Arbitrage calculation refers to the evaluation of bond funds subject to Arbitrage Rebate. The IRS requires that an Arbitrage Rebate, or any interest earned on tax-exempt bond proceeds in excess of the bond yield, be paid to the US Treasury. These payments are due every five years and on the final redemption date or maturity of the bond issue. K&G Public Finance prepares arbitrage compliance reports for its clients.
Non-compliance of arbitrage rebate can have stiff penalties and it may affect the tax-exempt status of the bonds. Furthermore, the IRS reserves the right to audit any tax-exempt bond for arbitrage rebate compliance even after the bonds have been fully redeemed.