On May 24, 2011 the Internal Revenue Service Office of Tax Exempt Bonds (“TEB”) announced that it has initiated a compliance check questionnaire project regarding advance refunding bonds as part of its ongoing efforts to promote voluntary compliance with federal tax law requirements applicable to advance refunding bond issuers and conduit borrowers.

TEB is sending the questionnaire this month to 269 governmental entities that issued tax-exempt advance refunding bonds between July 1, 2009 and June 30, 2010. TEB also is sending the questionnaire to 31 exempt organizations that benefited from tax-exempt advance refunding bonds issued within the same time frame.

According to the IRS cover letter, the questionnaire is a compliance check, not an audit or a review of an organization’s books and records. A compliance check is a review by the IRS to determine adherence to certain federal tax law requirements. Copies of the cover letter, questionnaire and IRS Publication 4386, Compliance Checks, which addresses some frequently asked questions about compliance checks, can be found on the IRS website at http://www.irs.gov/taxexemptbond/article/0,,id=239689,00.html.

The eight-page questionnaire, which is designed to measure the issuers’ or borrowers’ tax compliance policies and procedures, covers the following:

  • Debt management policies and procedures for determining when to advance refund a bond issue;  
  • Qualification requirements applicable to advance refundings;  
  • Arbitrage requirements applicable to advance refundings;  
  • Procedures related to the determination of issue price;  
  • Record retention procedures; and  
  • Procedures related to the timely identification and correction of tax violations.