Arbitrage is the profit that results from investing tax-exempt proceeds in higher-yielding taxable securities. In general, Internal Revenue Service (IRS) Regulations require that positive arbitrage earnings be rebated back to the government. Grant Thornton's team of arbitrage rebate specialists can assist you in complying with these tax laws. We will calculate your arbitrage rebate liability and summarize the results in a report. We ensure technical tax-exempt rebate compliance, while attempting to minimize, if not eliminate, rebate payments to the IRS.
Does your organization need rebate compliance services?
Yes, if you have:
- issued tax-exempt debt that does not otherwise qualify for an exception under the IRS Regulations,
- loaned tax-exempt proceeds to conduit borrowers without contractually requiring the borrower to bear the responsibility for arbitrage rebate compliance, or
- borrowed tax-exempt proceeds and you are contractually responsible for arbitrage rebate compliance.
How do you know what arbitrage calculations you need?
Speak to our team about a complimentary Arbitrage Rebate Compliance Assessment. They will:
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help you understand your current or future arbitrage rebate fact patterns
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discuss the need for preparation of rebate calculations to ensure IRS, bond covenant and budgetary/audit issues are addressed
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explain how best to utilize allowable elections under the Treasury Regulations to minimize (if not eliminate) rebate or yield restriction liabilities
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review prior tax-exempt transactions (including those calculated by prior providers) to determine if any additional rebate calculations are mathematically necessary
What are the risks of non-compliance?
- loss of tax-exemption, penalties and interest
- material, undisclosed liabilities
- violations of bond covenants
- inadequate budgeting
How often must an arbitrage rebate calculation be prepared?
In order to ensure timely rebate payments to the government, a calculation generally must be performed upon the retirement of an issue or for every five-year period an issue remains outstanding.
What is the final product?
Grant Thornton's standard procedure is to deliver a rebate report supported by a customized transaction model, which includes:
- an analysis of whether an issue is subject to rebate
- a calculation of the issue's yield
- identification of gross proceeds and reconciliation of investment activity
- a cash-flow analysis to determine whether an arbitrage rebate liability exists.
Our knowledge and expertise can help chart a clear course through these complicated IRS compliance requirements.
