Post-Issuance Compliance For Governmental Issuers And 501(C)(3) Borrowers

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In recent years, the Internal Revenue Service (IRS) has announced that post-issuance tax compliance will be among its highest priorities. This is evidenced by the recently imposed annual reporting requirement on nonprofit corporations (in the form of Schedule K, to be filed with IRS Form 990) regarding the application and use of tax-exempt bonds issued for their benefit. Also, in 2007 the IRS distributed several hundred questionnaires to nonprofit corporations regarding their post-issuance tax compliance with various requirements for maintaining federal tax exemption of interest on their bonds, and in January 2009, the IRS distributed several hundred questionnaires to state and local governments regarding post-issuance compliance. A December 29, 2009 article titled “Beefed-UP IRS is Ready to Roll, “ published in The Bond Buyer, reported that only 87% of the governments surveyed responded to the IRS questionnaire, compared to 98% of the nonprofit corporations. Steve Chamberlin, senior manager of the IRS tax-exempt bond office compliance and management program, was quoted in the article as follows: “That’s pretty significant, and is potentially indicative…as to how [governments] view

post-issuance compliance.” The article also stated that “initial indications show that a ‘significantly lower’ percentage of governments than charities have written procedures to ensure post-issuance compliance, Chamberlin said.” Such post-issuance compliance matters include internal compliance procedures and record keeping functions.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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