(i) Facts.
On July 1, 1994, City B issues a variable yield issue and invests all of the sale proceeds of the issue ($30 million). There are no other gross proceeds. As of July 1, 1999, there are nonpurpose investments allocated to the issue. Prior to July 1, 1999, City B receives amounts from nonpurpose investments and immediately expends them for the governmental purpose of the issue as follows:
Date Amount
____ ______
811994 $ 5,000,000
711995 8,000,000
1211995 17,000,000
711999 650,000
(ii) First computation date.
Date Receipts (Payments) FV (6.0000 percent)
711994 ($30,000,000) ($40,317,491)
811994 5,000,000 6,686,560
711995 (1,000) (1,267)
711995 8,000,000 10,134,161
1211995 17,000,000 21,011,112
711996 (1,000) (1,194)
711997 (1,000) (1,126)
711998 (1,000) (1,061)
711999 3,000,000 3,000,000
711999 650,000 650,000
711999 (1,000) (1,000)
___________
Rebate amount (7011999) $1,158,694
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(B) City B pays 90 percent of the rebate amount ($1,042,824.60) to the United States within 60 days of July 1, 1999.
(iii) Next computation date.
(A) On July 1, 2004, City B redeems all of the bonds. Thus, the next computation date is July 1, 2004. On July 30, 1999, City B chose to compute rebate for periods following the first computation period by treating the end of each fifth bond year as a computation date. The yield during the second computation period is 5.0000 percent per year compounded semiannually. The computation of the rebate amount as of this date reflects the value of the nonpurpose investments allocated to the issue at the end of the prior computation period. On July 1, 2004, City B sells those nonpurpose investments for $3,925,000 and expends that amount for the governmental purpose of the issue.
(B) As of July 1, 2004, the future value of the rebate amount computed as of July 1, 1999, and of all other payments and receipts is:
Date Receipts (Payments) FV (5.0000 percent)
711999 $1,158,694 $1,483,226
711999 (3,000,000) (3,840,254)
712000 (1,000) (1,218)
712001 (1,000) (1,160)
712002 (1,000) (1,104)
712003 (1,000) (1,051)
712004 (2,000) (2,000)
712004 3,925,000 3,925,000
___________
$1,561,439
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(C) As of this computation date, the future value of the payment made on July 1, 1999, is $1,334,904 and thus an additional rebate payment of $226,535 is due.
(D) If the yield during the second computation period were, instead, 7.0000 percent, the rebate amount computed as of July 1, 1999, would be $1,320,891. The future value of the payment made on July 1, 1999, would be $1,471,007, and, therefore, City B would have overpaid the rebate amount by $150,116.
(k) Bona fide debt service fund exception.
Under section 148(f)(4)(A), the rebate requirement does not apply to amounts in certain bona fide debt service funds. An issue with an average annual debt service that is not in excess of $2,500,000 may be treated as satisfying the $100,000 limitation in section 148(f)(4)(A)(ii).
[T.D. 8418, 57 FR 20971-21033, May 18, 1992; corrected by 57 FR 44974-44989, Sept. 30, 1992; 57 FR 45878-45879, Oct. 5, 1992; revised by T.D. 8476, 58 FR 33510-33553, June 18, 1993, as corrected by 58 FR 44451-44454, Aug. 23, 1993; amended by T.D. 8538, 59 FR 24039-24046, May 10, 1994; T.D. 8476, corrected by 59 FR 24350-24351, May 11, 1994; T.D. 8718, 62 FR 25502-25514, May 9, 1997.]