What are TEB's Priorities for Bond Audits in Fiscal 2017?

WASHINGTON – The highest tax-exempt bond priority audits for fiscal year 2017 will be on claims and returns that have been identified because of noncompliance issues, according to the work plan for the IRS' Tax-Exempt Bond Office.

In its two-page work plan for fiscal 2017, which started on Oct. 1, TEB outlines several initiatives, with the highest priority given to claims and referrals warranting audit resources, including whistleblower referrals. TEB receives two types of claims: returns of an overpayment of rebate and those for direct-pay bonds.

"TEB will devote resources to identifying new issues and fact patterns with a higher risk of noncompliance and, developing methods to find these new issues," officials said in their briefing document in the IRS' Tax-Exempt and Government Entities (TE/GE) 24-page work plan.

During fiscal 2016, TEB completed audits of 22 returns based on referrals and the principal issues found in these were private use of bond-financed property and arbitrage compliance violations. It reviewed 86 rebate claims in fiscal 2016, and granted more than 80% of those claims.

Because of the revisions made to the direct-pay bond refund process made in fiscal 2016, TEB said it "expects to receive fewer direct-pay bond referrals" in fiscal 2017, but added they will "likely have a higher risk of noncompliance than found generally in returns referred under the prior process."

The IRS also plans to continue auditing prison financings and small issue bonds under initiatives that began in fiscal 2016.

Another priority is the Voluntary Compliance Agreement Program (VCAP), used to encourage self-reporting of possible tax violations. TEB expects to devote fewer resources to it than in the past because of its revision of the closing agreement process, which it said increases "efficiency and transparency and ensure consistency and enforceability." TEB released a new VCAP model closing agreement in March to expedite and increase the consistency of closing agreements for tax-exempt bonds.

In the work plan, TEB said it expects a streamlined VCAP program for certain arbitrage violations in fiscal 2017, one that would use minimalized IRS and issuer resources.

New methods, including market scans and data analytics, will be implemented to identify new areas of noncompliance and possible trends.

Finally, TEB said it will continue to devote resources to "virtual" customer education and outreach efforts, such as podcasts and web-based seminars geared toward new or infrequent issuers.

Officials said TEB "continues to critically review each of its programs for improvements, greater efficiency, and alignment with TE/GE and IRS priorities and long-term goals." TEB said it will continue to monitor an interactive Form 8038-CP, used to claim refundable tax credits for issuers of qualified Build America Bonds, recovery zone economic development bonds and specified tax credit bonds, and make adjustments as necessary.

The plan also includes fiscal 2017 goals for exempt organizations; employee plans; Indian tribal governments; government entities compliance services; and federal, state, and local governments.

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