View
219
Download
2
Category
Tags:
Preview:
Citation preview
3
TEB Organization
Steve Chamberlin
(Acting) Director TEB
Allyson Belsome Bob Griffo
Program Manager (Acting) Program
Field Operations Manager CPM
4
Compliance and Program Management
• TEB Compliance and Program Management responsibilities:
• Coordination with Referral Committee• Voluntary Closing Agreement Program (VCAP)• Outreach Program• Updating IRM and other procedures• Coordination with Counsel • Technical issue development• Quality review of closed examination cases• Questionnaires and surveys• Classification
5
TEB Policy: Resolution of Violations
It is the continuing policy of the Service to
attempt to resolve violations of the Code at
the issuer level without taxing
bondholders.
6
Voluntary Closing Agreement Program (VCAP)
• Purpose: The primary purpose of VCAP is to
encourage issuers, conduit borrowers, and
other parties to bond transactions to exercise
due diligence and to correct any issuance
and post-issuance violations of the
applicable sections of the Internal Revenue
Code.
• VCAP has been expanded to include tax
credit bonds.
7
VCAP Resolution Standards
• The IRM contains resolution standards for
certain identified violations (“Streamlined
VCAP”), including:
• Failure to provide notice of defeasance;
• Impermissible advance refunding; and
• Failure to timely reinvest proceeds into 0%
SLGS.
8
Questionnaires and Market Segment Surveys
• Purpose: Gather data regarding the
practices and procedures of issuers
regarding record keeping and monitoring
of the rules applicable to their financings.
• Allows TEB to monitor compliance trends
for the purpose of designing proactive
education and outreach products for use
by TEB Customers.
9
Classification
• The process by which returns are selected for examination.
• Classification attempts to include financings that address:• Key areas identified through examinations and compliance check
project initiatives;
• Market segment risk assessment; and
• Annual Work Plan criteria.
• Classified returns are either:• Examined by CPM staff or
• Examined by Field Operations
10
Field Operations
• Examinations are conducted at the issuer level, consistent with the continuing policy to attempt to avoid taxing individual bondholders.
• Field Operations personnel located throughout the country conduct comprehensive and limited scope examinations, and assist in the delivery of outreach to the bond community.
11
Field Operations
• TEB Field Operations is responsible for:
• is primarily responsible for identifying and correcting noncompliance with Federal tax laws applicable to tax-advantaged bonds.
• The FO office conducts examinations, with fairness and the highest level of integrity, at the issuer level. The goal of the program is to pro-actively assist issuers in their tax-advantaged bond compliance with the Federal tax laws.
• FO concentrates its efforts on the many emerging issues and focus areas in the tax-advantaged bond community.
12
Examinations
• As part of TEB’s general program work,
the Field:
• Conducts comprehensive examinations of
a wide variety of governmental and private
activity bonds
• Seeks to resolve identified violations
through closing agreements.
13
Examinations
• The primary objective of a TEB
examination is to determine if the bond
issuance is in compliance with the
qualification provisions of the Internal
Revenue Code.
14
Examinations
• In a tax-advantaged bond examination the Issuer of the bonds is considered the “taxpayer,” so the burden of maintaining and producing adequate records necessary to conduct a quality examination is on the Issuer.
• In the examination of a private activity bond many records are often secured from the Conduit Borrower, and sometimes from other parties to the transaction. However, they are considered third parties in a tax-exempt bond examination.
15
Examinations
• Under the provisions of IRC section 6103, the Service may contact third parties to obtain information.
• Generally, contacts with third parties are made when the Service is unable to obtain the information from the issuer or to verify information provided by the issuer.
• IRC 7602(c) requires the IRS to:• Provide advance notice to the taxpayer that third party contacts
may be made. • Periodically provide a list of all third party contacts to the taxpayer. • Provide a list of third party contacts to the taxpayer upon request.
16
Examinations
• At the inception of the examination, the issuer is notified in writing of the initiation of an examination of an identified financing.
• The letter may indicate how the return was selected for examination and will detail the required items for the examination. We may, however, request additional items at a later date.
• The examination may include a comprehensive review of the municipal debt issuance, or focus on specific aspects.
17
Examinations
• During the course of an examination, TEB seeks to identify and resolve issues as expeditiously as possible
• Issues may be resolved without the issuance of a formal report, or subsequently thereafter
• Violations are resolved through a closing agreement with the issuer and may include other parties to the transaction
• Resolution of violations through closing agreements• Includes negotiated terms that typically include
• payment of a settlement amount and/or• redemption of bonds
• Consider, in part, the due diligence of issuers and their representatives to act in good faith to resolve violations in a timely manner.
18
Examinations
• Failure to resolve an identified violation through a closing agreement results in:• The issuance of a Form 5701 (if not previously issued)
• A proposed adverse letter
• Pursuant to the issuance of a proposed adverse letter, the issuer may request the matter to be considered by the Office of Appeals
• Failure to timely request an appeal will result in the issuance of a final adverse letter pursuant to which the interest on the bonds is includible in the gross income of bondholders (or a credit is not allowable.)
19
Examinations of Advance Refunding Bonds
• One of the key audit aspects of an advance
refunding issue is to determine that the yield
on the escrow fund is not more than .001%
above the bond yield of the refunding bonds.
• To ensure such compliance, requested
documentation typically includes:
• The Verification Report,
• Investment records, and
• Proof of securities purchased to fund the escrow.
20
Examinations of Advance Refunding Bonds
• The focus of any advance refunding bond
examination is largely driven by the
funding of the escrow fund:
• SLGS,
• Open Market Securities, or
• A combination of both (0% rollover SLGS).
21
Examinations of Advance Refunding Bonds
• SLGS-funded escrows:• Focus on verification that the issuer in fact
purchased what was depicted in the Verification Report.
• Escrows with open market securities:• Same as above, but with additional consideration
to the purchase of the securities at fair market value.
• Escrows requiring reinvestment into 0% SLGS:• Verify the reinvestment occurred timely.
22
Examinations of Advance Refunding Bonds
• Violations resulting from the failure to
reinvest timely in 0% SLGS that result in a
yield on the escrow fund that is higher than
the yield on the refunding bonds.
• VCAP offers a standardized resolution for
this violation and may be on more
favorable terms than a violation identified
in an exam.
23
VCAP Resolution Standard
• For this purpose, proceeds held by the trustee due to this reinvestment failure may be treated as invested at the applicable federal funds rate (AFFR)
• Trustee certifies that• Its customary practice is to invest its overnight balances at
a rate which approximates the AFFR
• the proceeds were likely invested in such a manner
• Certificate is required even if trustee is not a party to the VCAP
24
Yield Restriction Compliance when SLGS Window is Closed
• Generally, the proposed Treasury
Regulations (into which an issuer may
elect) allow an issuer to make a yield
reduction payment for investments
purchased when the SLGS window is
closed.
25
Whistleblower/Fraud/6700
• TEB continues to address referrals from
the Whistleblower Office and the
application of section 6700 penalties and
fraud considerations when warranted.
26
Whistleblower
• In 2006, legislation was enacted establishing
the Whistleblower Office such that previously
existing Code section 7623 was re-
designated as section 7623(a) and a new
section (b) provision was added.
• Primary difference between “a” and “b” is
that b claims are those for which the amount
of tax due is over $2M and includes “Taint
analysis.”
27
Fraud and 6700
• In all examinations, consideration is given
to the potential for fraud and whether the
application of the Code section 6700
penalty is appropriate.
28
Fraud and 6700
• Section 6700 is applicable to any person who:• organizes or assists in organizing• and makes or furnishes (or causes another person
to make or furnish) certain statements, including statements regarding exclusion of income and allowability of credits
• and for which the person knows or had reason to know such statement was false or fraudulent as to any material matter,
• shall pay a penalty of 50% of the gross income derived from the activity.
29
Fraud and 6700
• Fraud involves a willful attempt.
• Section 6700 is not a fraud penalty.
• Section 6700 requires that the person knows
or should have known that the statements
were false or fraudulent.
• It is not necessary that a determination be
made that bonds do not qualify as a tax
advantaged bond in order to assert a penalty.
30
Areas of Focus
• TEB general program work and other
project work ensures a broad coverage
of compliance matters.
31
Areas of Focus
• Recent examples of areas of focus
include:
• Abusive Transactions
• Post Issuance Compliance
• Arbitrage
• Governmental and Charitable Financings
• Direct Pay Bonds
32
Post Issuance Compliance
• Post Issuance Compliance is an area of
focus for TEB in exam, VCAP, Outreach
and all other TEB activities.
33
Limited Scope Exams
• Project initiatives can take the form of a
limited scope examination.
• Limited scope examinations can be
expanded to a more comprehensive
examination if it is deemed warranted by
the examining agent and approved by the
Group Manager.
34
Limited Scope Exams
• Examples of current and future limited
scope examinations include:
• Advance Refundings
• TRANs/RANs/BANs
• Small Governmental Issues
• 8038-T Examinations
• Solid Waste
35
Customer Satisfaction
• A new web based customer satisfaction
tool is being developed to monitor
customer satisfaction on closed TEB
examination cases.
Recommended