4.12 Refunding Bonds

4.12 Refunding Bonds

The proceeds of refunding bonds are used to pay principal, interest, or redemption price on another prior issue of bonds. For federal tax purposes, there are two important categories of refunding bonds:

• ADVANCE REFUNDING BONDS – Refunding bonds issued more than 90 days before the bonds being refunded will be retired
  
  
• CURRENT REFUNDING BONDS – Refunding bonds issued within 90 days of the date the bonds being refunded will be retired

The issuance of refunding bonds often raises complex federal tax issues. Tax analysis, for example, requires review of the expenditure of the proceeds of the refunded bonds. Further, the Tax Cuts and Jobs Act of 2017 enacted in December 2017 prohibits the issuance of tax exempt bonds to advance refund other tax exempt bonds.