The Internal Revenue Service recently announced the implementation of a program designed to evaluate the policies and procedures employed by governmental issuers to assure post-issuance compliance with the tax law requirements applicable to their outstanding tax-exempt bond financings.

As part of this program, a five-page “compliance check” questionnaire is being sent by the IRS to 200 randomly-selected governmental entities that issued tax-exempt bonds in 2005, as indicated on their Form 8038-G filings. According to the IRS, questionnaire responses will be evaluated to “measure several aspects of the post-issuance compliance knowledge and practices of governmental issuers,” including record retention requirements, private activity bond restrictions, arbitrage yield restriction and rebate requirements and awareness of voluntary compliance and educational resources. The IRS intends to issue a report describing its findings after it has received and compiled the responses to the questionnaires.

The questionnaire consists of 24 individual questions within five general categories:

  • Post-issuance Compliance - General
  • General Recordkeeping
  • Investments and Arbitrage Compliance
  • Expenditures and Assets
  • Private Business Use

Governmental entities receiving a compliance check questionnaire will have 90 days to respond. The IRS may grant up to 30 additional days to respond in individual cases based on facts and circumstances. While recipients of the survey are not legally required to respond, the IRS has indicated that failure to respond by the due date may cause the IRS to consider a formal examination or audit. Moreover, while the stated goal of the program is to increase voluntary compliance, it is also possible that the IRS will develop audit strategies from the analysis of these questionnaires. Accordingly, thoughtful responses to these inquiries are recommended.

The compliance check questionnaire and a form introductory letter, as well as an IRS FAQ regarding compliance checks in general, can be accessed by clicking on the following links:

IRSCoverLetter.pdf

IRSQuestionnaire.pdf

IRSComplianceChecks.pdf