8.3.1 Post-Issuance Tax Compliance Programs
Because the consequence of noncompliance with federal tax law requirements could result in serious adverse consequences for the tax exempt status on tax advantaged bonds and could affect investors or lenders in a material way, every public agency issuer should ensure that post issuance tax compliance requirements are identified and included in applicable policies and procedures. While the scope of tax compliance activities may vary depending on the type of bonds involved, including private activity bonds issued by conduit issuers, key elements of a post issuance tax compliance program may represent a cross section of administrative and programmatic responsibilities within a public agency and may include the following:
- Designating a tax compliance point person(s) to monitor and report on compliance activities
- Developing written, post issuance tax compliance procedures
- Tracking and allocating bond proceeds
- Monitoring the use of bond financed property
- Addressing changes in use of bond financed property
- Monitoring investment income and arbitrage compliance
- Record keeping and retention
- Ongoing communication with outside tax specialists and continuing education
Written post issuance procedures should contain the following at a minimum:
- Identification of the individual(s) with responsibility for monitoring post issuance tax compliance and a description of the monitoring compliance training provided to them
- The frequency of compliance checks (most being at least annually)
- The nature of the compliance activities required to be undertaken
- The procedures used for timely identification and elevation of the resolution of a violation when it occurs or is expected to occur
- Procedures for the retention of all records material to substantiate compliance with federal tax law requirements
- Acknowledgement of the availability of the Voluntary Closing Agreement Program described below and other remedial actions
The federal tax rules are complex and are subject to change. Maintaining an ongoing relationship and dialogue with arbitrage specialists, tax counsel, or bond counsel can help ensure that policies and procedures are updated with information regarding changes in federal tax law applicable to tax exempt bonds and the IRS filing requirements. In addition, public agency issuers should actively seek out educational opportunities to keep abreast of changes and developments in federal tax law.