On May 24, 2011, the Internal Revenue Service Office of Tax Exempt Bonds (the "TEB") announced it will be sending a compliance check questionnaire to 300 issuers and conduit borrowers of tax-exempt advance refunding bonds issued between July 1, 2009 and June 30, 2010.  Specifically, 269 governmental entities that have issued advance refunding bonds, and 31 nonprofit organizations benefiting from such bonds, will receive the compliance check questionnaire.

The TEB explains in a cover letter to the questionnaire that this process is "part of our ongoing efforts to promote voluntary compliance with federal tax requirements applicable to advance refunding bond issuers and conduit borrowers."  The eight-page questionnaire covers all aspects of an issuer's advance refunding policies and post-issuance compliance, including:

  • Debt management policies and procedures used 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.

Although the compliance check questionnaire is not an audit or an examination, the TEB may determine during the course of a compliance check that an examination is warranted.  A recipient of the compliance check questionnaire may refuse to participate; however, the TEB may thereafter initiate a formal investigation.

The questionnaire, the cover letter sent to recipients, and general information on compliance checks are available on the IRS website: http://www.irs.gov/taxexemptbond/article/0,,id=239689,00 .