Define: Tax-Anticipation Note

A tax-anticipation note (TAN) is a short-term borrowing instrument issued by a government entity to finance its immediate cash flow needs before it receives tax revenues.

Tax-anticipation notes are typically issued by state and local governments, school districts, or other government entities that rely on tax revenues to fund their operations.

The maturity period for tax-anticipation notes is usually less than one year, typically ranging from a few weeks to a few months.

The primary purpose of issuing tax-anticipation notes is to bridge the gap between the time when a government entity needs funds to meet its immediate expenses and the time when it expects to receive tax revenues.

Tax-anticipation notes are repaid using the tax revenues collected by the government entity. Once the tax revenues are received, they are used to retire the outstanding notes.

Yes, tax-anticipation notes are considered a form of short-term debt for the government entity issuing them. However, they are generally considered to be lower-risk compared to long-term debt instruments.

Yes, tax-anticipation notes can be sold to investors in the open market. Investors purchase these notes in exchange for the promise of repayment with interest when the tax revenues are received.

If a government entity fails to repay tax-anticipation notes, it may face legal consequences, such as damage to its credit rating or potential lawsuits from investors. In extreme cases, it may also lead to financial distress for the government entity.

The interest earned on tax-anticipation notes is generally exempt from federal income tax. However, it is important to consult with a tax advisor to understand the specific tax implications based on your jurisdiction.

Yes, tax-anticipation notes can be refinanced if the government entity needs to extend the repayment period or obtain better interest rates. Refinancing involves issuing new notes to repay the existing ones.