2014 Outlook for Tax Regulation
December 30, 2013 12:48 PM
Rebecca Harrigal, the new director of the Internal Revenue Service's tax-exempt bond office, said one of her goals is to streamline and improve the closing agreement, or settlement, process.
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The IRS tax-exempt bond office has been asked to consider a special voluntary closing agreement program for organizations that temporarily lose their 501(c)(3) status because they can't immediately comply with requirements for charitable hospitals under section 501(r) of the Internal Revenue Code, which was created under the Affordable Care Act, Harrigal said. (Image: Bloomberg News)
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The tax-exempt bond office completed slightly more than 1,000 examinations in fiscal year 2013, and found actual or potential non-compliance in about 47% of them, Harrigal said. Excluding VCAP settlements, the office received more than $43 million in settlement amounts in addition to required bond redemptions, she said. (Image: Thinkstock)
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In fiscal year 2013, the tax-exempt bond office worked on just over 100 VCAP submissions for roughly 350 bond issues. About 55 of the submissions relating to about 255 bond issues were closed as of Sept. 30, the last day of the fiscal year. TEB collected almost $67 million in VCAP settlements, with the vast majority of that amount coming from cases under a special VCAP for student-loan bonds. (Image: Thinkstock)
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Chas Cardall, a partner at Orrick, Harrington & Sutcliffe LLP in San Francisco, said that with their market segment approach, IRS "agents are more focused on the things they think really matter," and are on less of a fishing expedition. The market segment approach involves targeting certain types of bonds and conducting audits of issues within these market segments.
National Association of Bond Laywers President Allen Robertson described Harrigal, who has been involved with tax-exempt bonds for 20 years and was chief of tax-exempt bond branch in the chief counsel's office from 1997 to 2008, as someone who will be able to digest technical issues. "We have someone who is a lawyer and is very experienced and very knowledgeable in the area," he said.
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Bond lawyers hope the IRS issues guidance on the definition of a political subdivision as soon as possible. This issue has become a particular concern since the IRS issued a technical advice memorandum in May arguing that the Village Center Community Development District in Florida is not a political subdivision that can issue tax-exempt bonds because its board does not and will not include any elected officials. (Image: Thinkstock)
Frank Shafroth, director of the Center for State and Local Government Leadership at George Mason University, said the IRS' technical advice memorandum for the Village Center Community Development District has "opened up an absolute hornet's nest," because these structures are growing in popularity.
