TAILIEUCHUNG - TAX POLICY: Tax-Exempt Status of Certain Bonds Merits Reconsideration, and Apparent Noncompliance with Issuance Cost Limitations Should Be Addressed

Lower investment amounts. The minimum investment for an individual bond can be as high as $10, minimum initial investment in a bond fund, by contrast, is often considerably lower, so even an investor who has limited funds can participate in the bond minimum initial investment in most Vanguard bond funds, for example, is $3,000 per fund for a regular account or $1,000 for an individual retirement account (IRA) or Uniform Gifts/ Transfers to Minors Act (UGMA/UTMA) account. A mutual fund investor can also purchase additional fund shares in amounts far smaller than the cost of an individual bond | United States Government Accountability Office GAO Report to the Committee on Finance . Senate February 2008 TAX POLICY Tax-Exempt Status of Certain Bonds Merits Reconsideration and Apparent Noncompliance with Issuance Cost Limitations Should Be Addressed GAO-08-364 February 2008 À GAO Accountability Integrity Reliability Highlights Highlights of GAO-08-364 a report to the Committee on Finance . Senate Why GAO Did This Study The outstanding amount of state and local government tax-exempt bonds has increased over the years. Congress is interested in whether the bonds are used for appropriate purposes since the federal government forgoes billions in tax revenues annually by excluding the bonds interest from investors federal gross income. Questions also exist over the bonds borrowing costs as they can divert funds from the funded projects. This report 1 describes recent trends in tax exempt bonds 2 provides information on the types of facilities financed with taxexempt bonds and 3 discusses borrowing costs considering the methods of selling bonds and compares issuance costs paid from bond proceeds for governmental and qualified private activity bonds. In addition to interviewing relevant officials we analyzed IRS s Statistics of Income SOI data and data from Thomson Financial to address these objectives. What GAO Recommends Congress should consider whether facilities including hotels and golf courses that are privately used should be financed with taxexempt governmental bonds. GAO also recommends that IRS clarify how bond issuers report issuance costs and develop methods to detect and address apparent noncompliance with limits on using bond proceeds for issuance costs. In response the Acting IRS Commissioner agreed with our recommendations and outlined the actions IRS would take. To view the full product including the scope and methodology click on GAO-08-364. For more information contact Michael Brostek at 202 512-9110 or brostekm @ . TAX POLICY .

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