IRS Tax Exempt Bond Division Lists 2014 Audit Focus
Great Bond Buyer article: The IRS TEB Division has announced its 2014 Audit Scope, including some old favorites from 2013 as well as some new specific bond types. The Service will be using a "market segment approach" to make sure that "examinations are focused on areas where there is the biggest risk for non-compliance".
As rates hit historic lows, many Issuers captured interest savings by refunding older, higher rate debt, moved between variable and fixed rate modes as part of their risk management strategy or issued new money debt to finance ongoing infrastructure needs. While the market segment list is aggressive, an IRS official cited the following focus areas on Friday during the Winter Debt Management Meeting of the GFOA:
Audit sectors include, but are not limited to:
- Advance Refundings (Govt and 501c3)
- Tax Anticipation Notes
- Arbitrage Rebate Bonds
- Small Govt and Small Private Activity Bonds
- Solid Waste Bonds
- Direct Pay Bonds: BABs, QSCBs, Healthcare and other Non-Profit Bonds
POST ISSUANCE COMPLIANCE: Would you Prevail under an IRS Audit of Your Bonds?
If you're not ready, defending your bonds under audit can quickly become expensive. However, having your bonds lose their tax advantaged status can have far-reaching ramifications...for you and/or your bondholders.
As a fellow Issuer practitioner who has successfully resolved four IRS audits of TEB Bonds in the last six years, I know first-hand what it feels like to get an IRS Audit Notice letter and the dreaded IDR. The IRS is very clear that, while Issuers are "checking the box" attesting they have a written post issuance compliance (PIC) policy in place, there are often significant gaps in that compliance.
My heartfelt counsel to you is to review your debt portfolio early, make having a sustainable and defendable PIC program a reality for your organization and preserve the benefits that lower-cost tax exempt funding provides for your bottom line. Please review and download my AFP published PIC thought paper, entitled A Taxing Dilemma and reach out to me with any questions.