely to occur as the June 7, 2017, effective date approaches. In determining the issue price of municipal bonds, issuers, their counsels, and their advisors have historically relied on the underwriter’s certification of the price at which at least 10% of each maturity of the bonds were sold to the public pursuant to a bona fide public offering. The new Issue Price Rules create scenarios where this type of certification may not be sufficient, depending on factors such as whether the General Rule or an Alternative Method for establishing the issue price is used, or whether at least three bids were obtained through a competitive sale. As these scenarios unfold, an independent report verifying the applicability of the selected issue price calculation method and/or the issue price may be warranted. |
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