i.4.5.4 REQUIREMENT #4 – ADHERE TO PROCEDURAL AND OTHER RULES
Special tax law rules, requirements, and limitations may apply to financings in specific contexts, such as financings for working capital or refunding transactions. The ability to finance working capital with tax exempt debt is very limited and is subject to special rules. The most common working capital financings used by public agencies are tax and revenue anticipation notes (TRANs). To qualify for tax exemption, TRANs generally must be issued in an amount more than the amount of the cash flow deficit anticipated by the public agency within 6 months following the issue date.
Refunding bonds are issued by public agencies to replace outstanding bonds either to achieve costs savings, to restructure the debt repayment, or to change specific bond covenants. Refunding bonds are either advance refundings, that is the refunding bonds are issued more than 90 days before the outstanding bonds are redeemed, or current refundings, i.e. within the 90 day window. The Tax Cut and Jobs Act (P.L. 115-97) eliminated the tax exemption for advance refunding bonds issued after December 31, 2017.
Qualification for tax exemption is also dependent upon satisfaction of certain procedural rules, most notably the timely filing of IRS Form 8038: a form intended to notify the IRS of each tax exempt debt issue. IRS Form 8038 provides the IRS certain information regarding the debt, such as amount, issue date, expected application of the proceeds, and contact information.