BondtallyIs your 5-year arbitrage rebate computation due? Bonds issued in 2021–2022
Short answer. Every tax-exempt bond issue must compute its arbitrage rebate at least as of the end of its fifth bond year and every five years after, and when the bonds are retired. If the rebate amount is positive, pay at least 90% of it (100% at the final computation) with Form 8038-T within 60 days of the computation date (26 CFR 1.148-3(e)–(g)). Most issues owe nothing because they meet a spending exception or the small issuer exception, but bonds sold at low yields in 2021–2022 whose proceeds earned 4–5% from 2023 often do. Check before the computation date.
1. Find your computation dates
- Bond years end on the anniversary of the issue date unless the issuer chose another date (often its fiscal year end) in the first year.
- Installment computation date: the last day of the 5th bond year, then every 5th bond year. A late-2021 issue reaches its first one in late 2026; a 2022 issue in 2027.
- Payment: no later than 60 days after the computation date, with Form 8038-T (1.148-3(g)). Rebate reports show the date moved to the next weekday when the 60th day is a Saturday or Sunday.
- Final computation date: the date the last bond of the issue is retired, including a refunding or defeasance. 100% of the rebate amount is due.
2. Check the exceptions first
- Small issuer: a governmental unit with general taxing powers that issued (and expected to issue) no more than $5 million of tax-exempt governmental bonds in the calendar year, plus up to $10 million more for public school construction, with 95% of the proceeds for its own local governmental activities (IRC 148(f)(4)(D)).
- 6-month: all gross proceeds spent within 6 months of the issue date; for governmental issues up to 5% may be spent within one year (IRC 148(f)(4)(B)). The only spending exception a refunding issue can use.
- 18-month: at least 15% within 6 months, 60% within 12 months and 100% within 18 months; reasonable retainage may be spent within 30 months (1.148-7(d)).
- 2-year (construction issues): at least 10%, 45%, 75% and 100% of the available construction proceeds within 6, 12, 18 and 24 months; retainage within 3 years (1.148-7(e)).
- De minimis: missing the final 100% by no more than the lesser of 3% of the issue price or $250,000 is disregarded if the project was completed with due diligence (1.148-7(b)(4)).
- Bona fide debt service fund: its earnings are left out when they are under $100,000 a bond year, when average annual debt service is $2.5 million or less, or for governmental fixed-rate issues with an average maturity of 5 years or more (IRC 148(f)(4)(A), 1.148-3(k)). A reserve fund is not exempt.
3. If no exception applies: compute the rebate amount
Take every payment into and receipt from the investments of the counted funds (deposits of proceeds, amounts spent or withdrawn, and the value of each fund on the computation date), carry each one to the computation date at the bond yield (compounded semiannually, 30-day months), add them, and subtract the computation credit for each bond year with gross proceeds ($2,170 for a bond year ending in 2026 in published rebate reports). The result is the rebate amount (1.148-3(b)–(d)). The regulation's Example 1 works through a $49 million issue: rebate amount $452,432, installment paid $407,189, final additional payment $89,024; Bondtally reproduces each figure every time it opens.
4. Why it matters
If a required rebate payment is not made, the bonds can become arbitrage bonds, whose interest is taxable, unless the IRS finds no willful neglect and the issuer pays a penalty of 50% of the unpaid amount plus interest (100% for most private activity bonds) (1.148-3(h)). In a September 2026 client alert, Squire Patton Boggs reminded issuers that many 2021 and 2022 bonds were sold at lower rates than investments now earn, increasing rebate exposure.
Three ways to do it, compared
| Spreadsheet | Rebate consultant | Bondtally | |
|---|---|---|---|
| Cost | Free, plus staff time and expertise | $1,500 plus $500 a year (Callahan County, TX, Mar 2026); $15,000 per bond report (Santa Fe County, NM, Jan 2026) | $790 a year for all of one issuer's bonds ($474 founding price until 30 Nov 2026) |
| Spending exceptions | You build the tests | Included | 6-month, 18-month, 2-year, retainage, de minimis, small issuer |
| Rebate amount and Form 8038-T | You build the model | Report and form prepared | Computed, with a report and a Form 8038-T worksheet |
| Checked against the regulation's examples | Only if you test it | Their own methods | Every time it opens (1.148-3 and 1.148-4 examples) |
| Yield restriction, variable rate, refundings with transferred proceeds | You | Yes | Not covered: use a rebate analyst |
A consultant gives you a professional report to rely on. Bondtally tells you before you engage one whether an exception is met and what the rebate amount looks like, keeps every issue's dates in one calendar, and gives advisors and CPA firms an engine for their clients.
Check your own issue free
Open the free sample or check your own issue: the exceptions, dates, rebate amount and payment due show on screen without sign-up. Texas issuers: find your bonds in the Bond Review Board's data. Downloading the report, the workbook, the Form 8038-T worksheet and the calendar needs a license: Issuer $790, Finance office $1,990 (up to 10 issuers), Advisor $3,900 (unlimited), each one payment for 12 months; $474, $1,194 and $2,340 with FOUNDING40 until 30 Nov 2026.