Arbitrage Restrictions and Guidance on Issue Price Definition for Tax Exempt Bonds
Revision of a currently approved collection
No
Regular
Approved without change
06/29/2017
02/28/2017
Inventory as of this Action
Requested
Previously Approved
06/30/2020
36 Months From Approved
06/30/2017
48,040
0
24,010
92,978
0
94,326
0
0
0
Section 148 was enacted to minimize the arbitrage benefits from investing gross proceeds of tax-exempt bonds in higher yielding investments and to remove the arbitrage incentives to issue more bonds, to issue bonds earlier, or to leave bonds outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes for which the bonds were issued. To accomplish these purposes, section 148 restricts the direct and indirect investment of bond proceeds in higher yielding investments and requires that certain earnings on higher yielding investments be rebated to the United States. Violation of these provisions causes the bonds in the issue to become arbitrage bonds, the interest on which is not excludable from the gross income of the owners under section 103(a). The regulations in §§ 1.148-1 through 1.148-11 apply in a manner consistent with these purposes.
Section 148 of the Internal Revenue Code requires issuers of tax-exempt bonds to rebate certain arbitrage profits earned on nonpurpose investments acquired with the bond proceeds. Issuers are required to file a Form 8038-T and remit the rebate. Issuers are also required to keep records of certain interest rate hedges so that the hedges are taken into account in determining arbitrage profits. The scope of interest rate hedging transactions covered by the arbitrage regulations was broadened by requiring that hedges entered into prior to the sale date of the bonds are covered as well.
The collection of information for TD 9777 is in §1.148-4(h)(2)(viii), which contains a requirement that the issuer maintain in its records a certificate from the hedge provider. For a hedge to be a qualified hedge, existing regulations require, among other items, that the actual issuer identify the hedge on its books and records. The identification must specify the hedge provider, the terms of the contract, and the hedged bonds. These final regulations require that the identification also include a certificate from the hedge provider specifying certain information regarding the hedge.
US Code:
26 USC 148
Name of Law: Qualified Small Issue Bond; Qualified Student Loan Bond; Qualified Redevelopment Bond
There are changes to the burden estimates that were previously approved by OMB.
Burden increased with the addition of TD 9801 and TD 8801 (under OMB No. 1545-1490) due to related regulations, but were offset by the revised estimates, which resulted in an overall decrease of (1348) burden hours, and also an increase in the number of responses by 24030 responses. Also, we corrected the mathematical errors in the regulations listed in the chart.
On behalf of this Federal agency, I certify that the collection of information encompassed by this request complies with 5 CFR 1320.9 and the related provisions of 5 CFR 1320.8(b)(3).
The following is a summary of the topics, regarding the proposed collection of information, that the certification covers:
(i) Why the information is being collected;
(ii) Use of information;
(iii) Burden estimate;
(iv) Nature of response (voluntary, required for a benefit, or mandatory);
(v) Nature and extent of confidentiality; and
(vi) Need to display currently valid OMB control number;
If you are unable to certify compliance with any of these provisions, identify the item by leaving the box unchecked and explain the reason in the Supporting Statement.
02/28/2017
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81 FR 81242.pdf
SS 1545-1347 revised 2-28-17 - New.doc
Arbitrage Guidance For Tax-Exempt Bonds (TD 9777)