Issuers would welcome bond counsel's use of a tax compliance checklist to satisfy Circular 230 requirements, the Government Finance Officers Association said Friday.
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Echoing a National Association of Bond Lawyers' appeal made the day before to Treasury Department and Internal Revenue Service officials, GFOA said in its own letter that Circular 230 regulations should codify flexible written standards for state or local bond opinions.
It should be sufficient for bond counsel to tick off issues that have been reviewed and analyzed without having to write a memo discussing these issues, according to the association.
And clarification is needed to specify that an industry-designed checklist will, in appropriate circumstances, eliminate the need for a discussion of the related facts and laws, GFOA said in the letter.
The association sent a draft of recommended regulatory language with its letter on Friday.
"In our language, we say, 'Written advice may be set forth in a combination of tax certificates, questionnaires, checklists, and legal memoranda,' with the centerpiece of that being the checklist," said Timothy Firestine, finance director of Montgomery County, Md., and vice chair of GFOA's committee on governmental debt management.
"We've been trying to avoid -- from the issuer perspective -- attorneys writing 70-, 80-page tax memorandums," he said. "What we want to do is to have the reg make it clear that a checklist provides an alternative."
The use of a compliance checklist for "plain vanilla" bond opinions will provide large and small issuers the comfort of knowing that additional costs may not be necessary in order to comply with the Circular 230 regime, according to GFOA.
For the vast majority of such bond issues, the completed tax compliance checklist -- in addition to a tax certificate and a traditional unqualified opinion -- should be enough to satisfy Circular 230 requirements, the association said.
More complicated transactions that raise unusual tax issues could also include a memo setting forth the facts, law, and analysis relevant to those issues, GFOA said.
"We believe that this approach strikes the proper balance between Treasury's goals in putting forward the Circular 230 rules and industry concerns regarding increased transaction costs and market disruption, particularly given the inability of counsel to 'opt-out' of Circular 230," the association said in its letter.
Firestine said issuers consider the checklist an appropriate option for complying with Circular 230 regulations for state or local bond opinions. "We see hope that this is a solution," he said.
GFOA also said it supported a NABL comment letter sent to Treasury and IRS officials in July, suggesting the removal of a requirement for analysis of significant federal tax issues in bond opinions.
Since the regulations already mandate a discussion of all legal issues, the extra requirement should be dropped "to avoid unnecessary discussion of tax issues in the offering documents for tax-exempt bonds," the association said.
Also of concern, GFOA said, is Circular 230's effect on bonds being sold on a current basis for issuance or delivery in the future.
An issuer might sell bonds today to lock in interest rates, even if they cannot be issued for months or years for tax reasons. Bond counsel are struggling to apply Circular 230 regulations to state and local bond opinions already, even though the regulations are not yet effective, GFOA said.
"We strongly recommend that the effective date for Circular 230 be modified so that it applies to bonds sold rather than bonds issued 120 days after publication of the final rules," the association said. "This will alleviate any legal and market disruption problems that are already occurring in these types of transactions."
"People are trying to think of what might get caught up in the transition," Firestine said. "You have these forward bonds that are issued for future delivery -- it needs to be clear how the law applies to them." (c) 2005 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
