The Internal Revenue Service will permanently allow TEFRA hearings for private activity bonds to be held remotely via a toll-free telephone number.
Announced in Revenue Procedure 2022-20, the update to the interpretive guidance of the law “eliminates the time period limitation on holding public hearings telephonically,” and goes into effect for all hearings on or after March 18, 2022.
The 1982 Tax Equity and Fiscal Responsibility Act requires a public notice and hearing for the issuance of most types of private activity bonds.
TEFRA regulations were finalized at the end of 2018 where the IRS rejected an initial proposal that offered issuers the option to hold TEFRA hearings telephonically. But they were made an option in May 2020 following in-person work restrictions as part of COVID-19 adjustments and were
“We feel great about it,” said Johnny Hutchinson, partner at Squire Patton Boggs and member of the NABL board of directors. “[With COVID] we got to do an experiment and the results of the experiment were that, at least anecdotally, the participation in the hearings went up, which is supposed to be sort of the point of these rules in the first place.”
The industry is viewing this as a rare moment when tax administrators and issuers are aligned on their immediate objectives and concerns.
“To me, that's just good tax administration,” said Rich Moore, tax partner at Orrick. “While we didn't know what we were getting into when the pandemic started, these telephone TEFRA options, often coupled with Zoom other internet options, really enhance the ability of the public to participate, as opposed to being compelled to drive and visit to show up in a meeting,” he added.”It's a win win for both the industry and for the administrators of tax policy.”
This was issued as a revenue procedure which interprets the IRS’ own regulations, making an actual change to the law somewhat unnecessary. The original law could be read as allowing for telephonic or remote hearings, Moore said, but the accompanying preamble to the law is what specified against such a format.
“Since the literal end to the regulation could have been interpreted to allow for this, I think having a 2022 Rev. Proc that cuts in a different direction to the preamble, is plenty sufficient,” Moore said.
Issuers now have the flexibility to choose whether to conduct the hearing in person or over the phone. But some issuers may need to use the in-person hearing for satisfying other requirements as well.
“What we tax lawyers think of as a TEFRA hearing is often a hearing that's checking multiple boxes,” Hutchinson said. “It's a hearing that satisfies the internal revenue code requirement but it may also be satisfying a local open meeting law requirement or a requirement to hold a hearing before a local board takes action, or something like that.”
“This [Revenue Procedure] is solely for purposes of satisfying the tax rule,” Hutchinson said.
The new provision is being celebrated across the industry for giving issuers greater flexibility and choice as they navigate a world re-emerging from COVID-19.
“The new guidance extends that flexibility for issuers to adapt to the conditions in their respective community,” said Christie Martin, head of public finance tax practice at Mintz Levin and NABL Tax Law Committee chair. “It also provides the certainty to allow issuers to plan well into the future without worrying about changing rules.”
