IRS regulatory relief focused on issuers
A senior Internal Revenue Service attorney is advising municipal bond lawyers to have issuers send letters to top IRS and Treasury officials if they need additional regulatory relief related to the pandemic.
Johanna Som de Cerff of the IRS Office of the Associate Chief Counsel said detailed letters from issuers “seem to be working.”
During an online presentation Wednesday to the National Association of Bond Lawyers, Som de Cerff said, “The things you're seeing are more like extensions of deadlines and time periods.”
NABL sent its first regulatory relief letter to the IRS and Treasury on March 22 followed by others on March 25 and April 9.
The IRS provided almost immediate relief on a request to replace in-person public hearings that are part of the public notice requirements under the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA) covering the governmental approval of private activity bonds.
The IRS is allowing telephonic hearings through the end of this year. NABL had requested a 90-day waiver of in-person public hearings, but the IRS chose Dec. 31 as part of a larger regulatory action extending other waivers through the end of the year.
NABL is planning on requesting an extension past that date given that the pandemic is ongoing.
In another IRS action taken in early May, the service issued Notice 2020-25 temporarily expanding the circumstances and time periods in which a tax-exempt bond can be repurchased by a state or local government issuer without resulting in a reissuance or retirement of the bond.
IRS revenue procedure 2020-29 temporarily allows for the electronic submission of requests for letter rulings, closing agreements, determination letters, and information letters.
“Keep your letters coming and I'm going to say that multiple times,” Som de Cerff said. “We need letters, we need them from issuers.”
The letters should be addressed to Treasury Secretary Steve Mnuchin and IRS Commissioner Charles Rettig, she said.
That advice came the same day as NABL officials pointed to the uncertainty over when Congress might approve another round of emergency aid to state and local governments as well as transit agencies and airports before the end of the year.
The NABL conference, known as The Workshop, also highlighted the partial success the public finance sector has had in getting its message across to members of Congress.
The municipal bond provisions in the Moving America Forward Act passed by the House provide evidence that lawmakers are listening to the public finance community and understand what they are asking for, Emily Brock of the Government Finance Officers Association told NABL members.
But Brock pointed to the Coronavirus Relief Fund's provision allowing state and local governments to spend the money on unbudgeted expenses as an example of how Congress still shows a lack of understanding of how state and local governments operate. "There are no unbudgeted expenses in state and local government," she said.
NABL has sent a series of letter to federal regulators and Congress dating back to March requesting actions to help the municipal sector.
But the IRS has been inundated with requests for many sectors of the nation’s economy for delayed filing deadlines.
An IRS postponement of the deadline for filing individual income taxes and corporate taxes to July 15 from April 15 forced many states and localities to adopt similar delays, producing revenue shortfalls. Thirty seven states also adopted a July 15 filing deadline while four others adopted dates ranging from June 1 to July 31.
Stay-at-home orders also undercut sales tax revenues in many states, with 25 of them reporting year-over-year declines from March through July, according to data collected by the State and Local Finance Initiative at the Urban Institute.
The State and Local Finance Initiative reports that preliminary figures from 40 states shows total state tax revenues were down about $28.2 billion during first five months of the pandemic compared to the same period a year earlier.
Issuers need to detail their additional expenses incurred because of the pandemic and why those costs were not covered in the emergency aid approved by Congress as well as their revenue shortfalls and the timing issues, Som de Cerff said.
“Only certain things have a possibility of being approved,” she said. “So I guess there's a lot of challenges in terms of us selling if you will, a proposal and tailoring it as narrowly as possible to get it through, but yet meet the need. We can't do a five year extension, we have to do a six-month extension.”