WASHINGTON — The Internal Revenue Service is asking 111 issuers of qualified school construction bonds to respond to questionnaires requesting information about their compliance with tax law requirements.
The two-page, six-part questionnaire was sent to issuers selected at random and contains about 40 questions. It must be accessed online and asks issuers about their policies and-or procedures on: debt management, volume cap allocation, issue price, record retention and post-issuance compliance. It also asks issuers about their awareness of voluntary compliance options.
On issue price, the questionnaire asks if the issuer or a consultant — not the underwriter or initial purchaser of the bonds — reviewed records of trading activity for the bonds. It also asks if the issuer received a written analysis of the trading activity and whether that contained an analysis of the pricing.
QSCBs can be issued as either taxable, tax-credit or direct-pay bonds similar to Build America Bonds. The IRS has been concerned about the pricing of direct-pay bonds because it has a bearing on whether federal government is paying an appropriate subsidy to issuers of these bonds.
“The questions really are fundamental but we want to get our arms around how the market is handling these types of bond issues,” said Mark Westergard, senior tax law specialist with the IRS. “It’s really just educational for us.”
The IRS will look at the responses to determine where the agency needs to focus their resources in this area, such as whether they need to issue more educational documents so issuers know what the tax requirements are for QSCBs and how to comply with them, he said.
“It’s a tool for us to help issuers and the market,” Westergard said. “That really is the way we are approaching it.”
This is the first time the IRS has mandated that questionnaires be completed online and the first time they have developed questionnaires for QSCBs.
Issuers selected for the project, which is part of the IRS’s fiscal 2012 work plan to enhance tax compliance, will receive a letter in the mail in the next few days with instructions on how to complete the questionnaire online.
They will receive three secure identifiers in the letter — a pin, a password and a source identification — each of which is unique to them. They can then go to the IRS’ tax-exempt bond community website for verification and access the questionnaire.
“The QSCBs is a new market segment and of the tax credit bonds we’ve seen the highest issuance with them,” Westergard said. “We are trying just as part of the questionnaire project to get some fundamental information regarding the issuance of qualified school construction bonds.”
Issuers have until May 25 to complete the QSCB questionnaire.
The bonds, which can be used for school construction, were created by the American Recovery and Reinvestment Act of 2009. The ARRA authorized $22 billion of the bonds to be issued during 2009 and 2010. Though most ARRA programs expired at the end of 2010, issuers are still selling their unused allocated amounts of bonds.
QSCBs initially were taxable, tax-credit bonds that allowed bondholders to receive tax credits.
But they were adjusted in March 2010 under the Hiring Incentives to Restore Employment Act, which gave issuers the option of selling them as tax credit or direct-pay bonds with federal subsidy payments at the lesser of their actual interest rate or the tax credit rate.
This is the fifth compliance check questionnaire the IRS has sent to issuers in the last six years. The IRS sent similar questionnaires to issuers of qualified 501(c)3 bonds, direct-pay Build America Bonds, advanced refunding bonds, and governmental bonds.