Post-Issuance Compliance for Tax-Exempt Bonds: What Issuers Must Do After Closing

After tax-exempt bonds close, the issuer's work shifts to post-issuance compliance: written procedures that assign responsibility, tracking how proceeds are spent and who uses what they bought, monitoring arbitrage and rebate on the schedules section 148 sets, retaining the records that document all of it, and remediating a violation if one appears.

This page walks through those five duties in order, inside the broader arbitrage rules that govern what bond proceeds can earn and for how long.

What written procedures does post-issuance compliance start with?

It starts with written post-issuance compliance policies and procedures, which GFOA recommends that issuers adopt.

GFOA's best practice on post-issuance policies and procedures recommends listing the key documents for each issue at closing, including the tax certificate, escrow documents and indenture, and identifying which records to keep and for how long.

It also holds that outsourcing does not transfer the duty: GFOA notes that governments that elect to outsource compliance activities, and their assigned staff, "ultimately have the responsibility for ensuring that the compliance procedures are met."

The IRS's Publication 4079 makes the same case for written procedures: issuers that adopt and follow comprehensive written post-issuance monitoring procedures are generally less likely to violate federal tax requirements and more likely to find violations early.

Publication 4079 suggests designating responsible officials, training staff, setting monitoring intervals and providing for timely remedial action, with arbitrage compliance and record retention among the procedure areas.

On why closing documents alone fall short, Publication 4079 is direct: "Reliance solely on bond documents and tax certificates provided when the bonds are issued will not likely provide the assurance an issuer desires."

The question also appears on the tax forms.

Line 44 of Form 8038-G asks the issuer to check a box if it has established written procedures to monitor compliance with the arbitrage, yield restriction and rebate requirements of section 148, and line 43 asks the same about written procedures for timely remedial action on nonqualified bonds.

Three limits sit around this: Publication 4079 is not official guidance, the form asks about written procedures rather than mandating them by statute, and the line numbers may change in future revisions.

Which procedures a particular issue needs is a determination for bond counsel and tax counsel.

How does the issuer track use of proceeds and private use?

Tracking runs on two questions at once: where the proceeds went, and who is using what they bought.

On the spending side, GFOA recommends that the drawdown of proceeds be planned and recorded and that the investment duration be no longer than the expected draw schedule, revisited periodically.

The tax rules put a deadline on the bookkeeping: under the allocation rules in Treasury Regulation §1.148-6(d)(1), proceeds must be allocated to expenditures within 18 months after the later of the payment or the project's placed-in-service date, and in any event by 60 days after the fifth anniversary of the issue date, or 60 days after retirement if earlier.

On the user side, section 141 measures private business use: the private business use test is met when more than 10% of proceeds are used in a trade or business by a non-governmental person, not counting use as a member of the general public, and a separate 5% threshold applies to private business use that is unrelated or disproportionate to the governmental use.

Those measurements run on facts that can change after closing, so the monitoring procedures Publication 4079 describes reach past the closing table.

Whether an arrangement crosses the 10% or 5% thresholds is a legal determination for bond counsel.

What arbitrage monitoring runs after closing?

After closing, arbitrage monitoring runs on three tracks: the information return filed for the issue, the rebate schedule in section 148(f), and the cost rules applied inside the computations.

Form 8038-G, the information return filed separately for each governmental issue with an issue price of $100,000 or more, is due by the 15th day of the second calendar month after the close of the calendar quarter of issuance, and issues below that threshold file Form 8038-GC instead.

Line 36 of the form asks for the gross proceeds invested in a guaranteed investment contract, the contract's final maturity and the provider's name, and the instructions point issuers to Revenue Procedure 2002-48 for late filing relief.

Rebate runs on computation dates: the first installment must be for a computation date no later than five years after the issue date, each later installment no later than five years after the one before, and each installment must bring cumulative payments to at least 90% of the rebate amount measured at future value.

Every rebate payment is due no later than 60 days after its computation date, and cumulative payments must reach 100% of the rebate amount at the final computation date.

The payments themselves, along with yield reduction payments and late-payment penalties and interest, are made on Form 8038-T, one form per issue; the Form 8038-T filing is its own subject.

A missed payment changes the bond's status: under Treasury Regulation §1.148-3(h) and section 148(f)(7), bonds for which the correct rebate was not paid on time become arbitrage bonds unless the failure was not due to willful neglect and the issuer promptly pays a penalty plus interest at the section 6621 underpayment rate.

The penalty is 50% of the rebate for governmental bonds and qualified 501(c)(3) bonds and 100% for other bonds, and it is automatically waived if the missed amount plus interest is paid within 180 days after discovery of the failure, unless the Commissioner determines the failure was due to willful neglect or the issue is under examination during the specified window.

Those conditions carry the weight, so whether a waiver applies is a determination for tax counsel; the rebate requirement and its exceptions are covered separately.

The computations themselves have a cost rule: Treasury Regulation §1.148-5(e)(1) and (e)(2)(i) take qualified administrative costs into account as adjustments to payments and receipts, defining them as reasonable, direct administrative costs such as separately stated brokerage or selling commissions.

The same paragraphs exclude legal and accounting fees, recordkeeping, custody and similar costs, and treat costs as generally not reasonable unless they are comparable to what would be charged on a comparable investment bought with non-bond money.

How long should post-issuance records be kept?

The IRS's answer is that material records for a bond issue should generally be kept for as long as the bonds are outstanding, plus 3 years after the final redemption date.

Its tax-exempt bond FAQs on record retention, grounded in the section 6001 recordkeeping requirement, list documentation of investments among the material records: securities trades, SLGS subscriptions, yield calculations for each investment class, investment income, guaranteed investment contracts and rebate calculations.

The FAQ says the retention guidance reaches refunded issues as well, and how that applies to a particular refunding is a question for counsel.

GFOA describes the same period from the issuer's side, telling governments to keep records for the required period, which it describes as typically the life of the bonds plus three years; the operative IRS requirement is the one above.

Bid-driven investments carry their own list.

The fair-market-value safe harbor has a records condition: Treasury Regulation §1.148-5(d)(6)(iii)(E) requires the issuer to retain with the bond documents until 3 years after the last outstanding bond is redeemed the contract or purchase agreement, the receipt for the amount paid together with any administrative costs and the provider certification, and each bid's submitter, time, date and result.

The same paragraph adds the bid solicitation form with an explanation of any deviations and, for purchases other than guaranteed investment contracts, the cost of the most efficient SLGS portfolio as of the time bids were due.

That bid file is the slice of an issue's records the compliance file page lays out for a bid investment.

None of this shifts the Bidding Agent's own duty to keep its records, which runs under different rules.

SEC Rule 15Ba1-8 requires a municipal advisor to keep a defined set of records, from written communications relating to its advisory activities to documents material to a recommendation or memorializing its basis, for at least five years with the first two in an easily accessible place.

MSRB Rule G-8(h) layers on rule-specific records covering gifts, political contributions, supervisory procedures, client complaints and advertisements, and MSRB Rule G-9 preserves the Rule G-8(h) records for at least five years, with political contribution and client complaint records at least six.

The MSRB's advertisement rule also requires a separate file of all the advisor's advertisements.

These are the advisor's regulatory records rather than the issuer's tax records, and the records a municipal advisor must keep page covers them in full.

What happens if the issuer finds a violation?

When a violation cannot be corrected under a self-correction program, the IRS's Tax-Exempt Bond Voluntary Closing Agreement Program (TEB VCAP) provides remedies for issuers of tax-exempt, tax credit and direct pay bonds that voluntarily come forward.

Requests are made on Form 14429, guided by Notice 2008-31 and IRM 7.2.3, and go to the IRS by email or mail.

The program is generally unavailable when the issuer can fix the violation through remedial action or another published self-correction route, and an issue under examination is ineligible.

Early discovery is a factor in how VCAP requests are resolved, and Publication 4079's suggested steps include set monitoring intervals.

The IRM's identified-violation standards show how specific the resolution terms get.

For an escrow party's failure to reinvest matured escrow proceeds, for example a matured guaranteed investment contract that should have gone into zero-percent time deposit SLGS, a request filed within 60 days of the next required computation date calls for payment of the amount needed to reduce the escrow yield to the bond yield plus interest.

A request filed within six calendar months after that date substitutes 110% of that amount.

IRM 7.2.3 is internal IRS procedure, so these standards are reference points and the terms of any closing agreement vary with the facts.

Whether an issue has a violation at all, and what correction fits it, are determinations for bond counsel and tax counsel.

mGIC is an independent, SEC-registered municipal advisor and Bidding Agent, not a provider of any investment product, and it can check your proceeds against the rules as part of a free, no-obligation review.

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Last updated 2026-10-06.

This page is general educational information about municipal finance and federal and state rules as of the date shown. It is not legal, tax or investment advice, and it is not a recommendation about any particular investment. Product availability, legality and suitability depend on the issuer, jurisdiction, governing documents and transaction-specific facts. Final legal and tax determinations remain with the issuer's bond counsel, tax counsel and other advisors.