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Arbitrage Bonds

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Arbitrage bonds
Municipality issued bonds issued intended to gain an interest rate advantage by refunding a higher-rate bond in ahead of their call date. Lower-rate refunding issue proceeds are invested in Treasuries until the first call date of the higher-rate issue.
Arbitrage Bond
A municipal bond issued at a lower interest rate than another municipal bond. The funds from the second bond are invested in treasury securities until the call date of the first bond, when they are used to pay for the first bond's redemption. Depending on whether an arbitrage bond is also used for projects relating to municipal development, it may or may not be tax free.
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Code Section 103(b), however, revokes the exclusion if the bonds are determined to be either arbitrage bonds (not the subject of this article) or "any private activity bond which is not a qualified bond.
Tax exempt bonds: IRS examinations are coming. Will your organization ... by Ichel, Gregg / The Non-profit Times
Treasury, the tax-exempt bonds are so-called arbitrage bonds, and the federal tax law provides that interest earned on those bonds is not exempt.
Yield burning: federal agencies should pursue violators instead of ... by Esser, Jeffrey L. / Government Finance Review
148, relating to arbitrage bonds and the rebate of permissible arbitrage to the United States.
Tax-exempt bonds - questions and answers on arbitrage rebate by Gardner, John C. / The Tax Adviser
 
 
 
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