WASHINGTON — A tax-exempt bond advisory group to the Internal Revenue Service found that some of the agency’s bond-related forms are overly burdensome for issuers and recommended that some questions be eliminated.
The three-member group, part of a 21-member Advisory Committee on Tax-Exempt and Government Entities known as ACT, made the recommendations in its annual report that it presented to IRS officials on Wednesday.
“We believe that the time has come for the IRS to revisit the various forms to assure that they are fulfilling the original intended congressional purpose,” the section wrote. “It is most important for the IRS to weigh the burdens of form completion against the benefits derived from the information to be requested.”
Specifically, the report examined all of the 8038 series of forms, which are filed by issuers of private-activity bonds, governmental bonds, direct-pay bonds including Build America Bonds, and tax-credit bonds, as well as the Form 990, Schedule K, on which nonprofit organizations must include detailed information about their bond issues.
The recommendations were presented to IRS commissioner Douglas Shulman, who was not present at the meeting, as well as Bob Henn, acting director of the IRS tax-exempt bond office, and other agency officials by George Magnatta, chair of Saul Ewing LLP’s public finance practice, and David Cholst, partner with Chapman and Cutler LLP, both outgoing members of the tax-exempt bond group.
The IRS’ Form 990, Schedule K, has already undergone several revisions in recent years, including the addition of questions about the use of proceeds and the amount of private business use.
Changes to the 8038 forms also include requiring the signature of any paid preparer.
The report focused on the relative burdens and benefits of information reporting. It outlined six different areas that it considers “legitimate purposes for collecting information.” It recommended that any information requested on an IRS bond-related form that does not fit within one of these six areas “not be collected because the benefits of collection outweighs the burden imposed on the issuer.”
The six areas are: statistical reports, classification, recording elections, education, identification, and payment-refund amount.
The report said that while requiring information may educate issuers and others, sometimes the answer is not as important as the question. Where questions are included on forms, a simple check box may be sufficient and less burdensome, it said.
The committee highlighted how burdensome some forms can be. It takes 53 hours and 29 minutes to complete Form 8038 on PABs and 5 hours and 44 minutes to complete Form 8038-G on government bonds from current instructions.
“The IRS should endeavor to take into account the burden imposed on the issuer and others with respect to the reporting of certain information compared to the goals to be achieved from such reporting,” the report said. “The ACT is concerned that much of the information requested on the various 8038 series forms or in the instructions thereto do not have clearly defined goals to be achieved from the collection of such information.”
The report outlined six burdensome elements of current forms that are specific to individual line items: excessive accuracy requirements, required use of attached schedules, required identification of persons not important to tax administration, inconsistencies between forms, non-accomodation of conduit borrowers, and poor contact and identification requirements.
The report described excessive accuracy as the numerical information requested on forms, such as computing the bond yield to the nearest 0.0001% and private use percentage to the nearest 0.1%. Demanding such a high level of accuracy, in some cases, may lead to less rather than more useful information reporting, the report noted.
The report also included a line-by-line analysis of several burdensome areas on forms. For example, on the form for credit for users of qualified bonds, Form 8038-CP, Part II, line 17b, the instructions ask the issuer to copy the issue price from three forms filed for the issue. Issuers have to file the form at least semiannually and because the issue price does not change over time, there is no additional benefit to the IRS for providing the information repeatedly, the report said. It recommended eliminating the line because typically it is the par amount of the bonds.
The group also created a general purpose form, labeled Form 8038-N, that could be used when issuers notify the IRS of situations that may have developed, such as the creation of a defeasance escrow. Currently there is no consistent method of providing such a notice and the TEB office may have difficulty tracking such notifications and linking them to the appropriate bond issue, the report said.
In response to the recommendations, Henn told the subcommittee that the IRS has decided to do a complete review of all of their forms as part of their 2013 work plan.
“We’ve added that with the goal of creating greater consistency and hopefully eliminate information that really is not necessary to be on those forms,” Henn said. “I think your report gives us the opportunity to take a fresh look at the forms and all of the returns that we have.”