The Internal Revenue Service plans to audit 1,000 municipal bond issues in 2014, and it is likely that the IRS will ask about the issuer’s post-issuance compliance procedures in every single audit.
On June 21, 2013, an IRS official addressing the American Institute of Certified Public Accountants Not-for-Profit Industry Conference said that the IRS plans to initiate 1,000 examinations of tax-exempt bonds issued by state and local governments. In addition, the audits will change from focusing on various areas of potential noncompliance, such as rebate and yield restriction, to a market segment approach in which exams will focus on the types of bonds being issued, including government bonds, small issue bonds, and Build America Bonds, among others.
The information on the increased number of audits comes almost simultaneously with the IRS’s release of new guidance on the IRS’s website regarding post-issuance compliance procedures. In this guidance, the IRS once again emphasizes that tax-exempt bonds are subject to tax compliance requirements throughout the life of the bonds and not just when the bonds are issued. The IRS strongly recommends that every issuer have written procedures that enable the issuer:
- to prevent violations,
- to identify noncompliance in a timely manner, and
- to remedy the identified violations in a timely manner, when necessary.