NEW YORK — The Internal Revenue Service is planning to begin full-blown audits of advance refunding bonds and focused audits of tax and revenue anticipation notes and multifamily housing bonds, an IRS official said at a seminar here Monday.
Robert Henn, manager of the IRS’ tax-exempt bond office, mentioned the audits in outlining the agency’s compliance program plans at the Securities Industry and Financial Markets Association’s and Municipal Securities Rulemaking Board’s one-day municipal regulation seminar.
The IRS recently started full-blown audits of pooled bonds and has other audits underway on student loan bonds, developer-driven deals, and Build America Bonds, Henn said.
Asked later by a reporter about the amount of audits, he said the IRS would probably conduct more than 100 audits of advance refunding bonds.
In focused audits the IRS examines specific issues through correspondence with the issuer. It currently has ongoing focused exams on current refundings. Henn said the agency would probably do less than 100 audits on tax and revenue anticipation notes and multifamily housing bonds.
Henn also said that the IRS plans to send out post-issuance compliance questionnaires next year to issuers of qualified school construction bonds. As before, when the questionnaire is sent out to charitable organizations and issuers of governmental and advance refunding bonds, as well as BABs, issuers who do not respond to the surveys will likely face an IRS audit on some of their bonds, he said.
Henn also said that soon all IRS bond forms will ask issuers to indicate, by checking a box, whether they have post-issuance compliance policies and procedures in place.
With the 2012 presidential election heating up, a Financial Industry Regulatory Authority official warned municipal finance professionals to pay attention to whether they might be inadvertently making political contributions to issuer officials.
The remarks came at the seminar.
“It is the season again,” said Malcolm Northam, FINRA’s director of fixed income. “And it will pop up.”
Specifically, Northam said, muni finance professionals might be engaging in inadvertent campaign contributions if they use work-sponsored -mails, credit cards, cell phones or cars for activities related to an issuer official’s election.
FINRA is also looking at issuance costs and whether broker-dealers may be improperly including rating agency trips in those costs. It will also be looking at whether they may be paying advisors who did not work on the transaction or firms the issuer is directing them to pay who are not involved in the transaction, Northam said.
In particular, the self-regulator warned market participants that it is looking at issuer trips to visit rating agencies in New York, especially when issuer officials bring family members or others to the city for the weekend.
“And all of this is generally fronted by the firm and billed as a cost of issuance,” Northam said.
If non-issuer officials participate in the trip, the expense of visiting a rating agency is not necessarily an expense of the offering, he added.
