IRS Sends Bond Compliance Check Questionnaires
by Lauren K. Mack, Of Counsel, Sonnenschein Nath & Rosenthal LLP, San Francisco, CA
In early September, the Internal Revenue Service ("IRS") sent new Form 13907, Tax-Exempt Bond Financings Compliance Check Questionnaire, to more than 200 exempt organizations. The organizations selected to receive the questionnaire had reported outstanding tax-exempt bonds on their 2005 Form 990s and, according to Steve Chamberlin, Manager of Compliance and Program Management in the IRS Office of Tax-Exempt Bonds, constitute "a representative sampling from that universe in order to get a nice cross-mix of different types of exempt organizations -- hospitals, universities, and other types, as well as different dollar amounts of outstanding bonds -- in order to try to capture larger exempt organizations as opposed to more moderately sized exempt organizations." As in the case of the 2006 Compliance Check Questionnaire for Tax-Exempt Hospitals, the IRS's goals include both quantifying current practices and procedures and educating organizations as to their compliance responsibilities.
The Questionnaire focuses on post-issuance compliance and record retention practices. It is divided into five sections. The first section requests general information, including whether the organization has written policies and procedures, who is responsible for monitoring post-issuance compliance, and whether the organization provides training or educational resources. The second section requests general information on the organization's recordkeeping related to its tax-exempt status and its bond issues. The third section focuses on recordkeeping related to investment of bond proceeds, arbitrage and rebate. The fourth section focuses on recordkeeping related to the expenditure of the bond proceeds. The final section focuses on recordkeeping related to the use of any bond-financed property, including records related to unrelated trade or business use, management and services agreements, research contracts, leases and subleases, and joint ventures.
Most of the questions request "Yes" or "No" answers, or ask the organization to choose from a list of options. In addition, Part I of the Questionnaire asks for brief descriptions of various policies and procedures, and Part V closes with an open-ended question that provides the organization an opportunity to generally describe its approach to ensuring post-issuance compliance.
As a Compliance Check, the Questionnaire does not request any underlying documents or financial information and is not an examination. While completion of the Questionnaire is claimed to be voluntary, the cover letter notes that if the organization fails to respond, the organization may be considered for an examination.
An organization generally will have 30 days to respond, which means that responses are due in early October. The IRS has indicated informally that it will grant an extension of time for completion, but such extensions likely will not be for more than 20 additional days.
All organizations with outstanding tax-exempt bonds should review the Questionnaire, even those who were not included in the initial program. The Questionnaire provides an outline of what an organization should consider in developing and implementing a post-issuance compliance program. While many of the substantive areas, such as arbitrage and private use, may have been generally addressed in the tax documents the organization executed in connection with the original issuance of the bonds, those tax documents will not address the more practical issues also raised in the Questionnaire, such as who is responsible and how and where are the relevant documents actually retained.
Copies of the Questionnaire, the cover letter, and an announcement of the program may be found on the IRS website: go to http://www.irs.gov/taxexemptbond/index.html and click on "TEB and EOCA Partner in Qualified 501(c)(3) Bonds Compliance Project."