Municipal Bond Forum
If bond status changes
Q
If the feds revoke a bond’s tax-free status because of the issuer’s intentional/unintentional violation of applicable federal “tax-exempt” regulations, can a muni bondholder protect himself from income tax liability?
A
James A. Klotz responds:
Although it doesn’t seem fair, bondholders can have the tax-free status of their bonds revoked by the IRS.
These situations are infrequent but in most cases, bondholders seek recourse through the issuer, underwriter or bonding attorneys.
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