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.
Under the final
regulations, the collection of information occurs on the date on
which parties enter into the hedge contract and will be relevant
for determining whether the bonds are tax-exempt for as long as
they are outstanding. Any delay in the government’s ability to
collect this information may reduce revenue collections not just
during the period pending approval but for the entire remaining
term of the hedged bonds.
US Code:
26
USC 148 Name of Law: Qualified Small Issue Bond; Qualified
Student Loan Bond; Qualified Redevelopment Bond
The collection of information
in these final regulations 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. The
agency estimates an annual increase in responses to be 20,910 with
an overall annual time burden increase of 52,276 hours.
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.
SSFI794.doc
TD 9777 - Arbitrage Guidance for Tax-Exempt Bonds