POST ISSUANCE COMPLIANCE
Upon the issuance of bonds, the issuer and borrower have a significant number of post-issuance responsibilities with regards to monitoring a bond issue for compliance with federal tax rules for the duration that bonds are outstanding. After issuance, bonds may be outstanding for anywhere from a few years to up to a few decades, during which time it is critical to ensure all material documents and records are maintained. Further, the Internal Revenue Service (“IRS”) recommends that material tax records be retained for the life of a bond issue, plus three years.
- A few examples of the many post-issuance compliance responsibilities a borrower may have include:
- Tracking that proceeds of a bond issuance are spent on qualified tax-exempt bond 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 necessary disclosure information regarding financial and operating status annually.
It is essential that borrowers develop and maintain a robust post-issuance compliance program to track their compliance with all applicable requirements. Borrowers that have effective post-issuance tax compliance programs in place are more likely to be able to respond to any possible IRS inquiry on a successful and cost-effective basis. In addition, borrowers with an established program will be well positioned to effectively judge the possible benefits of future refunding opportunities with this information close at hand.
California Communities® Solutions
California Communities® is taking proactive steps to ensure that all borrowers who issue tax-exempt bonds are aware of and comply with the post-issuance responsibilities required under the federal tax rules. For example, affordable housing financings present arguably the most numerous and complex post-issuance compliance concerns of any type of conduit revenue bond financing. Rental properties financed with tax-exempt bonds must meet low income set-asides and comply with other requirements for decades after closing, and even temporary non-compliance can put the tax-exempt status of the bonds in jeopardy.
California Communities® and its borrowers are well positioned to respond to increased scrutiny of affordable housing financings. California Communities® makes available through its partner, Compliance Services, state-of-the-art compliance monitoring procedures and software to allow continuous monitoring of rental properties and ensure that potential problems are identified and resolved quickly. Those procedures include the following:
- 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
In an effort to further assist borrowers with post-issuance compliance, California Communities® will send annual reminders and updates to relevant changes in post-issuance compliance requirements to all of its borrowers. Please note that 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 exactly what responsibilities a borrower has for the term of a particular bond issue.
Below are a number of useful links to various resources on the topic of post-issuance compliance.
Internal Revenue Service’s site for the tax-exempt bond community.
IRS Tax Exempt Bond Web Site
After The Bonds Are Issued: Then What? – An article provided by the IRS discussing the post-issuance compliance responsibilities of borrowers.
After the Bonds Are Issued: Then What? (PDF)
Compliance Services, The Compliance Services website detailing compliance monitoring provided.
Housing Compliance Services Web Site
Memo developed by Orrick, Herrington & Sutcliffe LLP to provide their partners with information regarding recent IRS initiatives on post-issuance compliance.
Orrick Memo Regarding the IRS Post-Issuance Compliance Initiative (PDF)
BLX Group LLC – Document detailing the post-issue compliance monitoring services BLX Group provides to bond transaction participants.
Managing Post Issuance Tax-Exempt Bond Responsibilities (PDF)
Post-Issuance Compliance checklist provided by the Government Finance Officers Association ("GFOA") and the National Association of Bond Lawyers ("NABL").
GFOA NABL Post Issuance Compliance Checklist (PDF)