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IRS deems Puerto Rico’s Cofina bonds tax-exempt

By on May 22, 2019

A credit card reader (Screen capture of

About $12 billion in restructured bonds to be offered in July

SAN JUAN — The Internal Revenue Service (IRS) recently informed the government of Puerto Rico that it will exempt the Puerto Rico sales and use tax revenue bonds issued by the Sales Tax Financing Corp. (Cofina by its Spanish acronym) from federal taxes, according to a notification published by the island’s Financial Oversight and Management Board.

The tax-exempt bonds will be offered at the end of the month to Cofina bondholders and issued in July.

On Feb. 12, the debt adjustment plan for Cofina’s debt was approved by the U.S. District Court. Sometime after, Cofina issued about $12 billion in restructured bonds.

Cofina, Puerto Rico’s Fiscal Agency and Financial Advisory Authority and the fiscal oversight board had agreed that if the IRS determined that the interest on the bonds was excludable from gross income for federal income tax purposes, Cofina would offer all bondholders the opportunity to exchange such bonds for Cofina tax-exempt bonds.

The parties to the Tax Exemption Implementation Agreement had further agreed that the yield on the exchange bonds will be 25 basis points lower than that of the Cofina bonds for which they were exchanged.

On May 15, Cofina received a determination from the IRS that will permit Cofina to offer to exchange the current bonds for the new tax-exempt bonds.

“Cofina expects to launch an exchange offer on or prior to May 31, 2019 pursuant to which holders of 2019 A-2 B-2 Bonds will be provided with the opportunity to exchange their 2019A-2 B-2 Bonds for an equal principal amount of Exchange Bonds,” the notification states.

It is expected that the exchange bonds will be issued, and the exchange transaction consummated on or about July 1.

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