Ann M. Murphy, Retired Partner

Publications & Media

Post Issuance Compliance: IRS Questionnaire Sent to Hundreds of Governmental Issuers

Public Finance Update Elizabeth S. Blutstein, Julianna Ebert, Brian G. Lanser, Ann M. Murphy, Jennifer V. Powers, Michael L. Roshar, Rebecca A. Speckhard, Bridgette DeToro, Allison M. Buchanan

In July 2008, we sent an update regarding an anticipated IRS enforcement initiative directed at governmental issuers of tax-exempt obligations, consisting of detailed questionnaires requesting information about the kind of post-issuance bond compliance procedures and record retention policies the governmental issuers have in place to ensure continuing compliance with the Internal Revenue Code and regulations governing tax-exempt obligations.

The IRS has now begun that initiative. On January 26, 2009, the IRS sent compliance check questionnaires to 200 governmental entities that issued tax-exempt bonds in 2005. The questionnaire is designed to measure several aspects of the post-issuance compliance knowledge and practices of governmental issuers of tax-exempt bonds. The questionnaire covers:

  • Record retention requirements;

  • Qualified use of bond-financed facility requirements;
  • Arbitrage yield restriction and rebate requirements;
  • Debt management policies and procedures; and
  • Awareness of voluntary compliance options and educational resources.

Recipients of the questionnaire will generally have 90 days to respond. For your information, we have attached a sample copy of the cover letter and compliance check questionnaire that the IRS sent to the 200 governmental entities.

We understand that the questionnaires are being sent to randomly selected issuers and do not mean that the IRS has any reason to believe that an issuer is not in compliance with the rules governing the use of tax-exempt bond proceeds. If you receive a questionnaire, we recommend you respond in a diligent and timely manner. Failure to respond to such a questionnaire would greatly increase the likelihood that the IRS would target an issuer for more formal examination of its tax-exempt bonds.

This initiative highlights the need for governmental issuers to develop a set of written post-issuance compliance procedures detailing how compliance is to be monitored and records are to be kept with respect to the investment and expenditure of tax-exempt bond proceeds, any non-governmental use of the facilities financed with those proceeds and identifying the personnel responsible for creating, maintaining and monitoring those records. The official transcript of proceedings provided to issuers after closing contains a number of documents describing the issuer's post-closing compliance obligations and may be helpful in this regard.

If you have questions about the kinds of procedures you should have in place to monitor post-issuance compliance matters or need assistance in establishing them or responding to any questionnaire you receive, please contact any of the Quarles & Brady public finance attorneys.

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