Advisory Committee on Tax Exempt and Government Entities (ACT ...

The Streamlined Closing Agreement For Tax-Exempt Bonds: A Cure For Common ViolationsEXECUTIVE SUMMARY This ACT project grows out of the perceived need for a simple, predictable, low-costprocedure for issuers of tax-exempt bonds and conduit borrowers of tax-exempt bondproceeds to voluntarily correct violations of federal tax law. After discussions withInternal Revenue Service (IRS) and Treasury personnel and representatives of variousconstituencies within the tax-exempt bond community, and after consideration of theIRS’s existing Voluntary Compliance Agreement Program (VCAP), the ACT determinedthat certain relatively common violations could be dealt with on a more streamlinedbasis, without the need for costly, time-consuming, individualized negotiation.The ACT recommends creation of a Streamlined Closing Agreement Program (SCAP),as a subset of the existing VCAP program. Under such a program, the IRS wouldidentify specified Covered Violations. Such violations would be susceptible to cleardescription, subject to a predetermined “closing agreement amount,” and subject tostated additional conditions. The ACT has included as an appendix to this report anillustrative list of violations which might qualify for such treatment.Under the proposed SCAP, an issuer or conduit borrower would submit to the IRS aCompliance Certificate identifying a specified Covered Violation, describing the factspresented, and confirming its willingness to comply with any specified requirements asto future action, together with a check for the predetermined closing agreement amount,if any. The IRS would be required to provide a written acceptance or rejection of theoffer represented by this filing within a specified, relatively short period of time.The ACT also recommends that two additional streamlined subsets be created withinthe existing VCAP program. The first would cover violations based on the small dollaramount involved. The second would cover past inadequate recordkeeping anddocument retention. While these two sorts of violations may not fit the definitionalguidelines for an SCAP Covered Violation, because of difficulties specifying in a clearand simple manner the nature of the violation and/or the terms of an appropriatesettlement, the ACT believes that streamlining of the process for dealing with violationsof these sorts would be possible and helpful.The ACT strongly urges the IRS to allocate substantially more resources to its existingvoluntary compliance program for tax-exempt bonds and to the programs proposedhere.Finally, the ACT urges the IRS and Treasury to identify situations in which alternativemodes of compliance would be appropriate if authorized by statute and to propose suchchanges to Congress.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 1