WASHINGTON - Half of the Internal Revenue Service tax-exempt bond office's resources in fiscal 2016 will be allocated to examinations, and priority will be given to referrals, including those from whistleblowers, according to a work plan summary.
The work plan was described in an appendix to a publicly released letter from Sunita Lough, commissioner of the IRS Tax Exempt and Government Entities Division (TE/GE), which includes TEB. Lough also discussed the division's priorities in a conference call with reporters on Thursday, the first day of the federal government's 2016 fiscal year. When TE/GE talks about resources, it is generally talking about employees and time, rather than dollar amounts, Lough said.
About 20% of TEB's examination work is expected to focus on referrals and claims, and the rest of the exam resources will be devoted to the market segment program, according to the work plan summary. Under the market segment program, which TEB began refining in fiscal 2014, the office conducts audits of certain types of bonds while working to identify sub-segments with the greatest risk of non-compliance.
In fiscal 2015, TEB chose 13 segments and then identified five sub-segments. This year TEB will continue the previous year's work. TEB is working with TE/GE Research and Business Systems Planning "to expand the public information available for identifying sub-segments and on collecting data from the market segment exams to predict other fact patterns or issues that might give rise to additional sub-segments," the document stated. While more bond issues may be audited under the refined market segment program than under the prior program because TEB is using statistical sampling, TEB is working to limit the impact of the larger sample size on issuers, according the summary of the work plan.
TEB also is reinstituting a compliance check/soft-letter program, which will initially focus on problems identified by the office from the information returns issuers file when they sell bonds. "Using limited resources, this program will provide broader coverage of returns than could be provided solely through examinations, but may lead to some examinations that we might not otherwise have conducted," the document stated.
About 30% of TEB's resources in fiscal 2016 will be focused on the voluntary closing agreement program, under which issuers can voluntarily settle tax-law problems with the IRS. "We have significantly revised the closing agreement process to increase efficiency and transparency and ensure consistency and enforceability, including creating standard closing agreement terms," the summary stated. "We have also improved our closing agreement processes. For example, for appropriate issues, we are creating streamlined voluntary closing agreement programs with fill-in-the-blank agreements."
TEB expects to devote about 15% of its resources to customer education and outreach efforts. Some of those efforts - such as revising the Form 8038 series information returns, creating a publication on arbitrage rules for infrequent issuers, and improving training materials on management contracts -- will follow up on recommendations made by an advisory committee to TE/GE. TEB will also have a new customer satisfaction survey tool so that it can identify areas for improvement, hold "virtual focus groups" for groups of employees, and produce webinars, according to the summary.
The remainder of TEB's resources is expected to be devoted to activities concerning direct-pay bonds. The office will try to prevent fraud and inappropriate payments in the subsidy payment program and it will continue to seek to improve the subsidy payment process. Lough said the IRS is not seeing a lot of fraud in connection with direct-pay bonds.
Overall, TE/GE has five key areas of focus for the year: continuous improvement, knowledge management, risk management, data-driven decision-making and employee engagement. These areas are important given attrition and cuts to the IRS' budget, Lough said. TEB has a projected attrition rate approaching 18% for fiscal 2016.
