WASHINGTON — The Internal Revenue Service is working on more specialized template voluntary closing agreements, an official with the IRS' tax-exempt bond office said.
Karen Skinder, acting manager for TEB's compliance and program management program, discussed changes to TEB's voluntary closing agreement program during an IRS webcast Thursday. VCAP is the program under which issuers can voluntarily settle tax-law problems with their outstanding bonds to preserve the bonds' tax-advantaged status.
The IRS is currently working on template voluntary closing agreements for failed state and local government series securities rollovers and certain violations of the public approval requirements for private-activity bonds, Skinder said.
"When published, these will expedite the resolution process because the issuer will submit the closing agreement that contains the canned required language, compute the resolution amount and send it to us with payment. We will simply review it for accuracy and then process it," Skinder said. "We're very excited about these and hope that you find them to be a simpler way to correct common violations."
The template closing agreements will be published as announcements in the Internal Revenue Bulletin.
The announcements will be in a similar format to the template closing agreement TEB announced in January for issuers whose 501(c)(3) bonds benefited organizations that had their tax-exempt statuses prospectively reinstated after being revoked due to the failure to file returns for three consecutive years, Skinder said.
Skinder also discussed other upcoming changes to VCAP, which will be reflected in revised sections of the Internal Revenue Manual used by TEB staff. She said that the revisions to the IRM will be published soon.
When the revisions are published, a comprehensive form for VCAP requests will be required to be submitted as part of a request. A benefit of the form is that it helps to ensure that requests are complete. The form was released in spring of 2013, and many issuers have already been using it, Skinder said.
Starting in fiscal 2016, issuers will be required to submit a completed model agreement when they request a VCAP settlement. "It is our hope that the use of this agreement will make the resolution process more efficient," Skinder said. If an issuer thinks that a deviation from the model agreement is necessary, it can propose changes. The IRS will consider the proposed changes, but it may not accept them, and the proposed changes could prolong the VCAP process, she said.
TEB hopes to start using a "Welcome to VCAP" letter in the next few months that will confirm to issuers that their request has been received and assigned, and it will provide contact information for the IRS staff member handling the request, Skinder said.
The tax-exempt bond office has expanded the minimum settlement amounts for some resolution standards in some cases and will soon issue interim guidance that will state the amounts and when they are applicable, she said.
Beginning six months after publication of IRM changes, the tax-exempt bond office will stop providing additional relief in determining settlement amounts when issuers discovered violations from implementing written post-issuance compliance procedures. However, the office continues to encourage issuers to have such procedures, Skinder said.
There will be six new streamlined settlement standards in the soon-to-be-updated IRM, Skinder said. Four of the standards relate to tax-exempt bonds, and two relate to direct-pay bonds. Two of the new standards for tax-exempt bonds pertain to violations of the public-approval requirements for PABs established by the Tax Equity and Fiscal Responsibility Act of 1982.
One of the TEFRA-related standards covers circumstances where issuers think that they do not need to obtain public approval for advance refunding PABs, when actually only current refunding PABs are exempt from the public-approval requirements. Under the standardized settlement, if the IRS receives a VCAP request within six months of the date of the violation, the issuer can resolve the problem by paying 7.5% of taxpayer exposure, and if the request is submitted between six months and one year of the issuance date, the issuer can resolve the violation by paying 8.25% of taxpayer exposure, Skinder said.
The second new TEFRA-related standard pertains to issuers who mistakenly rely on approval of a PAB issue from someone who is not an applicable elected official. The issuer would make a payment of 5% of taxpayer exposure if the request is submitted within 6 months of the violation, and the issuer would make a payment of 5.5% of taxpayer exposure if the request is submitted between 6 months and one year, Skinder said.
A third new resolution standard applies to certain small-issue PABs issued as draw-down bonds in an amount that exceeds the volume cap. It would resolve violations relating to draws of qualified small-issue bonds that happened in the year after the calendar year when the bonds were issued. An issuer would have to pay $1,000 per year for each year after the calendar year of the initial draw. The payment would be $2,000 per year if the issuer requests a VCAP more than one year after the publication of the IRM changes, Skinder said.
The fourth resolution standard for tax-exempt bonds could be used when an issuer's otherwise good attempt to remediate a deliberate action that causes a tax problem fails due to a failure to file an 8038 series information-reporting form.
If the issuer requests a VCAP within six months of the due date of the form, they can pay a settlement amount of $1,000, and if the request is made between six months and one year of the due date, they can pay a settlement amount of $2,000, Skinder said.
The new settlement standards for direct-pay bonds are for when the bonds were issued with more than a de minimis amount of premium.
The IRS' existing standard on this topic will be clarified split into two: one for Build America Bonds and Recovery Zone Economic Development Bonds, and the other for direct-pay, specified tax-credit bonds. Under the standards, the violations can generally be settled if the issuer pays an amount equal to the excess direct-pay subsidies attributable to the excess premium, Skinder said.
