A tax-exempt advisory group to the Internal Revenue Service plans to release a report on June 6 about recent changes the agency has made to forms that bond issuers and nonprofits must file with it.
The three-member group is part of the 21-member Advisory Committee on Tax Exempt and Government Entities, called ACT. Each year it issues a report to the IRS.
Specifically, the report will examine 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 report will examine the relative burdens and benefits of information reporting. Some of the questions the IRS has added to these forms in recent years relate to post-issuance compliance procedures and best practices, bond lawyers said.
“The uses of these forms have been evolving over time and they are playing more of a role for the IRS than to just gather information about the volume of bonds,” said Mike Bailey, a partner with Foley & Lardner LLP in Chicago and former chair of the ACT. “It’s fair to say the service has been sending a number of messages through these various forms.”
Some of the questions added to the forms relate to potential problem areas for the IRS, Bailey said.
The IRS’ Form 990, Schedule K, has already undergone several revisions in recent years. Some of the questions ask about the use of proceeds, the amount of private business use and arbitrage issues, including whether the issuer entered into a qualified hedge with respect to the bonds or invested the proceeds in a guaranteed investment contract.
In a recent change to the 8038 forms, the IRS requires the signature of any paid preparer, resulting in an increased focus on ensuring that the form is accurate, said Mike Solet, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in Boston and former ACT board member. “Being defined as a paid preparer has made bond counsel more attentive to compliance,” he said.
Some bond lawyers, however, find that these new questions on the forms are burdensome and consume administrative resources especially for large 501(c)(3) organizations filling out the Schedule K. The IRS estimates it will take approximately 52 hours to complete form 8038.
The primary focus of the committee is to help the IRS improve how it administers rules. Last year, it urged the IRS to treat borrowers rather than the issuers in muni-bond conduit deals as taxpayers for compliance matters so it could deal with them directly and not create unneeded burdens for issuers.