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The IRS Office of Tax Exempt Bonds (TEB) has released a guidance document, Avoiding Troubled Tax-Advantaged Bonds, that contains practical knowledge for city officials and staff who may touch bond transactions but are not bond experts or professionals.
It is important to stress that the guidance offered is practical advice and not new law. The short guide addresses municipal market fraud and other criminal activity, such as pay to play, contractor fraud, and securities law violations. In many cases, the fraud and corruption can result in the bond transaction violating federal tax law. In all cases, fraud and corruption can greatly increase the cost of borrowing.
This report is intended to examine potentially problematic situations seen during the varied phases of a bond transaction, and provide some considerations an issuer may use to avoid substantial problems.