3.1. Review of Bond Issuances • Collection of Relevant Data: Analyze all necessary data related to the tax-exempt municipal bonds, including the offering document, bond interest rates, maturity schedules, and bond issuance costs. 3.2. Calculation of Arbitrage Yield • Bond Yield Calculation: Calculate the yield of the tax-exempt bond(s) based on the bond's interest payments and other terms. • Investment Yield Calculation: Calculate the yield on the investments made with the bond proceeds (taxable securities, investments, etc.) to assess if the bond proceeds have been invested in securities that generate a higher yield than the tax-exempt bond. • Yield Comparison: Compare the tax-exempt bond yield with the yield on the investment of the proceeds. 3.3. Arbitrage Rebate Calculation (if applicable) • Rebate Analysis: Determine if arbitrage rebate is owed based on the yield on investments exceeding the tax-exempt bond yield. • Investment Earnings Review: Identify any arbitrage earnings, which are the differences between the yield on the investments and the yield on the municipal bonds. • Compliance Period: Evaluate compliance with the rebate requirement over the applicable compliance period (usually 5 years), considering the total arbitrage rebate owed to the IRS. 3.4. Yield Restriction Compliance • Examine Compliance with IRS Rules: Ensure that the issuer has adhered to the IRS regulations regarding yield restrictions, especially in relation to bond proceeds that are not subject to rebate but must still meet yield restrictions. • Document Findings and Adjustments: Document any findings, adjustments, or excess earnings that could potentially result in penalties or require yield reduction payments to the IRS. 3.5. Documentation and Reporting • Prepare Detailed Report: Provide a comprehensive report detailing all calculations, findings, and recommendations, including: o Summary of bond terms and investment details o Arbitrage yield calculation o Arbitrage rebate analysis o Yield restriction compliance status to conform with 3.4 • Recommendations: Offer suggestions for future compliance or adjustments, if necessary. • IRS Form 8038-T Filing: If arbitrage rebate or yield reduction is owed, prepare the IRS Form 8038-T for submission.
