WASHINGTON - The Internal Revenue Service's Tax Exempt Bond Office
The two-page paper is broken into two sections. The first section focuses on what tax-advantaged bonds are and what issuers should do once the bonds are issued. The second section describes the VCAP program as well as how an issuer can go about submitting a VCAP request.
"The ongoing nature of post-issuance federal tax requirements applicable to tax-advantaged bonds requires issuers to actively monitor compliance throughout the entire life of their bonds," the paper said. "This due diligence will significantly improve the issuer's ability to ensure the continued tax-advantaged status of its bonds by identifying noncompliance, preventing violations from occurring and timely correcting identified violations when prevention is not possible."
The first section also describes the role of written procedures in post-issuance compliance, urging issuers to adopt such procedures that "go beyond reliance on tax certificates provided at closing and bond documents."
Examples of good written procedures include: identifying the official or employee responsible for review; retention of adequate records to substantiate compliance; and due diligence review at regular intervals, the paper said.
TEB said that an issuer that has established and followed comprehensive written post-issuance compliance procedures "will be significantly less likely to violate the federal tax requirements related to its bonds than an issuer without such procedures."
The second section in the paper describes TEB's objective for using the VCAP program and who is eligible to use it.
"TEB VCAP encourages issuers and other parties involved in tax-advantaged bond transactions to exercise due diligence in complying with the applicable federal tax requirements, and to provide a vehicle to correct violations as expeditiously as possible before they are discovered during an examination," the paper said.
Finally, TEB said that the VCAP program provides an incentive for issuers and conduit borrowers to implement post-issuance compliance procedures.
