ORLANDO - Treasury Department guidance on how issuers or bondholders can "strip" and separately sell the tax credits from the new tax-credit bonds authorized for 2009 and 2010 by the stimulus law will likely not be ready for several months, department officials said Friday.

The stripping option could broaden the market for issuers, allowing them to sell bonds to investors with no use for the credits, such as pension funds or China, John J. Cross 3d, tax legislative counsel for the Treasury's office of tax policy, said at meeting here.

Speaking at the National Association of Bond Lawyers' Tax and Securities Law Institute, Cross estimated guidance on the stripping provision could take around six months. "They're a priority, [but] they're not something we can do immediately," he said.

He warned the attorneys that his office will have "limited ability to provide interpretative guidance in the immediate future" because of the lack of political appointees at the department beyond Secretary Timothy Geithner, among other reasons,

Treasury officials hope to first get out the door "very preliminary" guidance on the direct payment option of the Build America Bonds program, as well as information about tax-credit bond allocations to states, Cross said. That guidance could be released within the next 30 days. Beyond that, market participants should not expect anything else in the immediate future, he said.

Because the package creates a number of new financing techniques that mostly expire in 2011, Scott Schickli of Orrick, Herrington & Sutcliffe LLP, another panel member, wondered if the Internal Revenue Service might adopt "a somewhat different orientation" when it comes to audits of these financings, given the circumstances.

James Polfer, chief of the IRS' tax-exempt bond branch in the associate chief counsel's office, who was also on the panel, encouraged people with questions to call his office. He said his office will answer questions as best they can, but emphasized that all dialogue remains informal without written guidance.

"We can't get out all the pieces of guidance immediately ... so we would like to engage with the community," Polfer said.

Although the Treasury's workload has increased dramatically due to the stimulus, Cross said his office is still working on items on its priority guidance plan, but would not predict a time frame for completing them. He said the new proposed regulations on solid-waste disposal facilities are "basically done" and that he hopes this year to put together proposed regulations based on two reissuance notices that were issued last year.

Lawyers also pressed the federal officials on recent developments regarding so-called "replacement proceeds." Although federal officials are barred from speaking publicly about specific audits, Thomas Vander Molen, the moderator of the panel and a partner at Dorsey & Whitney LLP, noted the "elephant in the room" was a recent IRS proposed adverse determination of taxability for bonds issued to finance an expansion to a continuing care retirement community.

The Montana Facility Finance Authority is appealing the proposed finding, which is based on the IRS' contention that refundable entrance fees charged by the community need to be yield-restricted for arbitrage purposes because they are replacement proceeds.

The IRS takes the stance that if issuers are holding funds that can be reasonably assumed to be available for debt service payments, those funds can be considered as a replacement for bond proceeds. The audit is garnering national interest because refundable entrance fees are a common practice among CCRCs.

David Caprera of Kutak Rock LLP, who also was on the panel, said there are similar audits pending before the IRS, and asked if there is a wholesale change in the agency' position on the matter.

Polfer said that "each case presents a unique scenario of facts," making it difficult to speak generally about it. However, he emphasized there is no "paradigm shift" regarding the IRS' outlook on the fees. Cross added that the area can be "esoteric."

"It is a very difficult issue to determine: What is a reasonable assurance the funds are going to be there?" Cross asked.

Meanwhile, on a separate panel, Charles Fisher, IRS appeals team manager for the tax-exempt and government entities division, said the appeals office is planning to double its numer of agents to 24 from 12 in the coming months. Fisher's announcement comes on the heels of the tax-exempt bond office announcing it is preparing to hire 19 to 21 new revenue agents, as well as six to eight tax law specialists for the compliance and management program.

Allyson Dodd, a manager in the IRS tax-exempt bond office's Denver branch, said the new hires are due "basically to the stimulus package," but added that all new agents will be working in all general bond enforcement areas.

IRS officials have said that increased bond authorizations and several brand-new programs created by the stimulus, in addition to increasing demand for ongoing programs like the voluntary compliance agreement program, are going to increase the bond office's workload.

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