Explanation
- Advance refunding basically refers to paying the outstanding debt in advance, i.e. ...
- The rate of interest or coupon rate is the committed cost of the issuer. ...
- The issuer is at a loss when the interest rates in the market have gone down drastically, and it is still paying interest at the contracted coupon rate. ...
Can I get an advance on my refund?
You can find tax refund advances of up to $3,500 that are free of fees and interest. You also can get bigger advances, up to $7,000, but you will pay a hefty interest of more than 35 percent for those larger loans. To get an advance, you must provide enough information on last year's income to prepare your return.
What to know about Refund Advance Products?
- You are only eligible for the products if you pay to file through the company’s tax preparation service.
- The company may limit the amount it will approve you for, meaning you might not get the full refund amount. ...
- Additional fees, beyond just the tax preparation fee, could be deducted from your refund.
Should you get a tax refund advance?
- You can get your money faster, in as little as 24 hours.
- Almost all tax refund advances come with 0% APR. This means you won’t pay anything extra besides the standard cost of tax preparation services.
- A tax refund advance won’t affect your credit score and most tax preparers don’t check your credit score prior to issuing you a tax advance loan.
Does TaxSlayer offer refund advance?
What is TaxSlayer’s Refund Advance? TaxSlayer’s Refund Advance is a discretionary no-intrigue advance that is subtracted from your all out government discount add up to be given by the IRS. The advance sum (either $500 or $1,000) is then saved onto a TaxSlayer Prepaid Visa Card, controlled by Green Dot, and gets accessible for you to use in as meager as 24 hrs.
What does advance refunding mean?
Definition of Advance Refunding IRC Section 149(d)(5) defines an advance refunding as a bond issued to refund another bond on a date more than 90 days before the redemption of the refunded bond.
What is the difference between a current refunding and advance refunding?
A current refunding is one in which the outstanding (refunded) bonds are redeemed within 90 days of the date the refunding bonds are issued. In an advance refunding, the refunded bonds are redeemed more than 90 days from the date the refunding bonds are issued.
What is forward refunding?
In a forward refunding, an issuer and an underwriter agree that the issuer will issue refunding bonds on a specified date in the future, and the underwriter will purchase those bonds on that date at a specified price.
How does a bond refunding work?
What Is Refunding? In corporate finance and capital markets, refunding is the process where a fixed-income issuer retires some of their outstanding callable bonds and replaces them with new bonds, usually at more favorable terms to the issuer as to reduce financing costs.
What is an advanced refunding bond?
Advance refunding refers to the practice of taking the funds received from a new bond issuance to pay off a prior issue's debt. This can only occur after 90 days have passed. The issue of the new bond is, usually, at a lower interest rate than the older, unpaid obligation.
Under what circumstances might a government consider an advance refunding of general obligation bonds outstanding?
Advance refunding may be desirable when the interest rate on outstanding debt is considerably higher than current interest rates, when debt service fund assets accumulated for debt repayment are not sufficient to repay creditors when the debt matures, or if the covenants of the existing bonds are excessively burdensome ...
What is a crossover refunding?
Crossover Refunding – A method of advance refunding in which the revenue stream originally pledged to secure the refunded bonds continues to be used to pay debt service on the refunded bonds until they mature or are called.
What does it mean to refund debt?
Refunding Debt means any Long-Term Debt issued for the purpose of refunding or refinancing outstanding Long-Term Debt.
What is a forward delivery bond?
Forward delivery bonds are priced on a determined date but aren't issued and settled until a date further in the future. Because the bonds are sold based on predetermined interest rates, the mechanism offers a hedge against interest rate and credit risk.
What is calling a bond and a bond refunding?
Explanation. In corporate finance, bond refunding refers to the process wherein the bond issuer retires some of its outstanding high-interest-rate bonds (callable) and replaces them with low-interest rate new bonds.
When would the issuer be likely to initiate a refunding call?
When would the issuer be likely to initiate a refunding call? 7-9 If a company sold bonds when interest rates were relatively high and the issue is callable, then the company could sell a new issue of low-yielding securities if and when interest rates drop.
How do bonds make money?
Making Money From a Coupon-Paying Bond There are two ways that investors make money from bonds. The individual investor buys bonds directly, with the aim of holding them until they mature in order to profit from the interest they earn. They may also buy into a bond mutual fund or a bond exchange-traded fund (ETF).
What is advance refunding?
Advance refunding is a process in which the proceeds from the bond are used to clear up the debt associated with another bond. Here, the new bonds are issued at a lower price, and this mechanism is used to get rid of the higher interest cost by investing in new bonds whose interest cost is less as compared to the old bond.
Why do governments use advance refunds?
Advance refunding is used by the government when they are interested in delaying the debt clearances. They adopt this practice to save the interest cost associated with the bonds. The new bonds are then used to pay off the debts associated with the old bonds. In this type of mechanism, refinancing is also done, which helps the municipalities to clear their outstanding debts.
What is refunding the issuer?
In advance, refunding the issuer is required to set aside the sale proceeds from the issuance of the new bonds in an escrow account. An Escrow Account The escrow account is a temporary account held by a third party on behalf of two parties in a transaction. It reduces the risk of failing to oblige the transaction by either of the parties.
When is the refunding of bonds applied?
At the same time, the current refunding is said to be applied when the bonds are issued within 90 days of the issuance.
How long does it take for an underwriter to apply for a refund?
This can also be illegal when it comes to price manipulation. It is said to be applied after the 90 days’ time has expired. The government should call for earlier dates to declare the advance refunding mechanism for better planning.
Is advance refunding good for municipal bonds?
Conclusion. Advance refunding is although a very nice mechanism for the municipal bonds or government bonds, but it has its own limitation as well. The bondholders can get demotivated by investing in government bonds.
What is advance refund?
Advance refunding basically refers to paying the outstanding debt in advance, i.e. prior to their maturity date. The obvious question arises is why would a company pay for its debts beforehand! Well, the reason is the rate of interest.
How long is advance refund held?
Advance refunding means a practice wherein funds are received by issuance of lower coupon bonds or lower interest debt, and such funds are held for more than 90 days by the issuer/borrower in an escrow account before paying off the proceeds against old outstanding debt, which results in cost savings in terms of lower finance cost.
Why is advance refunding so bad?
Given the benefits associated with advance refunding, this system is abused many times by the issuers. The reason is a lower interest rate of municipal bonds. A lower interest rate means a lower cost of finance for the issuer. Municipalities can easily issue more and more bonds to any extent. This makes the local government over-leveraged at a lower cost with the potential to earn huge income by investment in high-yielding investments.
What is the purpose of the proceeds from the new issue?
The proceeds from the new issue are paid to wipe off the outstanding debt of high interest cost.
When will the issuer issue new bonds with a lower interest rate?
The issuer will issue new bonds with a lower interest rate when the market interest rates are reduced.
Can you get a tax exemption refund from a taxable issue?
A tax-exempt issue can be refunded from the proceeds of a taxable issue. If the taxable issue is refunded using the proceeds of the tax-exempt issue on the date of maturity, then the taxable advance refunding is considered for section 149. This applies only if both the issues are outstanding at a time for more than 90 days.
Do you have to pay tax on advance refund bonds?
Even if advance refunding is the easiest mechanism for paying off old debts with higher committed cost using proceeds of new bonds, the issuer is now required to pay tax on such issue . Further, there is a risk of price manipulation in the case of such bonds, which affects the demand for bonds. However, managing the new issue and paying off the old issue requires expertise; else, the issuer may have to face legal repercussions.
What is a refunding issue?
In the context of municipal bonds, refers to the sale of new bonds (the refunding issue) before the first call date of old bonds (the issue to be refunded). The refunding issue usually specifies a rate lower than the issue to be refunded, and the proceeds are invested, usually in government securities, until the higher-rate bonds become callable. See: Refunding escrow deposits.
What is a prerefunded bond?
The act or practice of a company issuing a second bond with a lower coupon rate in order to pay off a previously issued callable bond. In this circumstance, the callable bond is known as a prerefunded bond. Companies engage in advance refunding when more favorable interest rates become available, which reduces the company's overall borrowing costs.
What is refund advance?
Refund Advance is a loan based upon your anticipated refund (excluding any Recovery Rebate Credit) and is not the refund itself. To apply for the Refund Advance, you must file your taxes with TurboTax. Availability of the Refund Advance is subject to satisfaction of identity verification, certain security requirements, eligibility criteria, ...
How long does it take to get a refund advance?
Once approved for your card and Refund Advance, get your Refund Advance and start spending online in as little as 30 minutes. Your physical card will arrive in 5-10. business days.
What happens when the IRS distributes your refund?
When the IRS or state tax authorities distributes your refund, your remaining refund amount (minus your Refund Advance amount from your federal refund and any other agreed upon fees) will be deposited onto your physical Turbo® Visa® Debit Card.
How long does it take to get your federal tax refund?
Your entire federal and state refunds (minus any associated fees) will be loaded onto the card as soon as the IRS or state tax authorities distributes your refund (typically within 21 days from IRS acceptance). Once distributed, you can use your card however you want.
Does a credit advance affect credit score?
No. Applying for the Refund Advance will not affect your credit score.
Do you have to pay back a federal advance loan?
When the IRS processes your federal refund, your Refund Advance loan is automatically paid back. You won’t have to do anything!
What Is Refunding?
In corporate finance and capital markets, refunding is the process where a fixed-income issuer retires some of their outstanding callable bonds and replaces them with new bonds, usually at more favorable terms to the issuer as to reduce financing costs. The new bonds are used to create a sinking fund to repay the original bond issues, known as refunded bonds .
How does refunding work?
How Refunding Works. Refunding only occurs with bonds that are callable. Callable bonds are bonds that can be redeemed before they mature. Bondholders face call risk from holding these bonds—risk that the issuer will call the bonds if interest rates decline.
What is a pre-refund bond?
The new debt issues used in the process of refunding are referred to as pre-refunding bonds. The outstanding bonds that are paid off using proceeds from the new issue are called refunded bonds. In order to retain the attraction of its debt issues to bond buyers, the issuer will generally ensure that the new issue has at least the same—if not a higher—degree of credit protection as the refunded bonds.
Why do we refund bonds?
Refunding redeems an outstanding bond issue at its maturity value, typically the full amount of the outstanding principal plus any applicable interest, by using the proceeds from the newly issued debt. This new debt is, almost always, issued at a lower rate of interest than the refunded issue and, often, results in a significant reduction in interest expense for the issuer. Another reason for refunding is to remove any undesired restrictions and covenants that are tied to the terms of the existing bonds being refinanced.
What is a refund in bond market?
In addition to its use in the bond market, the term "refunding" may also refer to its more colloquial use in reversing a retail or commercial transaction. Businesses and merchants may issue refunds to customers in exchange for the return of purchased goods and when services are unsatisfactory or unfulfilled.
What is a refund in retail?
Refunding may also refer to reversing transactions in the retail or commercial space, often to make a customer whole due to a faulty or poor quality product or service.
Do ecommerce companies issue refunds?
Typically, e-commerce businesses wait until the returned product is received before they will issue a refund. Companies create return policies that strike a balance between excellent customer service and not compromising the company's profitability. Service providers may allow partial or full refunds for unsatisfactory or unfulfilled services.
What should a refunding transaction analyze?
GFOA also recommends that when evaluating a refunding transaction, issuers should analyze their refunding objectives, the efficiency of any related escrow, and the unique aspects of executing the refunding transaction.
How to monitor refunding opportunities?
Monitor Refunding Opportunities. Issuers should establish a process to identify and monitor potential refunding opportunities in the outstanding debt portfolio as interest rates change. Spreadsheet-based debt tracking , combined with an analysis of current interest rates, can provide “snapshot” looks at refunding opportunities that can then be more rigorously analyzed by the municipal advisor. This tracking should include some or all of the refunding objectives guidelines that are included in issuers’ debt policies.
How long does it take to get a refund on a bond?
A current refunding is one in which the outstanding (refunded) bonds are redeemed within 90 days of the date the refunding bonds are issued. In an advance refunding, the refunded bonds are redeemed more than 90 days from the date the refunding bonds are issued.
What is a bond refinancing?
Bond refinancings or “ refundings” are used by state and local governments most frequently to achieve debt service savings on outstanding bonds. Though less frequent, refunding bonds can also be issued to remove or revise burdensome bond covenants or to restructure debt service payments. Refunding bonds are characterized as ...
Can you issue tax exempt advance refund bonds?
Changes to federal tax law in late 2017 eliminated the ability of governments to issue tax-exempt advance refunding bonds. Taxable advance refundings of tax-exempt or taxable bonds are still permitted. Issuers of taxable or tax credit bonds (including Build America Bonds or “BABs”) will, in most cases, be able to issue tax-exempt advance refunding ...
Is there a difference between advance refunding and current refunding criteria?
No difference between advance refunding and current refunding criteria.
Can BABs be refunded?
Issuers of taxable or tax credit bonds (including Build America Bonds or “BABs”) will, in most cases, be able to issue tax-exempt advance refunding bonds to refinance those obligations. However, the retirement of BABs through a refunding will result in the loss of the federal interest subsidy payments, which should be taken into account in ...
What is the accounting gain or loss?
The accounting gain or loss is equal to the difference between the amount paid to extinguish the debt and the net carrying amount of the new debt. The net carrying amount is the par value adjusted for unamortized premium and discount.
When debt is extinguished in governmental funds, the proper recording of the extinguishment depends on?
Governmental funds — When debt is extinguished in governmental funds, the proper recording of the extinguishment depends on the resources used to extinguish the debt.
Why do we refund debt?
Usually refunding is done to take advantage of lower interest rates or to modify debt service requirements. Often the proceeds from the sale of new debt with a lower interest rate are used to pay off old debt with a higher interest rate.
What is an annual budget?
Annual/biennial appropriated budget – A fixed budget adopted for the government’s fiscal period. The appropriated budget was traditionally used to determine a government’s property tax levy, and a ceiling on expenditures was made absolute so that the expenditures of a government unit would not exceed its revenues. This budget was also historically a balanced budget, estimated revenues equaling appropriations. The appropriated budget is still used to set tax levies and some budget statutes still require balanced budgets, but it is more generally used to authorize a specific amount of expenditures regardless of whether estimated resources meet or exceed that amount. Appropriated budgets are required by statute in cities (Chapter 35.32A RCW, Chapter 35.33 RCW and Chapter 35A.33 RCW), counties (Chapter 36.40 RCW), and most other local governments in Washington State. These budgets are also called legal budgets, adopted budgets, or formal budgets. The appropriated budgets should be adopted by ordinance or resolution.
What is capital improvement budget?
Capital improvement budget – Consists of two elements: the annual/biennial portion of capital projects and annual/biennial appropriations for the purchase, construction or replacement of major fixed assets in the current fiscal period.
What is a budgeting process?
It is a sophisticated process of strategic planning, communication and policy development resulting in a detailed plan of operations for allocating and monitoring the use of limited resources among various competing demands. Teaching how to budget is outside the scope of the BARS. However, there are many educational resources available to local governments, such as the Municipal Research and Services Center ( mrsc.org) and the Government Finance Officers Association ( gfoa.org ).
What is the above and prescribed option?
Above and Prescribed option includes those accounts which are aggregates of detailed account codes and are not valid for reporting in addition to Prescribed accounts which are the valid BARS account codes. Prescribed option only lists valid BARS account codes.
Does the government report refunded debt?
3.4.4.80 The government does not budget or report any refunded (old) debt. However, the government is responsible for verifying the amounts reported by the trustee. The amount of the old debt should be disclosed in a note to financial statements.
Do governmental funds report gain or loss on advance refunding?
3.4.4.90 Since governmental funds operating statements reflect only the financial resource flows related to the refunding transaction, they do not report a gain or loss on an advance refunding resulting in defeasance.
