The Internal Revenue Service announced on April 24 that it has sent compliance check questionnaires to 111 randomly selected issuers of qualified school construction bonds (QSCBs). This is the latest in the IRS’ compliance check questionnaire program. The IRS began this questionnaire program in 2006, and has since sent questionnaires to issuers of governmental use bonds, qualified 501(c)(3) bonds, Build America Bonds and advance refunding bonds. The program will in all likelihood continue and be broadened to other categories of tax-advantaged bonds. The IRS apparently views the program as a cost-effective way to collect compliance data and to preliminarily screen issues for further audit.
The QSCB compliance check questionnaire is unique in one respect – for the first time, recipients must complete the questionnaire online. Further, in addition to questions probing compliance with requirements specific to QSCBs, the questionnaire continues two trends in recent questionnaires. First, the QSCB questionnaire continues the IRS emphasis on written procedures to ensure compliance with federal tax law requirements. Second, the questionnaire asks whether the issuer or its consultant (not the underwriter or initial purchaser of the bonds) reviewed trading data for the bonds to assure the proper establishment of issue price (resale price) for the bonds. These are two areas of primary IRS emphasis in recent years.
QSCB issuers who receive the questionnaire have until May 25 to respond. Recipients are not obligated to respond but failure to respond can be expected to significantly increase the likelihood of a full audit. Issuers of QSCBs who receive the questionnaire should consult with counsel before completing it.