A Treasury Department notice on publicizing Internal Revenue Service closing agreements with issuers and other taxpayers has sparked concerns among some bond lawyers.
The notice, which was released by the Treasury's Office of Chief Counsel on Monday, details the information that should be included in closing agreements that are publicly announced.
Under existing tax rules, the IRS, as part of settlement negotiations, can require a taxpayer to publicly announce a closing agreement if it would educate taxpayers on the rules and regulations they must follow. In the municipal market, issuers typically enter into closing agreements to settle tax disputes over bond issues. Under such an agreement the issuer often agrees to make a payment to the government to cover lost tax revenues in return for the IRS' agreement to preserve the tax-exempt status of their bonds.
However, Bradley S. Waterman, a tax controversy attorney who has his own firm, has some concerns about the guidance.
"There may be instances in which the IRS believes that disclosure would be beneficial in terms of educating similarly-situated taxpayers about mistakes made by the settling taxpayer. However, there are less intrusive ways to this," he said. "I'm also concerned about situations in which the IRS insists on disclosure as a condition of the closing agreement and will not settle unless the taxpayer agrees. It seems to me that this contravenes the spirit and perhaps the letter of section 6103." That section of the tax code details the confidentiality rights of taxpayers.
The Treasury notice states that when a taxpayer and the IRS agree that a closing agreement should be publicized, the agreement should include: a statement indicating that the taxpayer and agency have agreed to publicize the agreement and its "particulars"; the taxpayer's name and address; a statement that the disclosure is available to the general public; the specific items being disclosed, and the taxable period covered by the agreement.
The taxpayer should attach its consent to the agreement as part of its release. Similarly, any releases from the IRS announcing the agreement should acknowledge that the taxpayer has agreed to the disclosure, according to the notice.
Meanwhile, the IRS is seeking comments on the burdens faced by issuers and borrowers when having to collect information to be compliant with arbitrage regulations.
The IRS issued a notice Wednesday estimating that 1,400 state, local or tribal governments and nonprofit institutions will spend a total of 1,425 hours, or about one hour per entity, to collect the information.
The IRS asked the public to comment on the estimates by June 23.
As part of the Paperwork Reduction Act of 1995 and "as part of its continuing effort to reduce paperwork and respondent burden," the Treasury is required to seek comments on what an issuer must do to be compliant with the information collection standards required by the regulations, and what type of a burden that poses on the issuer, the IRS said in the notice.
The IRS asked the public to comment on the following issues: whether the information collection is necessary and practical in order for the IRS to enforce the regulation; whether its estimate of the burden of the information collection is accurate; how the collection of such information could be enhanced, improved, or made more efficient or clarified; potential ways that automated collection techniques or other technologies could be used to minimize the burden on the issuer; and estimates of how much it costs to start up and maintain the required services needed to collect the necessary information.
