New IRS appeals procedure covers tax-advantaged bonds

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Revenue Procedure 2021-10 will be published in the Internal Revenue Bulletin dated January 25.

The Internal Revenue Service unexpectedly issued guidance Monday on procedures for appealing adverse rulings on audits involving tax-advantaged bonds.

Bond attorneys said the new rules fill in some holes because the IRS previously only had a process for tax-exempt bonds.

Revenue Procedure 2021-10 will be published in the Internal Revenue Bulletin dated Jan 25.

Carol Lew, a shareholder at Stradling Yocca Carlson & Rauth in Newport Beach California, described the announcement as “an improvement to the system.”

“What’s helpful about this is clarity,” said Lew. “It’s the IRS catching up in its procedures for other types of tax advantaged bonds right down to not having to pay a user fee. There are competing resources with the IRS, especially right now with COVID and usually huge stacks that need to get out for all areas of the tax law.”

Bond attorney Perry Israel of Sacramento, California, said the new revenue procedure “is pretty much like RP 2006-40, but expanded to include other tax-advantaged bonds and rebate appeals.”

The 2006 revenue procedure only pertained appeals involving tax-exempt bonds and predated legislation that has been enacted by Congress since then creating other types of tax-advantaged bonds such as Build America Bonds and New Clean Renewable Energy Bonds (New CREBs).

“It’s good to have the appeals process available for other tax-advantaged bonds,” Israel said in an email. “It’s interesting that they’ve dropped the discussion that was in Section 5 of RP 2006-40 that relates to how appeals issues are resolved, but it may be that that has been dealt with elsewhere.”

The new revenue procedure has not been on the immediate radar of the National Association of Bond Lawyers, which instead has focused recently on regulatory relief relating to issues that have arisen in connection with the COVID-19 pandemic.

Lew, who is a former president of NABL, said that appeals involving tax examinations of tax-advantaged bonds have, until now, been covered by the Internal Revenue Manual.

“They really needed a revenue procedure to address tax advantaged bonds also,” she said. “So it is significant because it’s helpful to have a clear IRS procedure about how you got about initiating an appeal and how you go about it. That’s what this does not only for tax exempt bonds but also tax-advantaged bonds.”

“The Internal Revenue Manual is great for providing information but it doesn’t take the place of a revenue procedure which is something taxpayers can rely upon,” she added.

Lew said she doesn’t think the new procedure might mean more appeals will be filed. “For a tax exempt bond there’s a big stick,” she said. “If you appeal, they get other information about who the bond holders are and can contact bondholders. So that’s a tremendous incentive sometimes not to appeal.”

For a tax-advantaged bond, which is taxable, the issuer gets payment and an appeal is more likely to be pursued.

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