PHOENIX — Any state or local government that issues Build America Bonds in the next fiscal year can expect to receive a compliance query from the Internal Revenue Service, according to Clifford Gannett, director of its tax-exempt bond office.

Speaking at the National Association of Bond Lawyer’s annual Bond Attorneys’ Workshop here, Gannett said his TEB office plans to send brief compliance check questionnaires to all BAB issuers next year. The document is still in the works, but will focus on gathering information about what BAB issuers are doing to ensure compliance with the tax law, he said.

The IRS bond branch has sent out similar questionnaires to charitable nonprofit organizations and governmental bond issuers in the past as part of its “soft contact” approach to compliance. The results of the charitable survey were released last September, and Robert Henn, senior manager of TEB field operations, said yesterday that results from the governmental questionnaires sent out in January will be released sometime this year.

However, Gannett and Henn expressed dismay over the fact that 13% of the 200 governments receiving the questionnaires did not respond. Of the 207 charities surveyed last year, just 15 failed to respond, and 11 of them provided a rationale for their non-response. The service notified governments receiving the questionnaire that a failure to respond could result in an audit.

Henn also said that the IRS has wrapped up research projects examining tax-increment financings and community development districts, and plans to follow those up with audit initiatives.

In other ongoing initiatives, Henn said his agents have closed about 65 of the 100 bond issues targeted for a qualified hedge initiative, most with no change in the bonds’ tax-exempt status. The service also plans to begin wrapping up another initiative looking at student loan bonds, but Henn said “most every single” audit in that initiative will result in either a closing agreement or a proposed adverse determination. Student loan issuers typically failed to match the loans with the bond proceeds that funded them, which could cause arbitrage problems, he said.

But Henn offered some good news when he said the bond branch will be using some of its recently expanded resources to revisit how it identifies bond issues for audit, with the intention of better sniffing out troublesome deals while reducing the amount of audits on compliant deals. The bond branch has doubled the amount of field agents and tripled the amount of tax law specialists in the last year, he said.

Issuers under audit also can expect a quicker turnaround that ever before from the bond branch. Gannett said his office closed more examinations in the last fiscal year — 581 — than it ever had before, and reduced the average length of an audit from 240 days to 171 days. The bond office brought in $85 million in closing agreements during the last fiscal year, and for the first time a larger amount came from its voluntary closing agreement program than from audits. The bond branch plans to process 700 examinations next fiscal year, he said.

Gannett also said the bond branch has processed 125 requests for direct-pay BAB subsidies, totaling roughly $136 million. In addition, more than $5 billion in clean renewable energy bond allocations were requested and the Treasury announced this week that it had allocated $2.2 billion of the $2.4 billion in CREB allocations available.

He also responded to a recent report from the Treasury Department’s inspector general for tax administration that found the bond branch had no way to determine if states are complying with their volume cap limits for private-activity bonds.

Gannett said the bond branch plans to cooperate more with state agencies to help track those limits. “This issue becomes much more significant now that we have numerous volume caps that we have to look at,” he added.

Meanwhile, John J. Cross 3d, the Treasury’s associate tax legislative counsel, confirmed that tribal economic development bonds can be issued as BABs. A Treasury press release issued last month to announce allocations for the program had stated that BABs were an option, but Cross had said that some technical questions lingered. Those have now been resolved, Cross told the bond lawyers.

He also reiterated that guidance on how to “strip” the tax credit from tax-credit bonds and sell it separately is a high priority, but complex accounting issues and determining how the IRS should track the credits remain impediments. Additional, interpretive guidance on BABs also is in the works, he said. The guidance will define issue price and capital projects, among other things.

Cross said the Treasury is considering extending for another year temporary guidance adopted in the midst of the financial crisis, including guidance on auction-rate securities.

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