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IRS Releases New Process for Audits of Tax-Exempt Bonds IRS Releases New Process for Audits of Tax-Exempt Bonds

IRS Releases New Process for Audits of Tax-Exempt Bonds

The Internal Revenue Service recently released a memo outlining the new process for information document requests ("IDR") for examinations of tax-exempt bond issues. The memo is intended to provide IRS agents with guidelines as to how an audit should be conducted, but the memo also makes a few significant changes of which issuers and conduit borrowers of tax exempt bonds should be aware. An initial contact letter will be mailed to the issuer providing notice that an audit has been initiated. Previously, the IDR requesting specific documents was the initial contact with the issuer, giving the issuer time to contact counsel and prepare a response. Under the new procedure, without having received the IDR, within ten business days after the first notice, the IRS agent will initiate contact with the taxpayer or an entity for which the issuer has filed power of attorney documentation. On this call, the IRS agent will discuss the issue being examined and the items being requested on the IDR. Following this phone call, the IDR will be sent to the taxpayer. The potential effect of this change is the possibility that the issuer could be discussing with the IRS important questions concerning the bonds, without the advice of counsel.
It has always been important for an issuer to react promptly to the initiation of an audit. Frequently, because of the unfamiliarity of issuer personnel with IRS policies, including counsel in the process can be delayed.  Previously, the IRS would send the IDR before any other direct contact was made with the taxpayer on behalf of the IRS and would allow the issuer adequate time to respond. Under the new process, the IRS will call the taxpayer within ten business days to discuss the nature of the examination and the information that is being requested, before perhaps the issuer has had an opportunity to prepare for this discussion or to discuss any concerns with its counsel.

As a result, we would encourage all clients to contact Ice Miller immediately upon receiving the initial correspondence commencing an audit in order to consider whether the issuer would like to speak directly with the IRS or whether the client would like to have Ice Miller involved in any discussions with the IRS.

For more information, contact Jane Herndon, Phil Genetos, Amy Corsaro, Susan Price or a member of our Tax Credit and Subsidy Bond group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances. 
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