The Internal Revenue Service plans on Aug. 15 to release revised instructions to its redesigned Form 990 for nonprofit organizations and Schedule K on tax-exempt bonds. The IRS will clarify that issuers will not have to provide information about the private business use of bonds issued before 2003 that were refunded after 2002.
Meanwhile, the law firm of Steptoe & Johnson LLP has sent a letter to Treasury asking it to immediately amend proposed regulations that define solid waste disposal facilities for tax-exempt financing purposes so that they are effective for all years rather than only after the regulations are finalized.
The IRS announcement about revising the instructions for the Form 990 and Schedule K was made Wednesday.
The draft instructions to Schedule K, which were issued in April, stated that nonprofit organizations would only apply to bonds issued after 2001. However, IRS officials had told bond lawyers in January that Schedule K would apply to refundings.
In June, the National Association of Bond Lawyers sent the IRS a comment letter expressing concern that if Schedule K covered refundings, then issuers would have to provide information on the underlying bonds, which might have been issued before 2002. NABL members were concerned that some issuers would not have information relating to bonds issued many years ago.
Carol Lew, a partner at Stradling Yocca Carlson & Rauth in Newport Beach, Calif., who was a member of the NABL working group that drafted the letter, said yesterday that the announced changes show the IRS took the group's comments seriously.
"The IRS update ... shows their responsiveness to NABL's comments," she said. "This transition relief will be very helpful for nonprofits as it recognizes the administrative burdens and difficulties in obtaining information with respect to older transactions."
She added that hopefully the IRS has taken into account other NABL suggestions. It was not clear from the IRS announcement, what, if any other, revisions have been made to the instructions pertaining to tax-exempt bonds.
However, Lew added, "The IRS should be applauded for being responsive to the most important comment relating to transition relief for older refunded bonds."
Mike Solet, a partner at Mintz Levin Cohn Ferris Glovsky and Popeo PC in Boston, also praised the modification.
"I think this is a very helpful change, which brings the treatment of refunding bonds more in line with the treatment of new money bonds as to the most burdensome part of Schedule K," he said.
However, he added that he stills hopes to see the instructions include a provision that tells issuers to provide information to their "best ability." Currently, the instructions state that issuers who fail to provide accurate information could face perjury charges, and Solet said he hopes the IRS will provide some leeway to issuers lacking the necessary documents from older transactions.
Solet had previously argued for such a provision during a NABL teleconference with other attorneys and IRS officials on Schedule K.
In its comment letter, NABL also asked the agency to clarify a portion of its instructions that requires issuers to identify any management or service contracts involving bond-financed property that "may result in private business use."
The group said the wording could force issuers to respond affirmatively to the request, even if they are confident no private business use occurred.
Meanwhile, Steptoe & Johnson has asked Treasury to immediately change its proposed regulations that would define solid waste facilities for the purpose of tax-exempt financing.
In a letter released yesterday, the firm asked the Treasury to allow taxpayers to opt to comply with the new regulations for any years that their bonds are still outstanding. Currently, the regulations will apply only to bonds issued after the regulations are finalized.
The firm applauded the elimination of the no-value test previously used by the IRS in the proposed regulations, which they said was confusing. Under that test, a solid waste disposal facility would qualify for tax-exempt financing only if it was determined it handled waste that had no value.
But they warned that applying the new definition solely on a prospective basis could result in several unintended inconsistencies, depending on the facility.
For example, the firm said, three facilities could process the same waste but be treated differently under the regulations, depending on when they issued bonds to finance the facility.