WASHINGTON – The Internal Revenue Service's tax-exempt bond office has made available for municipal securities the Industry Issue Resolution Program, under which it will work with a group of taxpayers to resolve frequently disputed or burdensome tax issues outside of the audit process.
Previously under the sole jurisdiction of the IRS' Large Business and International Division, the IIR is designed to help taxpayers comply with the tax laws and rules and avoid audits.
The IRS described the IIR program in Rev. Proc. 2016-19, which it released on March 4. The agency said the program has guided "thousands of taxpayers" since its inception more than 15 years ago and has now been expanded for use by the Tax Exempt and Government Entities division to include entities such as governmental units, Indian tribal governments and nonprofits.
The expansion of the program comes amid significant cuts in TEB staff and audits, creating another way to avoid the time and expenses associated with audits.
Rebecca Harrigal, the director of TEB, said during the National Association of Bond Lawyers' Tax and Securities Law Institute here last week that she has promoted IIR in recent years because she believes it is a good fit for TEB.
"What you've got here is [a program that deals with] a persistent problem that hits a large number of people," Harrigal said. The issue "is either complex or frequently takes up a lot of resources."
"It's [a program] that I think really has a place in TEB," she said.
The IRS said the types of tax issues most likely to be considered under the program include two or more of the following characteristics: the proper tax treatment of the issue is uncertain; there are frequent, repetitive audits of the issue; audits of the issue require resources both from the IRS and affected groups; it is a significant issue that affects a large number of entities; audits of the issue require extensive factual development; and collaboration on resolving the issue would promote an understand of groups' business practices.
Eligible issues include both those within a single industry and those that extend across industry lines.
Issues that are ineligible for the IIR program are those that are unique to one or a small number of taxpayers as well as those involving transfer pricing or international tax treaties. Also ineligible are issues the IRS says lack a "bona fide business purpose" or improperly avoid federal taxes.
Once an issue is approved for the IIR program, a team of officials from the IRS, the Treasury Department, the IRS Office of Appeals and the IRS Office of the Chief Counsel is created to fact-check, analyze input from market groups, and recommend guidance to help resolve it. The IRS will typically publish a revenue ruling or revenue procedure after the review is complete.
At the NABL meeting, Richard Chirls, a lawyer with Orrick, Herrington & Sutcliffe who moderated a tax regulatory panel, asked Harrigal if NABL would be eligible to work with the IRS under the IIR program. Harrigal was not sure. One concern could be that NABL is an organization of lawyers who represent municipalities, underwriters, and others in muni bond transactions. It does not directly represent just issuers or taxpayers.
Tom Vander Molen, a partner at Dorsey and Whitney in Minneapolis, told The Bond Buyer on Tuesday that he hopes NABL will be considered as an eligible participant in the IIR program, saying the program would have been useful in proposing new definitions of issue price and political subdivisions – the IRS' latest regulatory projects for the muni market.
"We are hopeful that NABL will be considered an appropriate requester," Vander Molen said, citing other groups that should be considered eligible such as the Government Finance Officers Association, the American Hospital Association and the National Association of College and University Business Officers.
GFOA should definitely be eligible because its members are issuers and municipalities, he said.
Vander Molen said the IIR expansion could bring positives to the muni industry.
"This makes it possible for a group representing municipal bond issuers and conduit borrowers to suggest tax issues appropriate for collaborative consideration by the IRS and the issuers with the goal of providing guidance on the tax issues, as opposed to learning what the IRS's position is in the examination process," he said.
Submissions under the program, which can be made online or through mail, must include an issue statement, a description why the issue is appropriate for IIR, the number of affected taxpayers and contact information as well as the option to include a recommendation of how the issue could be resolved.
All IIR submissions, which Harrigal stressed do not require filing fees, are available to the public.
Launched as a pilot program in December 2000, IIR was originally available exclusively to large or mid-size business taxpayers, but was eventually expanded to also include issues common to small businesses.
The IRS cited as an example that a retail industry group representing both national and independent retailers could request guidance on a capitalization issue under the IIR program.
