Tax-exempt entities with more than $100,000 in outstanding bonds will not be required in the 2008 tax year to fill out a new document detailing their debt, Internal Revenue Service officials announced yesterday. Releasing a finalized version of Form 990, the annual information return filed by exempt organizations, IRS exempt organizations director Lois G. Lerner said the transition relief should allow entities to ready their systems for compliance with the new reporting requirements.The final form, which was revised from a version proposed in June, lessens the burden on exempt organizations by not requiring reporting of bonds issued before 2003.For the 2008 tax year, exempt organizations will merely be required to provide the IRS with a list of outstanding bond issues and a description of each issue’s purpose, issue price, and Cusip.However, in 2009, issuers will be required to complete Schedule K, which asks for a breakdown of outstanding bond issues’ gross proceeds in reserve funds, proceeds in refunding or defeasance escrows, issuance costs, working capital expenditures, capital expenditures, and other unspent proceeds.The schedule’s “arbitrage” section asks whether the issuer has invested bond proceeds in a guaranteed investment contract or identified a hedge on its books. The section specifically requests the providers’ names and the terms of their hedges or GICs. It also asks whether the regulatory safe harbor for establishing a GIC’s fair market value was satisfied, and whether the bond issue qualified for an exception to arbitrage rebate requirements.In addition, the schedule asks whether the entity maintains “adequate books and records to support the final allocation of proceeds,” routinely engages bond counsel to review contracts related to bond-financed property, and uses procedures to ensure post-issuance compliance with tax code rules.Issuers must answer “yes” or “no” to questions about the existence of lease arrangements, management contracts, and research agreements.Officials said yesterday that they will address certain questions about refunded bonds in the context of instructions that will help exempt organizations fill out the new form.“Our tax-exempt bond experts have been working with the bond community,” said Ron Schultz, senior technical adviser to Steven T. Miller, the IRS tax-exempt and government entities division commissioner. “The instructions will clarify the extent to which these bonds will have to be reported.”Tax-exempt hospitals, which received a year of transition relief on their own schedule — Schedule H — must provide a list of their facilities this year, but will be subject to more lengthy information reporting on topics such as charity care and bad debt from 2009 forward.“The IRS has done a good job of bringing about more reporting across the board and recognizing that the tax-exempt sector is a growing part of the economy,” Sen. Charles Grassley, R-Iowa, ranking minority member of the Senate Finance Committee, said in a statement yesterday. “I’m disappointed that the revised Schedule H for hospitals will be voluntary for the first year, but I’m confident that a lot of hospitals will use the form anyway.”
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