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Tax-exempt Bond Post Issuance Compliance

Overview

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. Public Finance Authority takes proactive steps to ensure that all borrowers that issue tax-exempt bonds 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.

PFA Compliance Solutions

Affordable housing financings arguably present the most complex post-issuance compliance requirements of any type of tax exempt bond financing. Multi-family rental properties financed with tax-exempt bonds must meet low income set-asides and comply with other requirements for decades after the bonds are issued, and even temporary non-compliance can place the tax-exempt status of the bonds in jeopardy.

Through an agreement with Compliance Services, Public Finance Authority and its borrowers are well positioned to respond to the increased scrutiny of affordable housing financings. State-of-the-art compliance monitoring procedures and software allow continuous monitoring of rental properties and ensure that potential problems are identified early and resolved quickly.

Monitoring procedures offered through Compliance Services include:

  • Quarterly analysis of the income and rent calculations to ensure compliance with federal and state legal requirements
  • Quarterly analysis and filing of Certificates of Continuing Program Compliance
  • Review, acceptance and electronic filing of all compliance reports
  • Electronic filing and access to recorded regulatory agreement for property
  • Updates and maintenance to compliance software, compliance status, report history and files accessible through web-based software on a real time basis
  • Site visits, file audits and physical property reviews at the time the property is placed in service and at least once every three years after the placed in service date, more frequently where problems arise
  • Prompt notification to property owners of exception findings
  • Automated updates of the annual HUD income and rent level changes
  • Automated management reports

PFA sends annual reminders and updates to relevant changes in post-issuance compliance requirements to all of its borrowers. For more information or questions regarding post-issuance compliance, please contact a PFA Program Manager.

POST-ISSUANCE COMPLIANCE WRITTEN POLICIES

Please review PFA's Post-Issuance Compliance Written Policies for:

Other Resources

Below are a number of useful links to various resources on the topic of post-issuance compliance.