The Internal Revenue Service has sent out about 110 of 200 planned correspondence examinations to private-activity bond issuers as part of its arbitrage-rebate compliance initiative, and those audits could be expanded if the agency finds significant noncompliance with requirements, an IRS official told lawyers meeting here Friday.
Speaking at a meeting of the American Bar Association's tax-exempt financing committee, Clifford Gannett, director of the IRS' tax-exempt bond office, also clarified that while the "Information Document Requests" accompanying the examination letters require issuers to submit copies of documents and procedural information similar to post-compliance surveys sent to charitable issuers, the goals of the two projects' should not be misconstrued.
The arbitrage initiative involves actual examinations, whereas the charitable organization initiative involved surveys and is not an enforcement tool.
Jeremy Spector, a partner at Mintz Levin Cohn Ferris Glovsky and Popeo PC in New York and vice chairman of the committee, echoed concerns already aired by bond counsel about the comprehensive requirements of the audits. The examinations ask for several copies of documents related to arbitrage rebate, such as rebate computations including bond yield computations, yield restriction analyses, overpayment claims made to the IRS, and any forms filed with the IRS when submitting rebate payments or penalties in lieu of payments.
"There's a strong record-keeping component here," he said.
Spector also expressed concern about the requirement that issuers detail how their bond proceeds were spent, something he said could present a "huge burden" to larger issuers.
Gannett conceded that it is a "pretty comprehensive document," but noted that if issuers are having trouble replying within the 21-day time frame for replying, they can request an extension. Such requests, he said, "most likely will be approved."
Gannett also notified committee members that the post-issuance compliance survey that will be sent to between 200 and 500 governmental issuers is "pretty much prepared at this point," and will be issued in the coming weeks. The results from the first round of surveys, which were sent to over 200 charitable organizations, have been collected and are being compiled into a report, he said.
Meanwhile, IRS officials introduced their newest branch chief, James Polfer, who has headed up the IRS office of chief counsel's bond branch for roughly two months.
As part of his introductory remarks, Polfer said he hopes in the future to avoid an "overly aggressive and adversarial approach" with the bond community. Recent financial turmoil, not just with municipal bonds but across the spectrum of financial products, show that bonds "don't exist in a vacuum," he said.
