During the past decade, the Tax-Exempt Bond Audit and Enforcement Group at the Internal Revenue Service (IRS) has developed an aggressive tax-exempt bond audit program. At any point in time, there are 300 to 400 tax-exempt bond issues being examined by the IRS and its dedicated team of revenue agents.

As part of its new strategic focus on tax-exempt bonds, the IRS recently announced that post-issuance tax compliance will be among its highest priorities in the coming years. As further evidence of this new focus, the IRS recently imposed an annual reporting requirement on nonprofit corporations (in the form of Schedule K, to be filed with IRS Form 990), regarding the application and use of tax-exempt bonds issued for their benefit.

In 2007, the IRS distributed several hundred questionnaires to nonprofit corporations regarding their post-issuance compliance with various requirements for maintaining the federal tax exemption of interest on their bonds, including internal compliance policies, procedures and recordkeeping functions.

In early 2009, the IRS distributed 200 hundred questionnaires to state and local governments regarding their post-issuance compliance with various requirements for maintaining the federal tax exemption of interest on their bonds, including internal compliance policies, procedures and recordkeeping functions.

These actions by the IRS follow recent regulatory changes, which generally require issuers and conduit borrowers to measure and account for private use and related tax compliance matters over the combined term of the original bonds and any refunding bonds. Meeting these new requirements increases the need for issuers and borrowers to implement rigorous post-issuance compliance procedures, including a review process and effective recordkeeping.

Issuers and borrowers that have effective post-issuance compliance programs in place are more likely to be able to respond to an IRS inquiry on a successful and cost-effective basis. As an added benefit, these issuers and borrowers will be in a better position to take advantage of future refunding opportunities.

How We Can Help
The consequences of noncompliance with federal tax law requirements could result in the loss of the tax-exempt status of the bonds. To assist issuers and nonprofit corporations in meeting ongoing post-issuance compliance responsibilities, BLX offers a wide range of post-issuance services, including:

• Periodic private use review and tabulation
• Private activity bond monitoring and analysis
• Internal audits
• Completion of new IRS Schedule K (annual reporting requirements for tax-exempt bonds), applicable to nonprofit corporations
• Analysis of post-issuance tax compliance procedures
• Review of tax documentation and recordkeeping procedures

With more than 70 finance professionals dedicated to financial and consultative services in seven offices nationwide, BLX is well qualified to assist and guide issuers and borrowers with all elements of post-issuance compliance.

Resources

• Information Return for Tax-Exempt Private Activity Bond Issues
• IRS 501(c)(3) Questionnaire
• IRS Form 990 (Schedule K)
• Instructions for IRS Form 990 (Schedule K)
• After the Bonds are Issued
• IRS FAW on Record Retention
• From the Bond Buyer - IRS Starts Post Issuance Compliance Check on Government Bond Issues
• Governmental Bond Financings Compliance Check Questionnaire
• Presentation re: IRS Strategic Initiative for Tax-Exempt Bonds: Post-Issuance Compliance
• Post-Issuance Tax Compliance Services for Tax-Exempt Bonds
• Managing Post-Issuance Tax Bond Responsibilities
• Memo re: Nonprofit Questioned by IRS about Post-issuance Tax Compliance of Outstanding Tax-Exempt Bonds
• IRS Tax-Exempt Bond Financings Compliance Questionnaire
• Bond Buyer Articles on Post-Issuance Compliance

Contact Us
Alan Bond
212-506-5275
abond@blxgroup.com

Nicole Assa
212-506-5273
nassa@blxgroup.com

Richard Chirls
212-506-5250
rchirls@orrick.com

Ed Oswald
202-339-8438
eoswald@orrick.com

Roger Davis
415-773-5758
rogerdavis@orrick.com