Post-Issuance Compliance

Post-issuance tax compliance related to tax-exempt bonds continues to be a priority for the IRS. Such efforts include (i) annual reporting requirements for nonprofit organizations in the form of IRS Schedule-K (Form 990) which requires detailed annual private use calculations, (ii) audits of tax-exempt bonds (including physical examination of the bond financed facilities), and (iii) enhanced information gathering through the IRS Form 8038.

The IRS has indicated that they are monitoring Schedule K returns and may base audits on information reported in such returns for nonprofit organizations. In the event of an IRS bond audit or a Schedule-K audit, it is necessary for borrowers to provide clear and convincing information to support their Schedule-K reporting.

The regulatory structure for greater scrutiny is in place, calling for tax-exempt debt issuers and borrowers to focus on post-issuance tax compliance to preserve the tax-exempt status of outstanding bonds. Issuers and nonprofit corporations need to implement a rigorous post-issuance compliance program to meet these new requirements.

WHAT SHOULD YOUR ORGANIZATION DO TO BE PREPARED?

Issuers and borrowers of tax-exempt debt that implement a comprehensive post-issuance tax compliance program will be in a strong position to defend their position in the event of IRS scrutiny or an audit, and do so in a cost-effective manner. Four broad actions are vital to compliance:

• Establish written policies and procedures addressing post-issuance tax compliance.
• Calculate accurate percentage of private business use on all facilities financed with tax-exempt bonds.
• Retain records for all tax-exempt bond issues.
• Consider professional post-issuance tax compliance assistance.

HOW BLX CAN HELP

To assist issuers and nonprofit organizations in meeting ongoing post-issuance compliance responsibilities, BLX offers a wide range of post-issuance services, including:

• Comprehensive review of the expenditure and use of bond proceeds
• Periodic review of all contracts, leases and arrangements with private parties relating to the use of bond financed facilities
• Annual private business use review and calculation
• Assistance with and completion of IRS Schedule-K, applicable to nonprofit corporations
• Development and review of written post-issuance tax compliance policies and procedures