IRS Official Emphasizes Need for Written Post-Issuance Compliance Procedures

CHICAGO — The Internal Revenue Service will soon publish a report about their findings from 300 questionnaires they sent out last year to governmental and 501(c)(3) issuers about their advance-refunding procedures and post-issuance compliance, an agency official told bond lawyers at a conference here.

One of the biggest takeaways was that while all of the respondents had post-issuance compliance procedures, less than half of the issuers had actual written procedures in place, said Carl Scott, technical advisor for field operations in the IRS' tax exempt bond office.

Scott was on a refunding and reissuance panel here at the National Association of Bond Lawyers annual bond attorney's workshop on Thursday.

Scott was joined by Michael G. Bailey, partner with Foley & Lardner LLP in Chicago, Carol L. Lew, partner with Stradlin Yocca Carlson & Rauth in Newport Beach, Calif. and George T. Magnatta, partner with Saul Ewing LLP in Philadelphia.

The surveys were sent to 269 governmental entities and 31 nonprofit organizations that issued advance refunding bonds between July 1, 2009, and June 30, 2010. During that period, there were $23.5 billion of advance refunding bonds sold in 445 transactions, according to Thomson Reuters.

The questionnaire was part of the IRS' ongoing efforts to promote voluntary compliance with federal tax requirements applicable to advance refunding bond issuers and conduit borrowers. It will be a feature of most all of our examinations going forward, Scott said.

"We've seen that those folks who have written procedures and go to the effort of identifying who is responsible for post-issuance compliance process are the ones that are most effective in meeting their compliance requirements," Scott said.

Written post-issuance compliance procedures are particularly important for governmental issuers due to the fairly high turnover rate, he said.

"Boards and other governing bodies that have the written procedures provide that institutional knowledge that often times gets lost with a change of administration," Scott said. "If that's spelled out it makes the issuer much more likely that they will meet their compliance requirements."

Separately, the TEB office's compliance practice research team has completed a draft document that identify red flags for issuers that are likely to occur over the life of a bond issue from the planning stages through the final redemption.

That document is currently going through the clearance process, Scott said.

"The findings from that report basically mirror our concerns for the need for these types of [written] procedures," Scott said.

Speaking on a separate panel earlier in the NABL conference, Steve Chamberlin, manager of compliance and program management for TEB, said the project was designed to help issuers so they don't fall into any unintentional tax consequences throughout the life of a bond issue.

Chamberlin hopes other muni market associations will build on their work and once the product is released to the public, TEB will seek feedback. The IRS will likely move to another set of educational material that could be useful for issuers, Chamberlin said.

These compliance practice research initiatives will be discussed in TEB's 2013 work plan which is slated to be released at the end of 2012.

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