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- 7.2.3 Tax Exempt Bonds Voluntary Closing Agreement Program
- 7.2.3.1 Program Scope and Objectives
- 7.2.3.1.1 Background
- 7.2.3.1.2 Authority
- 7.2.3.1.3 Roles and Responsibilities
- 7.2.3.1.4 Program Management and Review
- 7.2.3.1.5 Program Controls
- 7.2.3.1.6 Terms and Acronyms
- 7.2.3.1.7 Related Resources
- 7.2.3.1.8 TEB VCAP Objectives
- 7.2.3.1.9 TEB VCAP Scope
- 7.2.3.1.10 Effect of TEB VCAP Closing Agreement
- 7.2.3.1.11 Examination of TEB VCAP Cases
- 7.2.3.1.12 Special Procedures for Anonymous Requests
- 7.2.3.1.13 Special Procedures for Requests to Correct Errors on Form 8328
- 7.2.3.2 TEB VCAP Request Submission
- 7.2.3.2.1 Information Required in Submission Request
- 7.2.3.2.2 Receipt and Perfection of Submission Request
- 7.2.3.3 TEB VCAP Case Processing Procedures
- 7.2.3.3.1 Case Establishment and Assignment
- 7.2.3.3.2 Case Development (Specialist)
- 7.2.3.3.2.1 RCCMS: General Information and Responsibilities for Specialists
- 7.2.3.3.2.2 Case Chronology Record
- 7.2.3.3.2.3 Resolution Amount
- 7.2.3.3.2.4 Computation of Amounts
- 7.2.3.3.2.5 Approval of the Proposed Resolution (Summary)
- 7.2.3.3.3 Case Resolution - Review and Approval Process
- 7.2.3.3.4 Closing Agreement Finalization and Execution - General Procedure
- 7.2.3.3.5 Specialist: Closing Agreement Finalization and Execution -- Specialty Template Agreements
- 7.2.3.3.6 Case Closing
- 7.2.3.3.7 Unresolved Cases
- 7.2.3.4 TEB VCAP Resolution Standards
- 7.2.3.4.1 Objectives and Scope
- 7.2.3.4.2 Implementation of Standards
- 7.2.3.4.3 Identified Violations – Tax-Exempt Bonds
- 7.2.3.4.4 Identified Violations – Certain Direct Pay Bonds
- Exhibit 7.2.3-1 Instructions for Preparing Form 5666, TE/GE Referral/Information Report (Reference IRM 7.2.3.2.2(3)(c))
- Exhibit 7.2.3-2 Statement Under Penalties of Perjury Required Information
- Exhibit 7.2.3-3 Examples of Allocating Total Nonqualified Bond Amount to Bond Maturities
Part 7. Rulings and Agreements
Chapter 2. TE/GE Closing Agreements
Section 3. Tax Exempt Bonds Voluntary Closing Agreement Program
7.2.3 Tax Exempt Bonds Voluntary Closing Agreement Program
Manual Transmittal
May 21, 2026
Purpose
(1) This transmits revised IRM 7.2.3, TE/GE Closing Agreements, Tax Exempt Bonds Voluntary Closing Agreement Program.
Material Changes
(1) Revised procedures for the Closing Agreement process for the Tax Exempt Bonds Voluntary Closing Agreement Program to reflect changes due to the elimination of the VCAP Committee.
(2) Revised subsection 7.2.3.1, Program Scope and Objectives to add the Audience and Primary Stakeholders.
(3) Revised IRM 7.2.3.1, Program Scope and Objectives, to include all of the internal control elements as required by IRM 1.11.2.2.4.
(4) Added subsection 7.2.3.1.6, Acronyms.
(5) Revised subsection 7.2.3.1.7, to include additional terms used throughout this IRM.
(6) Added subsection 7.2.3.1.8, Related Resources.
(7) Added subsection 7.2.3.1.14, Special Procedures for Requests to Correct Errors on Form 8328.
(8) Revised subsection 7.2.3.2.1, Information Required in Submission Requests, to remove the modification required pending the update of Form 14429.
(9) Revised subsection 7.2.3.2.2, to update the mailing address and to add a procedure for the TE/GE Compliance Planning and Classification, Planning and Monitoring function to make a referral to TEB when the VCAP submission is incomplete.
(10) Revised subsection 7.2.3.3.4, Closing Agreement Finalization and Execution - General Procedure, to remove all references to Form 3870, Closing Agreement Finalization and Execution - General Procedure. This form is not completed by TEB.
(11) Revised IRM 7.2.3.3.2 to add information on the statute of limitations for Form 8038-CP and to add RCCMS general information.
(12) Revised IRM 7.2.3.3.2 to incorporate Interim Guidance Memos TEGE-04-0622- 0026, Reporting Compliance Case Management System (RCCMS) Electronic Case Policy dated June 21, 2022; TEGE-04-0422-0013, TE/GE RCCMS Naming Convention, dated April 26, 2022; and TEGE-04-0523-0010, Change in Closing Agreement Requirements, dated May 8, 2023
(13) Added new subsection, IRM 7.2.3.3.2.1, Case Chronology Record.
(14) Added new subsection, IRM 7.2.3.3.4.1, Specialist: Closing Agreement Finalization and Execution - Specialty Template Agreements.
(15) Revised subsection 7.2.3.3.4 to add information on digital signatures and multiple party agreements.
(16) Added Exhibit 7.2.3-1, Instructions for Preparing Form 5666, TE/GE Referral/Information Report (Reference IRM 7.2.3.2.2(3)(c)).
(17) Updated references to specific Letters used in VCAP cases.
(18) Editorial changes made throughout the IRM for clarity. Reviewed and updated plain language, grammar, titles, IRM references, and the IRS and business unit terminology.
Effect on Other Documents
This IRM supersedes IRM 7.2.3 dated January 7, 2020.Audience
Tax Exempt and Government EntitiesEffective Date
(05-21-2026)Steven A. Chamberlin
Director, Government Entities
Exempt Organizations and Government Entities
Tax Exempt and Government Entities
Purpose: This IRM discusses the closing agreement process issuers of tax advantaged bonds use to resolve compliance issues brought into the Tax Exempt Bonds Voluntary Closing Agreement Program (VCAP). It contains VCAP procedures for:
Tax-exempt bonds
Tax credit bonds
Direct pay bonds
Audience: This IRM provides procedures for tax law specialists, managers, senior managers and support staff in TEB Technical.
Policy Owner: Director, Government Entities.
Program Owner: Program Manager, Tax Exempt Bonds.
Primary Stakeholders: The primary stakeholders are TE/GE employees.
The Secretary is authorized to enter into a written agreement with any person relating to that person’s (or of the person or estate for whom he acts) liability in respect of any internal revenue tax for any taxable period (IRC 7121). A closing agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if the taxpayer shows good and sufficient reasons for desiring a closing agreement and the Commissioner determines that the United States won’t sustain disadvantage through consummation of such an agreement (Regulation section 301.7121-1(a)).
Through VCAP, issuers of tax-advantaged bonds can voluntarily approach the office of Tax Exempt Bonds (TEB) to resolve violations of the Internal Revenue Code (IRC) and applicable Income Tax Regulations (the "Regulations") through closing agreements with the IRS.
TEB Technical oversees and works cases in VCAP.
The IRS may enter into and approve a written closing agreement with any person relating to the liability of such person (or the person or estate for whom that person acts) or in respect of any internal revenue tax for any taxable period (IRC 7121 and the corresponding Regulations). This authority includes conclusively resolving any specific matters jeopardizing the tax-advantaged status of bonds with the issuer of the bonds even though the issuer may not have tax liability for the bonds.
Notice 2008-31 provides information about VCAP including procedural requirements.
The Commissioner delegates to the Director, GE and the TEB Program Manager the authority to enter into and approve written closing agreements in cases under their jurisdiction (Delegation Order 8-3 (formerly Delegation Order 97) in IRM 1.2, Servicewide Policies and Authorities).
The issuers of tax-advantaged bonds directly or indirectly receive tax benefits associated with the status of their bonds.
The Director, GE is responsible for providing policy and guidance for technical employees and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayers’ rights. See IRM 1.1.23, Organization and Staffing, Tax Exempt and Government Entities Division, for additional information
The Program Manager, Tax Exempt Bonds, reports to the Director, GE and is responsible for the delivery of policy and guidance that impacts the VCAP process.
All TEB Technical employees must perform their professional responsibilities in a manner that supports the IRS mission. This requires the tax law specialists (Specialists) to provide top quality service and to apply the law with integrity and fairness to all.
The Specialists and the TEB Technical manager must thoroughly acquaint themselves with the information contained in this IRM as well as other relevant sources.
Program Reports: Information on reporting program objectives is included in, but not limited to, the following reports:
Headquarters Examination Monthly Briefings
Program Manager Monthly Briefings
TEB Technical Operational Reviews
Business Performance Reviews
Annual Review: The processes outlined in this IRM must be reviewed annually to ensure accuracy and promote consistent tax administration.
CP&C administers inventory control for the VCAP cases.
The Intake Coordinator facilitates the assignment of VCAP cases to TEB Technical.
The TEB Technical manager is responsible for assigning VCAP cases and ensures consistency in the completion of VCAP closing agreements per technical, procedural, and administrative requirements.
The IRS is fully committed to protecting the privacy rights of taxpayers and employees. Privacy laws are included in the IRC, the Privacy Act of 1974, the Freedom of Information Act, and the IRS policies and practices. For more information about these laws, visit The IRS Freedom of Information Act.
For questions about privacy, email *Privacy.
For questions about disclosure, email *Disclosure.
The following references defined below apply throughout this IRM 7.2.3:
Term Definition Closing Agreement Approval Document VCAP approval document with attached forms and documents for review. Commissioner Commissioner of Internal Revenue Service Deliberate Action Any action taken by the issuer that is within its control. An intent to violate the requirements of IRC Section 141 is not necessary for an action to be deliberate. Direct Pay Bonds Bonds for which the issuer receives a refundable credit for some or all the interest it pays on the bonds instead of the holder receiving a tax credit or tax-exempt interest, including: Specified tax credit bonds issued per IRC 54A (and either IRC 54C, 54D, 54E or 54F) and IRC 6431(f) in effect before the enactment of Public Law 115-97 (the amendment to repeal IRC sections 54A, 54AA, 54C, 54D, 54E, 54F, 1400U-2 and 6431 set forth in section 13404 of Public Law 115-97, commonly known as the Tax Cuts and Jobs Act, does not apply to bonds issued prior to January 1, 2018).
Build America bonds issued per IRC 54AA(g)(2) (as in effect until authorization expired under the ARRA).
Recovery zone economic development bonds issued per IRC 1400U-2 (as in effect until authorization expired under the ARRA).
Any other bonds for which the issuer receives a refundable credit for some or all the interest it pays on the bonds instead of the holder receiving a tax credit or tax-exempt interest.
Direct Pay Bonds Compliance Review Coordinator The Direct Pay Bonds Compliance Review Coordinator (DPBCRC) is the revenue agent or tax law specialist assigned to perform the DPBCRC responsibilities described in IRM 4.82.3. Director, GE The Director of Government Entities Income Tax Regulations (Regulations) Treasury regulations - commonly referred to as federal tax regulations - provide the official interpretation of the IRC by the U.S. Department of the Treasury and give directions to taxpayers on how to comply with the IRC’s requirements. Initial Acquisition For purposes of this IRM section: When direct pay bonds are acquired by the issuer of the bonds. Intake Coordinator The individual assigned by TE/GE Compliance Planning and Classification, Planning and Monitoring function to oversee VCAP case intake. Reviewers Tax Law Specialists assigned to review closing agreements. Secretary Secretary of the Treasury Specialist Tax Law Specialist in TEB Technical. Specialty Template Agreement A specialized closing agreement template (not a VCAP Model Closing Agreement) that the IRS provided in an Announcement or other form of guidance describing a particular type of violation. Subsequent Sale Occurs when an issuer sells its bonds back to the public after having previously retired or extinguished those bonds by acquiring its own debt. Such bonds are generally treated as reissued as a result of subsequent sale. Tax-advantaged Bonds Bonds that provide a federal tax benefit that reduces an issuer’s borrowing costs, including tax-exempt bonds, tax credit bonds and direct pay bonds. Tax credit bonds Bonds for which the holder receives a credit against taxes instead of tax-exempt interest, such as: Qualified tax credit bonds issued per IRC sections 54, 54A (and either IRC 54B, 54C, 54D, 54E, or IRC 54F), 1397E and 1400N(l).
Build America bonds issued per IRC 54AA for which holders of such bonds are allowed credits against taxes with respect to a portion of the interest on those bonds.
Any other bonds for which the holder receives a credit against taxes.
Tax-exempt Bonds State or local bonds issued under IRC 103 and the interest on which isn’t included in the holder’s gross income. Tax Law Specialist Frontline employee assigned to TEB Technical TEB Program Manager Program Manager, Tax Exempt Bonds TEB Technical Technical Group in Tax Exempt Bonds TEB Technical Manager The group manager that oversees the responsibilities of Tax Law Specialists and Direct Pay Bonds Compliance Review Coordinator assigned to TEB Technical. Total Nonqualified Bonds This is the amount that would be nonqualified bonds on the date of the violation under remedial action provisions that apply to the type of violation (for example, Regulations 1.141-12(j) for private activity violations, Regulations 1.142-2(e) for failure to provide for an exempt facility, or as provided for in Rev. Proc. 2018-26, allowing issuers to take certain remedial actions to protect the tax advantaged status of the bonds) or, in the absence of an applicable remedial action provision, an appropriate amount of the bonds based upon the violation. Acronym Definition ARRA American Recovery and Reinvestment Act of 2009 BSP Business Systems Planning CCR Case Chronology Record CFR Code of Federal Regulations CP&C Compliance Planning & Classification EFT Electronic Funds Transfer EFTPS Electronic Federal Tax Payment System EIN Employer Identification Number EO/GE Exempt Organizations and Government Entities FAST Field Agent Support Team GE Government Entities IRC Internal Revenue Code IRM Internal Revenue Manual IRS Internal Revenue Service RCCMS Reporting Compliance Case Management System Rev. Proc. Revenue Procedure SLGS U.S. Treasury Securities – State and Local Government Series TCJA Tax Cuts and Jobs Act (Public Law 115-97) TEB Office of Tax Exempt Bonds TEFRA Tax Equity and Fiscal Responsibility Act of 1982 TE/GE Tax Exempt and Government Entities TIN Taxpayer Identification Number VCAP Voluntary Closing Agreement Program
Specialists must consult the IRC, the Regulations, and the Knowledge Management Virtual Library to ensure proper issue development and consistent application of the law.
Recent developments: For changes to guidance, law and procedures that affect tax- exempt bonds, visit the website About Tax-Exempt Bonds or the Knowledge Management Virtual Library.
TEB VCAP Model Closing Agreement (See Model Closing Agreements for VCAP and Examinations).
Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Taxpayer Bill of Rights.
The maximum available SLGS interest rate for any day of investment and applicable maturity is to be determined from the SLGS Daily Rate Table available on the Treasury Direct website at State and Local Government Series Securities.
The maximum available qualified tax credit bonds rate for any date is determined from the IRS Tax Credit Bond Rates tables available on the Treasury Direct website at IRS Tax Credit Bond Rates.
Document 11308, Information Systems Codes.
IRM 10.5.1, Privacy and Information Protection, Privacy Policy.
VCAP’s primary objectives are to:
Encourage issuers of tax-advantaged bonds to exercise due diligence in complying with applicable federal tax requirements.
Encourage users of tax-advantaged bond proceeds to exercise due diligence in complying with the applicable federal tax requirements.
Encourage issuers to voluntarily bring forward discovered violations.
Provide a way to correct violations as quickly as possible.
Eliminate the tax benefit for nonqualified bonds as quickly as possible.
Issuers can expect to resolve violations through VCAP under terms generally more favorable than those imposed if discovered during an examination.
VCAP reflects TEB's continuing policy of resolving violations of federal tax law applicable to tax-advantaged bonds at the transaction level instead of the bondholder level.
VCAP requests are accepted when the IRS has a reasonable basis to believe that a federal tax law violation has occurred. VCAP is available only if the issuer works in good faith with TEB Technical to resolve the matter diligently throughout the process.
VCAP is appropriate when there is an advantage to having the violation permanently and conclusively resolved and:
It’s in the best interests of the United States to enter into the agreement.
The United States will not sustain a disadvantage through consummation of such an agreement.
VCAP generally may be used for violations applicable to tax-advantaged bonds under the IRC or applicable Regulations.
Absent extraordinary circumstances or specific IRS instructions to the contrary, VCAP is unavailable if the issuer can resolve the violation by taking actions authorized under the IRC, or other remedial action provisions or bond closing agreement programs under the IRC, the Regulations or other published guidance, or by filing of a corrected return, when permitted. Examples include:
An issuer may take remedial actions impacting tax-exempt bonds under 26 CFR 1.103-8(b)(6), 26 CFR 1.141-12, 26 CFR 1.142-2, 26 CFR 1.144-2, 26 CFR 1.145-2, and 26 CFR 1.147-2.
An issuer may correct its failure to spend 100% of available project proceeds of qualified tax credit bonds for qualified purposes under IRC 54A(d)(2)(C) by the close of an expenditure period by redeeming all of the nonqualified bonds, generally within 90 days after the end of such period.
An issuer may take remedial actions under 26 CFR 1.1397E-1(h)(8) for violations impacting qualified zone academy bonds issued under IRC 1397E and, generally, qualified zone academy bonds issued under 54A and 54E (other than qualified zone academy bonds issued as direct pay bonds). See 26 CFR 1.1397E-1(m)(3).
An issuer may take remedial actions impacting certain tax-advantaged bonds under Rev. Proc. 2018-26.
Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, line 21 allows issuers of direct pay bonds to adjust by a net increase or net decrease previous credit payments to correct prior clerical or computational errors. This line of the form is not intended to and does not remediate violations of the IRC or Regulations applicable to direct pay bonds.
An issuer may take remedial actions impacting tax-advantaged bonds under Rev. Proc. 2002-48, 2002-37IRB 531.
VCAP is also available to issuers to resolve errors made on Form 8328 that cannot be corrected under Rev. Proc. 2005-30, 2005-1 C.B. 1148.
VCAP is not available:
To resolve matters of law on future events or actions that may impact the tax advantaged status of bonds. Issuers seeking guidance on the tax implications of future events or actions may request a private letter ruling in appropriate circumstances.
If the bond issue is under examination. A bond issue is generally considered to be under examination on the date of the initial contact with the issuer. (See IRM 4.70.12.7.1, Initial Contact Letter and Initial IDR).
When the tax-advantaged status of the tax-advantaged bonds is an issue in any court proceeding or is being considered by the IRS Independent Office of Appeals.
If TEB Technical determines the violation was due to willful neglect.
If the transaction giving rise to the violation occurred, but the issuer has not filed a Form 8038 series information return for the bond issue for which VCAP is sought.
VCAP closing agreements generally don’t address any potential IRC 6700 promoter penalty liabilities.
Closing agreements, including VCAP closing agreements, are final and conclusive. TEB cannot reopen the closing agreements as to the matters agreed upon or modified. The IRS may not annul, modify, set aside or disregard the closing agreement (or any legal action in accordance with it) in any suit, action or proceeding unless there is a showing of fraud, malfeasance or misrepresentation of material fact. (See IRC 7121 and the corresponding Regulations).
While under review in VCAP, a bond issue is not subject to examination (except as directed in this IRM or under extraordinary circumstances). Generally, the date a bond issue is "under review" in VCAP is the date TEB Technical receives a complete VCAP request.
Bond issues previously reviewed in VCAP may be selected for examination.
A VCAP closing resolution of any specific violation is final and conclusive and the IRS may not reconsider the specific violation under examination except in the limited circumstances in IRC 7121.
During an examination, TEB may review and test source documents to confirm the accuracy of facts submitted in the VCAP request as applied to the resolution of the violation covered by the closing agreement.
This IRM describes resolution standards for various violations that inform issuers on how TEB is likely to resolve a particular violation under the VCAP.
When these resolution standards don’t provide guidance for a particular violation, the issuer may anonymously request information on that violation’s likely resolution method. The anonymous request option is intended to help an issuer:
Evaluate appropriate resolution methods for novel or unique violations
When uncertainty exists regarding an appropriate resolution.
The anonymous request option is not intended to encourage issuers to delay submitting a fully disclosed VCAP request for relatively simple or straightforward violations with reasonably clear and appropriate resolution methods. When deciding to respond, TEB Technical considers whether the anonymous submission request represents the issuer’s less than good faith effort to resolve the violation as expeditiously as possible.
An anonymous request can only relate to a general matter, question or factual scenario. TEB Technical provides a general written response and doesn’t discuss the matter further other than to clarify any vague or ambiguous language in its written response. TEB Technical may decline to respond to any anonymous request that is based upon a detailed factual scenario or when it’s in the best interest of sound tax administration.
Because an anonymous request doesn’t identify an associated bond issue, submitting an anonymous request doesn’t prevent IRS from opening an examination on any bond issue. As described in IRM 7.2.3.1.9(6), when IRS opens an examination on a bond issue, the issue is no longer eligible for VCAP.
TEB’s response to an anonymous request is intended only to describe a general resolution framework based on described facts and applicable law; it does not represent TEB’s final resolution terms. However, if a subsequently disclosed VCAP reveals more serious or additional violations than those described in the anonymous request, TEB’s response to the anonymous request will be given no weight.
Specialist: When an anonymous request is assigned to you:
Prepare a briefing memo including background, description, analysis, and a recommendation. The recommendation generally includes a proposed draft response letter (for example, Letter 5562), which indicates either a proposed resolution of the described violation (a "Resolution Recommendation" ) or an explanation that the request doesn’t fit within the VCAP scope of IRM 7.2.3.1.9 (a Non-Eligible Recommendation)IRM 7.2.3.1.10.
Prepare the draft response letter and share it with Reviewers for discussion.
Attach the briefing memo and the draft response letter to the Closing Agreement Approval Document after informally discussing with your group manager and Reviewers (including obtaining input from Reviewers on the draft response letter).
Securely e-mail the Closing Agreement Approval Document to your group manager for review and concurrence.
After receiving the TEB Program Manager’s final concurrence via the signed Closing Agreement Approval Document, prepare the final response letter and securely e-mail it to your group manager to submit to the TEB Program Manager for signature.
After receiving the TEB Program Manager’s signed response letter, send the letter to the representative submitting the request.
Group manager: When you receive the Closing Agreement Approval Document from the Specialist:
Review and provide feedback/concurrence to the Specialist.
For Resolution Recommendations, securely e-mail the Closing Agreement Approval Document to the Reviewers.
For Non-Eligible Recommendations, securely e-mail the Closing Agreement Approval Document to the TEB Program Manager for electronic signature.
Reviewers: When you receive the Closing Agreement Approval Document from the group manager:
Review the briefing memo and the draft response letter (for example, Letter 5562).
Consider whether the general resolution framework described is consistent with other TEB closing agreement resolution terms and if not, whether there is a valid business reason for the difference.
Recommend any changes to the draft response letter by noting them and any other comments on the Closing Agreement Approval Document.
Digitally sign the Closing Agreement Approval Document and securely e-mail it to the group manager.
Group manager: When you receive the signed Closing Agreement Approval Document, either:
Return the Closing Agreement Approval Document to the Specialist for additional development, or
Securely e-mail the Closing Agreement Approval Document to the TEB Program Manager for electronic signature.
TEB Program Manager: When you receive the Closing Agreement Approval Document:
Provide comments to the Reviewers (if a Resolution Recommendation) and the group manager, if any, on the proposed response letter (for example, Letter 5562).
If approving, electronically sign the Closing Agreement Approval Document and response letter and securely e-mail each to the group manager and Specialist.
If not approving, return the Closing Agreement Approval Document to the group manager, who notifies the Specialist the case needs further development.
Specialist: When you receive the signed response letter (for example, Letter 5562) from the TEB Program Manager, send the letter to the representative submitting the request and close the RCCMS case file using the disposal code 107.
Issuers may file VCAP requests to correct mathematical, typographical, and similar errors on Form 8328, Carryforward Election of Unused Private Activity Volume Cap:
The Specialist will review the request to determine whether the errors were a result of mathematical, typographical, or other errors of a similar nature.
The Specialist will prepare a briefing memorandum, that includes a description of the circumstances that caused the error, any relevant analysis, and a recommendation, and will prepare Letter 6252. The Specialist may request input from the Reviewers, if needed.
The Specialist will attach the memo and Letter 6252 to the Closing Agreement Approval Document and forward it to the group manager for review and concurrence.
Upon concurrence, the group manager will forward the Closing Agreement Approval Form to the Reviewers.
The Reviewers will consider whether the request falls within the parameters appropriate for resolution under VCAP, note any changes to Letter 6252, digitally sign the Closing Agreement Approval Document, and return it to the group manager.
The group manager will forward the Closing Agreement Approval Document, including Letter 6252, to the TEB Program Manager for approval and signature.
Upon receipt of the signed Closing Agreement Approval Form, the Specialist will send Letter 6252 signed by the TEB Program Manager to the issuer. The Specialist will include a copy of the corrected Form 8328, stamped at the top with the date the IRS received the corrected form.
The Specialist will forward a copy of the corrected Form 8328 to the IRS Service Center in Ogden using Form 3198-A, noting under Other instructions that the corrected return (Form 8328) was secured through a VCAP closing agreement pursuant to IRM 3.11.26.4.22, Form 8328, paragraph (6) Exception.
The Specialist will finalize the case file on RCCMS and forward the case to the group manager for final review and closure.
This section describes the required VCAP submission request and case assignment procedures.
Completed Form 14429, Tax Exempt Bonds Voluntary Closing Agreement Program Request.
Statement under penalties of perjury with all required information listed in Exhibit 7.2.3-1 containing the following declaration, signed by an individual with personal knowledge of, or responsibility over, the information in the submission and authorized by the issuer:
Copy of the Form 8038 series information return filed with the IRS.
If the violation relates to IRC 148 requirements, also include a copy of any Forms 8038-T and Forms 8038-R related to the bond issue and submitted to the IRS.
If the issuance is a direct pay bond, include a copy of all Forms 8038-CP filed for the bond issue.
Executed Form 2848, Power of Attorney and Declaration of Representative, if applicable, declaring a representative authorized to represent the issuer before the IRS with respect to the bond issue. The request may also include an executed Form 8821, Tax Information Authorization, authorizing the IRS to communicate with a third party (for example, conduit borrower, trustee) with respect to the bond issue.
A draft closing agreement based on the VCAP Model Closing Agreement, completed as appropriate:
See TEB VCAP Model Closing Agreements.
The issuer must follow the VCAP Model Closing Agreement when completing the submitted draft closing agreement. If the issuer believes modifications are necessary, it must notate the proposed change on their submitted draft closing agreement and the reasons for the modifications.
If the VCAP request is for a violation for which a Specialty Template Agreement exists, the issuer must follow the Specialty Template Agreement.
If the issuer is submitting a request to correct errors on Form 8328, it is not necessary to include a VCAP Model Closing Agreement.
VCAP resolves violations of the IRC or applicable Regulations based upon the issuer’s representations of facts submitted under penalties of perjury. Subject to its discretion to require additional information in appropriate circumstances, TEB Technical generally relies on those representations of facts as true and accurate and will not review books or records to confirm or verify the facts. TEB Technical may rely on representations of facts submitted by a party other than the issuer (for example, conduit borrower, trustee) under penalties of perjury and, with that reliance, require that the issuer certify under penalties of perjury that to the best of the issuer’s knowledge such facts are true and accurate. See IRM 7.2.3.1.10 for when a closing agreement won’t be final.
The procedures in this subsection apply to the Intake Coordinator. The TE/GE Compliance Planning and Classification, Planning and Monitoring function assigns a Closing Group to oversee VCAP case intake. That group’s manager assigns an Intake Coordinator.
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The Intake Coordinator monitors the e-mail inbox and mail stop for TEB VCAP requests received. Issuers e-mail VCAP requests to TEBVCAP@irs.gov or mail them to the address below or another address posted at Tax-Exempt Bonds with directions that it supersedes one or more of these addresses:
Internal Revenue Service
P.O. Box 1190
Mail Stop 1112
Ogden, UT 84402-1190
Attention: TEB VCAPFor UPS orFedEX:
Internal Revenue Service
2730 Washington Blvd.
Box 1190
Mail Stop 1112
Ogden, UT 84401
Attention: TEB VCAP For each VCAP request, the Intake Coordinator must:
Verify the issuer submitted an executed Form 14429, the required penalties of perjury statement per IRM 7.2.3.2.1 (2) and a copy of the signed Form 8038 series information return for the bonds. Neither Form 14429 nor the Form 8038 series information return is required for an anonymous request.
Research the bond issue’s examination history. If the bond issue is currently under examination, notify the TEB Technical manager and send a copy of the submission to the examination group’s manager. A bond issue is generally treated as under exam on the date an opening examination letter is issued and in either status 10 or 12. With the TEB Technical Manager’s concurrence, return the request to the issuer informing the issuer that VCAP is unavailable, do not establish the VCAP case on RCCMS, and take no further action.
If the submission doesn’t contain the signed Form 14429, the required penalties of perjury statement, or a copy of the signed Form 8038 series information return for the bonds, within five business days of identifying the missing information, take the following steps:
Inform the issuer and the authorized representative, in writing, using Letter 5685 that the IRS has received the request but needs more information before assignment.
Identify the missing information.
Request that they send the missing items by the response date that is 21 calendar days after the date of the Letter 5685.
Allow 21 calendar days for a response to your request for additional information.
Obtain your manager’s approval for any extensions.
If the issuer does not provide the information, return the VCAP submission to the issuer using Letter 5566. Make a referral to TEB (see procedures below) but do not establish the VCAP case on RCCMS.
Referral Procedures:
Research IDRS before you initiate a referral to determine whether the issuer is currently under examination by another business operating division. If so, contact the TEB Technical Manager to advise that you are referring a case that was initially received as a VCAP request.
Refer the bond issue using Form 5666, TE/GE Referral Information Report. Follow the instructions for completion of Form 5666 in Exhibit 7.2.3-1.
Referrals must be made as soon as possible during your review but no later than 30 days after it is determined that a referral is needed.
Complete Form 5666. Form 5666 should include a description of the referral: "The issuer did not provide the requested information that is needed to perfect the VCAP request."
Securely e-mail Form 5666 to Classification at:*Manager EO Classification.
Ensure the subject line of the e-mail states "GE Exam Referral for Expedited Establishment."
If the submission contains the Form 14429, the required penalties of perjury statement, and a copy of the signed Form 8038 series information return for the bonds, either as originally submitted or after supplementation after contact, then establish and process the VCAP case for assignment per IRM 7.2.3.3.1.
Note:
Processing a case for assignment or assigning the case to a specialist does not waive the IRS’ right to close the case for failing to include all required information and items.
Note:
For anonymous requests, the Intake Coordinator establishes the case on RCCMS using the process in IRM 7.2.3.2.2 (1) and establishes the VCAP case name "Anonymous – [representative’s last name]." List the tax period based on the submission date and use a generic report number. List the appropriate project code for the type of bond, if you can determine it from the submitted material.
This section describes the case processing procedures for TEB VCAP cases.
Intake Coordinator:
Establish a compliance activity in RCCMS for the VCAP case. Establish each Form 8038 series information return for the submission request as a separate compliance activity. Establish in status 8.
Assign the compliance activity to TEB Technical requesting status 10.
Group manager: When you receive the VCAP case from the Intake Coordinator, generally assign it to a Specialist who can begin the VCAP case as soon as possible but no later than 15 business days after receipt.
The procedures in this section apply to the Specialist. When you receive a VCAP case assignment:
Within five business days, give the issuer or authorized representative, if applicable, your contact information and submit Form 2848 or Form 8821 to the Centralized Authorization File. Follow the guidance in IRM 4.70.11.10, Power of Attorney (POA) and Tax Information Authorization (TIA) for required information and procedures. Follow up by sending Letter 5585, TEB VCAP Welcome Letter, or Letter 5862, TEB VCAP Welcome - Anonymous VCAP Letter for an anonymous submission. Notate your actions in the case chronology record (CCR).
When you first charge time to the case, update the status to 12 in RCCMS and notate your actions in the CCR.
Review the request to verify that it has all the required completed information per IRM 7.2.3.2.1.
Note:
For a violation that affects multiple issuers or bond issues, such as a composite issue, absent extraordinary circumstances, each issuer of an affected issue must join in the request and provide the information required in lines 1-6 of Form 14429 in an attached schedule. In the case of extraordinary circumstances, the issuer may submit an explanation for this request and forgo supplying information about the other issuers and affected bond issues, but the IRS may determine that this information is necessary.
Determine whether you need any additional information or authorizations. Remember to secure Forms 2848 and 8821, if applicable. If a borrower is involved, consider if it needs to provide Form 8821, as well. If you need additional information/authorizations, request the information/executed forms from the issuer/representative. The issuer/representative must submit any additional information in written statements under penalties of perjury per IRM 7.2.3.2.1(2).
Request the issuer submit the additional information or executed forms within 21 calendar days, using Letter 5685 . You may, with your group manager’s approval, allow one 21 day extension. The TEB Program Manager must approve any additional extensions. Document the extension with a specific date in Letter 686(DO) sent to the issuer. If applicable, copy any representative via Letter 937, Transmittal for Power of Attorney. Document all actions, contact updates and reminders in the CCR.
If the issuer does not provide the information by the requested due date, follow the procedures in IRM 7.2.3.3.7, Unresolved Cases, to determine whether to close the case due to the failure to provide the required information.
When processing the VCAP case, call the issuer or authorized representative with regular status updates as often as appropriate and at least monthly. Notate any granted extensions, all contacts, updates and reminders on the CCR.
When you receive all required information, analyze it, determine the recommended case resolution, and resolve the VCAP case.
When reviewing the VCAP submission for concurrence with a violation and you determine no violation has occurred, with both the group manager and TEB Program Manager’s approval, document the case file and close the case following the procedures in IRM 7.2.3.3.5, Case Closing.
When reviewing direct pay bonds, if the statute of limitations for a Form 8038-CP is in jeopardy and will expire in fewer than 180 days, the Specialist will consult with the TEB Technical manager about requesting a consent to extend the statute from the issuer. Follow the procedures in IRM 4.82.3.4.4, Procedures for Solicitation of Extensions for Direct Pay Bonds. The issuer of the direct pay bonds is the only party permitted to extend the period for assessment for Form 8038-CP returns, regardless of any payee the issuer may have designated on the Form 8038-CP (See IRM 4.82.3.4.6, Name and Address of Taxpayer on Extension Form for Direct Pay Bonds, for more information).
Note:
If an issuer and/or authorized representative responds to a request to extend the assessment statute with questions or other concerns, the Specialist will verbally discuss the taxpayer’s rights to refuse or limit the scope or duration of the extension, the reason for the request, and any other pertinent information, such as how the proposed extension date was determined. Verbal communications regarding statute extension consents must be documented in the case file.
In most VCAP cases, you:
Negotiate the terms of the closing agreement. Use the issuer drafted agreement per IRM 7.2.3.2.1 for suggested terms.
Draft the closing agreement to be executed. In some VCAP cases, you/your group manager may ask the Reviewers to help draft closing agreements.
The issuer must:
Meet the specific time frames in IRM 7.2.3.3.2(2) to submit additional information.
Resolve the VCAP case in good faith and with due diligence.
If you determine that an issuer or authorized representative has not met the required deadlines or is not proceeding toward VCAP case resolution in good faith and with due diligence, discuss with your group manager whether it is appropriate to issue a final demand letter:
Upon your group manager’s and the TEB Program Manager’s concurrence, draft a final demand letter notifying the issuer that we’ll close the VCAP case without resolution 14 calendar days from the date of the letter unless specific actions are taken.
Use Letter 5734, TEB Voluntary Closing Agreement Program 14 Day Letter, and explain the specific actions required and the reasons for the letter.
E-mail the final demand letter to your group manager for the TEB Program Manager’s electronic signature.
Upon receipt of the signed letter, mail it to the issuer and, if applicable, authorized representative using Letter 937-A , Transmittal to Power of Attorney.
Include a copy of the signed letter in the RCCMS case file and notate your actions in the CCR.
If you do not receive a response by the requested due date, close the VCAP case per IRM 7.2.3.3.7.
If at any time during the VCAP case process, you recommend (and both your manager and the TEB Program Manager agree) that, due to unusual circumstances beyond TEB’s control, the VCAP case resolution will require significant additional time without substantial progress toward resolution:
Note on the CCR your recommendation along with your group manager/TEB Program Manager’s concurrence and the expected date of the next action.
Update the status code to 38 on RCCMS.
If 100% of the bonds addressed in the VCAP issue have been redeemed, retired or canceled, notify your manager to discuss the appropriate case resolution.
When you are determining the appropriate resolution:
Apply the standard resolution terms of IRM 7.2.3.4 unless compelling reasons exist to deviate from those terms.
You may increase the resolution amount based on factors such as time delay between the date of the violation and the submission date.
When no standard resolution term applies, defer to the standard resolution terms for guidance.
If the issuer received correspondence in response to an anonymous request, consider it in light of the facts in the complete submission.
Except in unusual circumstances, such as impermissible arbitrage profit exceeding taxpayer exposure, the resolution amount should not exceed 100% of taxpayer exposure on all the outstanding bonds.
RCCMS is the acronym for the Reporting Compliance Case Management System. This system is used for electronic transmission of administrative files between the various functions such as CP&C, TEB Technical, and the closing unit as well as the generation of work papers. An RCCMS electronic case file must include all work papers and pertinent source documents used to resolve the VCAP case prior to closing the VCAP case. RCCMS is the inventory control and case management system for TE/GE.
RCCMS is used to:
Create, control and assign compliance activities.
Store documentation and research supporting case conclusions and automatically back up all stored data files when synchronized with the central database server.
Create appropriate ad-hoc or pre-formatted accomplishments reports. Management uses these reports to evaluate in-process and completed activities.
Specialists are required to use RCCMS when processing their VCAP cases. RCCMS:
Is the official case file documenting the completed activity and will serve as the TE/GE official data source.
Contains data that supports VCAP case conclusions.
Supports the current VCAP process via electronic components that replace manual processes.
Automatically backs up all stored data files when the user synchronizes with the central database server.
Creates, controls and assigns compliance activities.
Specialist assigned VCAP cases:
Control the VCAP case electronic copy(ies) of returns, required forms and related research.
Concurrently prepare, develop, and store workpapers.
Are required to use Microsoft Office software, Adobe pdf files, and RCCMS repository forms, letters and templates.
To ensure data is accurate and current, specialists must:
Post workpapers and issuer provided documents in electronic format in RCCMS within 7 workdays of creation/receipt.
Convert any paper documents deemed relevant to an electronic format using current technology and post to RCCMS as soon as possible, but not later than (7) workdays after receipt.
Complete workpaper updates within RCCMS during the VCAP case processing.
Note:
Issuer supplied exhibits and source documents must be saved only to the extent they are relevant and needed to support the review steps and conclusions reached per the IRM.
Save all documents, forms, and letters, including special handling or closing documents in the RCCMS Office Documents folder using the TE/GE RCCMS Naming Convention. See IRM 4.70.12.5.2, Workpaper Format and TE/GE RCCMS Naming Convention
Specialist should synchronize (sync) to the central database once per workday. The following are examples of actions that require a sync to complete the action:
Actions related to processing AIMS and/or RCCMS updates.
Requests to update, transfer, or close VCAP cases.
Updates/back-ups of VCAP case related documents that have been added or changed since the last sync.
Specialists must use the RCCMS Issue Code data grid throughout the VCAP case process. The RCCMS Issue Code data grid is updated contemporaneously as issues or violations are identified, updated, resolved, or not pursued throughout the VCAP case process. Ensure all identified issues are listed on the RCCMS Issue Code data grid in RCCMS.
Post documents in electronic format to RCCMS within 7 workdays of creation/receipt.
Submit requests to update, transfer, or close cases, as necessary.
Synchronize to the central database once per workday.
Update case related documents that have been added or changed since the last synchronization.
For additional information on RCCMS, please refer to IRM 4.70.11.2.2.1, TE/GE Examinations, Administrative Matters, RCCMS.
An official chronology must be included in every case file to record actions taken on the VCAP case, contacts made, follow-up dates, and time expended. The form is a historical record. Update the chronology at the same time you take actions. Ensure entries are professional, accurate and concise - state facts and omit personal opinions.
One of the two chronology records described in paragraph (b) or (c) must be included in the VCAP case file.
For TEB VCAP cases, specialists may use Form 5464, Case Chronology Record (CCR), but it is not required.
For TEB VCAP cases, specialists may input case activity in the RCCMS embedded chronology under the Chronology tab located within the Compliance Activity window.
The RCCMS embedded chronology:
Allows you to create new chronology records for each activity, review existing activity records, establish follow-up dates, and print the record.
Captures system activities, such as case establishment, transfers, status updates, and so forth.
Provides easy access for managers, reviewers, and other users with access to the RCCMS case file to document their activities involving the case.
Allows for manager documentation of their review and approval of case closures with certain survey disposal codes and will include any applicable special handling instructions as required.
Allows you to add a manual chronology entry. Click on the Chronology tab and select the new chronology button. The Untitled – Chronology Box opens and allows you to input various entries. Complete the required red asterisk fields. Click Save and Close to save your entry.
Include on the chronology, at a minimum, the following entries:
Date the specialist receives the VCAP case.
Date the VCAP case is updated to status 12.
Work you performed before, during, and after issuer/representative contact.
Date the initial contact is made.
Appointments scheduled, including the date, place, time, and contact.
Date and summary of contacts with issuers, representatives, and third parties, whether in person or by phone.
Date of receipt and processing of Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization.
Date(s) you sent or received correspondence to/from the issuer and/or representative and follow-up date(s).
Delays or lack of cooperation by the issuer and/or representative.
Explanations for delays of significant action on the VCAP case by the specialist.
Explanations of any delays in completing the closing agreement resulting from both actions by the IRS (training, details, etc.), and/or the issuer/representative.
The date you issued the draft closing agreement, the date the closing agreement was signed, and the date you received the signed agreement.
Note the date the VCAP case was closed on RCCMS.
Include in the chronology, at a minimum, the following entries for management involvement:
Description of TEB Technical Manager’s involvement, including concurrence of the proposed resolution, and informal discussions about VCAP case development and quality.
Dates of in-process VCAP case reviews, on-the-job-visitations, and workload reviews. The TEB Technical Manager should notate the chronology at the time of involvement.
Date you closed the VCAP case to the TEB Technical Manager.
Date the TEB Technical Manager approved the VCAP case for closing.
Generally, a VCAP case resolution amount is based on the greater of either:
$2,500, or
Taxpayer exposure/credit maintenance amount, as computed in IRM 7.2.3.3.2.4, Computation of Amounts.
In certain circumstances, an alternative VCAP case resolution approach may be considered such as using:
The present value of an alternative minimum tax adjustment.
IRC 150(b) adjustments.
IRC 168(g) adjustments.
Any excessive arbitrage profit, as described in IRM 4.70.14.2.1.5.9.14, TEB - Excessive Arbitrage Profit.
For direct pay bonds, as appropriate under the facts and circumstances, an issuer and TEB Technical may agree to modify the amount of future allowable credit payments the issuer may claim by excluding a portion of interest payments on those bonds from the calculations of the credits.
In certain cases, the closing agreement resolution amount is based on a specified amount. Generally, a specified amount is only appropriate when described in a closing agreement program in published guidance (including Notices and Announcements).
Compute the taxpayer exposure for a VCAP following the steps in IRM 4.70.14.2.1.5.9.7, TEB - Computation of Taxpayer Exposure or credit maintenance amount following the steps in IRM 4.70.14.2.1.5.9.8, TEB - Computation of Credit Maintenance Amount, as applicable, except for these changes:
Base the taxpayer exposure or credit maintenance amount used for a resolution on the Total Nonqualified Bonds, determined per IRM 7.2.3.3.2.3.
The compliance failure disclosed by the issuer is considered to have been identified by TEB on the date the IRS initially receives a disclosed VCAP request, regardless of whether all items required for case assignment have been included (see IRM 7.2.3.2.2).
The taxpayer exposure or credit maintenance amount computation must not exceed the taxpayer exposure or credit maintenance amount on 100% of the bonds in the issue determined under IRM 4.70.14.2.1.5.8.7, TEB - Computation of Taxpayer Exposure, or IRM 4.70.14.2.1.5.9.7, TEB - Computation of Credit Maintenance Amount, as applicable.
When determining a resolution amount based on the Total Nonqualified Bonds in the issue, calculate taxpayer exposure or credit maintenance amount as follows:
Get review and approval of the proposed VCAP case resolution as follows:
If the violation is... And the proposed closing agreement... Then... Consult Reviewers? Described in IRM 7.2.3.4 Does not substantively differ from the TEB VCAP Model Closing Agreement language Prepare a briefing memo following the applicable resolution standard.
Attach the memo and the proposed closing agreement to the Closing Agreement Approval Document.
Forward to your manager for concurrence and submission to the TEB Program Manager for signature.
No (but your group manager or the TEB Program Manager may consult Reviewers) Covered in a Specialty Agreement Template in an announcement or other form of guidance Complies with the guidance (including required Specialty Template Agreement language) Submit the agreement and the Closing Agreement Approval Document to your group manager for approval and submission to the TEB Program Manager for signature. No (but your group manager or the TEB Program Manager may consult Reviewers) Not covered by a Specialty Template Agreement
Not described in IRM 7.2.3.4
Covered by a Specialty Template Agreement, but the closing agreement provides for changes from the agreement template or terms of the guidance
Is described in IRM 7.2.3.4, but the closing agreement has proposed language that substantively differs from the TEB VCAP Closing Model Agreement language
Prepare a briefing memo discussing key facts, applicable law, issuer’s proposed settlement offer, the changes made from the Template or Model Closing Agreement (if applicable), the reason for those changes, and your recommended case resolution.
Send the Closing Agreement Approval Document to your group manager for review and concurrence.
If in agreement, your group manager may forward to the TEB Program Manager for discussion, review and feedback. If the TEB Program Manager provides feedback, address the questions raised.
When your group manager concurs, and you addressed any TEB Program Manager feedback, your group manager sends (or asks you to send), the Closing Agreement Approval Form to the Reviewers for review and comments.
Review, consider and discuss with your group manager, as appropriate, any comments or recommendations made by the Reviewers.
Yes
In negotiating the terms of a closing agreement, the specialist, group manager and the Reviewers, if applicable, ensure the terms:
Are fair and equitable.
Promote voluntary compliance and encourage due diligence in complying with all applicable federal tax laws.
Recognize the difference between the IRS enforcement and voluntary compliance programs.
If the proposed resolution of the case requires review per IRM 7.2.3.3.2.5, the group manager or specialist forwards the Closing Agreement Approval Document with the attached documents to the Reviewers.
Reviewers:
Review the proposed resolution terms to determine whether the resolution terms are generally consistent with other TEB closing agreement resolution terms. If not, the Reviewers evaluate the facts and circumstances of the case and determine whether a valid reason exists for the difference (for example, where an agreement results from VCAP rather than an agreement from an examination.)
Assess whether the closing agreement is enforceable and if the closing agreement language has been substantively modified from the standard language.
Add any relevant comments or recommendations to the resolution terms and closing agreement terms.
May seek advice from Chief Counsel, when a proposed closing agreement contains nonstandard terms or appears to be unenforceable.
Note in the Closing Agreement Approval Document any inconsistencies with other TEB closing agreements or resolution terms.
Sign and return the Closing Agreement Approval Document with attached documents to the group manager.
The specialist and/or group manager:
Reviews and considers any comments and/or recommendations from the Reviewers.
Discusses with the TEB Program Manager the Reviewers’ recommendations with which they disagree.
Forwards the Closing Agreement Approval Document to the TEB Program Manager for final review and approval indicating whether the issuer/authorized representative has agreed to the recommended closing agreement and resolution terms.
The TEB Program Manager:
Reviews the Closing Agreement Approval Documents.
Discusses any concerns with the Reviewers.
If in agreement, notes approval by signing the Closing Agreement Approval Document and returns the approved document to the group manager, with a copy to the Reviewers.
If not in agreement, discusses concerns with the Reviewers and the group manager and returns the case for further development.
The Specialist, after receiving the necessary approvals, follows the closing agreement finalization and execution procedures in IRM 7.2.3.3.4, Specialist: Closing Agreement Finalization and Execution - General Procedure.
Specialist: Confirm that you have the applicable approval per IRM 7.2.3.3.2.5 and IRM 7.2.3.3.3.
Specialist: Once the closing agreement is finalized and approved, send it for signature:
Prepare the final closing agreement in format appropriate for signing.
Prepare and sign Letter 1595 and Letter 937.
Send the agreement to the issuer with Letter 1595 and to the representative with Letter 937. Provide instructions to transmit the closing agreement to the borrower and other party(ies), as necessary
Note:
IRM 10.10.1.6.1, Accepting Images of Signatures and Digital Signatures in Certain Taxpayer Interactions, provides that IRS employees "may accept images of signatures and digital signatures on documents related to the determination or collection of a tax liability or to the settlement of tax controversies." IRS employees must follow the procedures outlined in IRM 10.10.1.6.1, Accepting Images of Signatures and Digital Signatures in Certain Taxpayer Interactions, to authenticate the signature.
Specialist: Contact the authorized representative to indicate that you sent the agreement and restate verbally all the above instructions. Obtain an estimated agreement return date and document in the case file.
Specialist: During the call, remind the issuer or authorized representative that before TEB will execute the closing agreement, the issuer must submit the closing agreement resolution payment (if any), return an executed copy of the agreement with all signatures to the Specialist following the instructions in Letter 1595, and include a copy of the confirmation (Payment Confirmation) of the EFTPS deposit (if any) with the executed agreements.
Specialist: Confirm any actions specified in the agreement, such as filing an amended information return, redeeming bonds, or establishing an irrevocable defeasance escrow, have been completed.
Follow up within two business days if the estimated receipt date for the issuer- executed agreement is not met.
Prepare Letter 1595-B if returning a closing agreement because of errors.
The issuer and the Specialist may call the EFTPS Financial Institution Helpline at 1- 800-605-9876 (Monday – Friday, 8:00 a.m. – 8:00 p.m., Eastern Time).
When the Specialist receives the closing agreement signed by the issuer (and other parties, if applicable):
Monitor and confirm receipt of any closing agreement payment by emailing FAST/BSP at *TEGE FAST, include a copy of the Taxpayer Information Worksheet for the EFTPS deposit and request confirmation. Include “VCAP” and the Report Number from Part I of the Form 8038 series information return in the e- mail.
Include evidence of receipt of payment in the RCCMS case file.
Verify the EIN and electronic funds transfer information match the agreement.
Verify the agreement has not been altered from the draft previously cleared by the Reviewers and approved by management.
Confirm the required signatures for agreements, including the required signatures on the Consent to Disclose Tax Information, Form 15094.
Prepare closing transmittal Letter 1595-D and Letter 937, as applicable, for sending the executed closing agreement to the issuer, the authorized representative(s), and borrower, as applicable.
Securely e-mail the closing agreement and Letter 1595-D to your group manager for review. Include in the e-mail confirmation that the agreement is not modified from the form of closing agreement on the final signed Closing Agreement Approval Form, the TIN and EFTPS amount on the payment confirmation matches the agreement, and you have included a copy of the payment confirmation in the RCCMS case file.
Group manager: After your review, securely e-mail the execution copy of the closing agreement and Letter 1595-D to the TEB Program Manager for execution.
TEB Program Manager: After signing the closing agreement and Letter 1595-D electronically, securely e-mail the signed documents to the specialist and the group manager.
If the agreement is a Specialty Template Agreement executed by the issuer and other parties (if applicable), and complies with the applicable guidance (including the required Specialty Template Agreement language):
Verify receipt of payment and securely e-mail the issuer-executed agreement and Letter 1595 to your group manager for review and forwarding to the TEB Program Manager for signature.
Send a copy of the executed agreement and Letter 1595-D to the issuer.
Sign transmittal Letter 937 and/or Letter 1595-D and send them with copies of the agreement to the authorized representative(s) and other parties to the agreement.
Specialist: Generally, within 10 business days of execution of the closing agreement, or the closing letter, close the VCAP case:
Send the transmittal and case closing letter (Letter 1595-D), and signed closing agreement to the issuer, as applicable, authorized representative and borrower (if any) via the appropriate transmittal letters.
Add to the RCCMS case file, copies of the final transmittal and case closing letters, all other transmittal letters, and the signed closing agreement.
Notify the issuer if an approved response letter closing the case is issued without a closing agreement. Send the appropriate closing letter (for example, Letter 5562, Letter 5564, Letter 5566, or Letter 6065) signed by the TEB Program Manager.
Complete the RCCMS case file.
Transfer the case to your group manager (or delegate) within RCCMS.
If a closing agreement resolves a violation related to bonds for which the issuer irrevocably elected to receive direct payments equal to all or a portion of the interest on the bonds, securely e-mail a final copy of the executed closing agreement to the DPBCRC.
Group manager: After reviewing the case file to confirm completion, request closure in RCCMS using codes 400-20011-7204. Update the case to status 51.
Specialist: In certain situations, the Specialist may close a VCAP case without a final resolution.
Situations include: a withdrawal of the request, a disagreement within a reasonable time after TEB Technical offers a closing agreement; a failure to timely submit information after an IRS final demand letter per IRM 7.2.3.3.2; or failure to negotiate in good faith.
If you recommend closing the case as unresolved, discuss the recommendation with your group manager, and consider an examination referral, and, if applicable, follow the TE/GE referral procedures per IRM 4.70.11.15.4, Referrals to TE/GE Functions.
If your group manager agrees with you, prepare the appropriate closing letter (for example, Letter 5566 or Letter 6065), a briefing memo explaining the reasons for closing the case; and your determination of whether to make an examination referral. Forward these documents to your group manager.
Group manager:
Send the closing letter to the TEB Program Manager for review and concurrence. If the TEB Program Manager concurs, upon its return to you, confirm the closing letter is electronically signed.
After confirmation, forward the signed closing letter to the specialist for closure per case closing procedures IRM 7.2.3.3.6.
If the TEB Program Manager does not concur, notify the specialist the case needs further development.
The IRS requested comments on VCAP operation, including suggestions for standardized closing agreement terms and amounts for particular violations (Notice 2008-31).
On June 11, 2008, the Advisory Committee on Tax Exempt and Government Entities (ACT) issued a report titled The Streamlined Closing Agreement For Tax-Exempt Bonds: A Cure For Common Violations recommending the IRS create programs to allow streamlined treatment of certain tax law violations.
On June 9, 2010, ACT issued a report titled Tax Exempt Bonds: Improvements to the Voluntary Closing Agreement Program for Tax-Exempt, Tax Credit, and Direct Pay Bonds offering additional recommendations.
On June 7, 2018, ACT issued a report titled Recommendations to Encourage Self-Compliance by Issuers of Tax-Advantaged Obligations, recommending additional revisions to VCAP.
The following sections discuss the VCAP resolution standards for specific violations. In the future, TEB may add to the list of resolution standards for specified violations.
The primary compliance objective of the VCAP resolution standards is to promote due diligence by issuers and other parties to the tax-advantaged bond transaction in resolving violations.
The IRS encourages due diligence by offering certainty regarding how a particular violation is resolved and financial incentives for early discovery of the violation.
The main administrative objective of the VCAP resolution standards is to streamline the closing agreement process for specific violations resulting in more efficient processing of cases.
The resolution standards under this section are not available when:
The VCAP request covers multiple violations, even if all the violations are described in this paragraph.
The VCAP agreement does not meet the conditions of IRM 7.2.3.1.10, Effect of TEB VCAP Closing Agreement.
The VCAP’s specific violation isn’t a violation specifically described in this section.
The issuer submits a VCAP request after the latest date specified for resolution under the applicable resolution standard.
TEB Technical determines the issuer is not acting in good faith or is not proceeding with due diligence toward the resolution of the request.
The issuer does not timely respond to TEB Technical’s requests for additional information or to closing agreement proposals from TEB Technical.
IRM sections IRM 7.2.3.4.3, Identified Violations - Tax-Exempt Bonds, and IRM 7.2.3.4.4, Identified Violations - Certain Direct Pay Bonds, contain specific compliance failures and how to determine a Base Amount or resolution amount for those failures.
When a Base Amount is specified in IRM 7.2.3.4.3, Identified Violations - Tax-Exempt Bonds, or IRM 7.2.3.4.4, Identified Violations - Certain Direct Pay Bonds, the resolution amount is the greater of either:
$2,500, or
100% of the Base Amount when the issuer submits the VCAP request within six months of the date of the Deliberate Action giving rise to the compliance failure.
Generally, the resolutions standards apply to VCAP requests received within one year of the date of the Deliberate Action. If an issuer does not submit within one year of the compliance failure or by the latest date otherwise specified for the applicable resolution standard, the issuer may still resolve the violation through the VCAP general procedures on terms deemed appropriate under the facts and circumstances.
Generally, the resolution standards described in IRM 7.2.3.4.3. Identified Violations - Tax-Exempt Bonds, apply only to violations that relate to tax-exempt bonds. However, an issuer of tax credit bonds or direct pay bonds may propose to use these standards in a TEB VCAP request if the resolution is in the best interest of the United States in light of the benefit conferred upon the issuer or bondholders from the related transaction. Process these requests under general VCAP procedures. IRM 7.2.3.4.4, Identified Violations - Certain Direct Pay Bonds, contains specific resolution standards for tax credit and direct pay bonds.
IRM 4.70.14.2.1.5.9, TEB - Tax Exempt Bonds Closing Agreements, contains information on calculating taxpayer exposure, credit maintenance amount, alternative minimum tax adjustment, and other bases for resolution amounts. As stated in IRM 7.2.3.3.2 the taxpayer exposure or credit maintenance amount upon which the resolution amount paid in a VCAP closing agreement is based will not be greater than 100% of taxpayer exposure or credit maintenance amount on the issue as computed in IRM 4.70.14.2.1.5.9.3, TEB - Closing Agreement Terms.
If the issuer notes that certain facts and circumstances for the identified violation warrant special consideration, the issuer should propose a modification to the proposed closing agreement terms. Process these requests under general VCAP procedures.
Generally, funds used to pay the resolution amount or to redeem, defease, retire, cancel, fund a defeasance escrow for, or otherwise remediate violations for bonds must not be proceeds of tax-advantaged bonds.
When a resolution standard requires redemption of bonds, the issuer must redeem and retire and cancel the bonds that are subject to redemption before the date IRS executes the closing agreement. For bonds that can’t be redeemed or cancelled before the execution date, the issuer must establish and fund an irrevocable defeasance escrow to defease the callable bonds to their first call date and issue an irrevocable notice of redemption for that date. The issuer must complete these actions before the date the IRS executes the closing agreement.
Excessive Nonqualified Use. Certain use of proceeds requirements are imposed upon governmental bonds and various qualified private activity bonds under IRC 141(b), 142(a), 143(b)(1), 144(a)(12)(B), 144(b)(2), 144(c)(1), 145(a)(2), 147(g), 1394(a), 1400L(d), 1400N(a)(2), and 7871(c)(3)(B). These provisions limit to certain defined percentages the amount of proceeds that may be allocated to nonqualified purposes.
Covered violation. When an issuer takes a Deliberate Action that causes the amount of proceeds allocated to nonqualified purposes to exceed the defined percentage limitations.
Base Amount. The taxpayer exposure on the Total Nonqualified Bonds computed per IRM 7.2.3.3.2.4, with the period for computing taxpayer exposure beginning on the date of the Deliberate Action and ending on the date the Total Nonqualified Bonds are redeemed and retired or cancelled.
Additional requirements. The issuer must redeem and retire and cancel the Total Nonqualified Bonds.
Ownership of Qualified 501(c)(3) Bond-Financed Property. All property provided by the net proceeds of a qualified 501(c)(3) issue must be owned by a 501(c)(3) organization or a governmental unit (IRC 145(a)(1)).
Covered violation. When property provided with the net proceeds of a qualified 501(c)(3) issue is owned by a person other than a 501(c)(3) organization or a governmental unit.
Base Amount. The taxpayer exposure on the Total Nonqualified Bonds computed per IRM 7.2.3.3.2.4, with the period for computing taxpayer exposure beginning on the date of the Deliberate Action and ending on the date the Total Nonqualified Bonds are redeemed and retired or cancelled.
Additional resolution standards. The issuer must redeem and retire and cancel the Total Nonqualified Bonds.
Failure to Provide Notice of Defeasance. An issuer that remediates nonqualified bonds by establishing an irrevocable defeasance escrow must notify the IRS in writing within 90 days of the date they establish the defeasance escrow (26 CFR 1.141-12(d)(4), 26 CFR 1.141-2(c)(2), or 26 CFR 1.1397E-1(h)(8)(iii)(C)(3), and 26 CFR 1.150-5(a)(1)).
Covered violation. When an issuer does not successfully remediate nonqualified bonds because it inadvertently does not notify the IRS timely in writing that it established a defeasance escrow to remediate nonqualified bonds as required under 26 CFR 1.141-12(d), CFR 1.142-2(c) and CFR 1.1397E-1(h)(8)(iii)(C)(3) .
Resolution amount. When the issuer submits a VCAP request within six calendar months of the end of the required period to provide timely notice that it established a defeasance escrow, the issuer may resolve the failure under a closing agreement by paying $2,500. When the issuer submits the request more than six calendar months but within one year of the end of the required period to provide timely notice, the resolution amount is $5,000.
Failure to Call Defeased Bonds Within 10.5 Years of Issuance. An issuer may only remediate nonqualified bonds (issued after May 16, 1997) by establishing an irrevocable defeasance escrow if the period between the issue date of the bonds and the first call date of the bonds is 10.5 years or less (26 CFR 1.141-12(d)(5) and CFR 1.142-2(c)(3) ).
Covered violation. When the issuer fails to successfully remediate nonqualified bonds by timely establishing an irrevocable defeasance escrow because all or a portion of the defeased nonqualified bonds are not callable within 10.5 years of the issue date.
Base Amount. The taxpayer exposure on the bonds for only nonqualified bonds that are not callable within 10.5 years of issuance, with the period for computing taxpayer exposure beginning on the later of the date 10.5 years after the issue date or the date of the Deliberate Action and ending on the date the bonds will be redeemed under the defeasance escrow.
Additional requirements. The issuer must establish an irrevocable defeasance escrow for all nonqualified bonds, under the rules for creating a defeasance escrow under 26 CFR 1.141-12(d), other than 26 CFR 1.141-12(d)(5).
Alternative Minimum Tax Adjustment. The interest on certain qualified private activity bonds is treated as an item of tax preference for the alternative minimum tax. IRC 57(a)(5)(C)(ii) provides an exception to this rule for qualified 501(c)(3) bonds (IRC 57(a)(5)).
Covered violation. When a change in the use of the proceeds of a bond issue not subject to the alternative minimum tax ("non-AMT bonds" ) occurs resulting in the bonds being re-characterized as subject to the alternative minimum tax ("AMT bonds" ). A violation is covered only when the proceeds of the bonds were first expended for a purpose that at the time of the expenditure would not make the bonds subject to the alternative minimum tax.
Base Amount. The Base Amount for this violation is the alternative minimum tax adjustment on the bonds (see IRM 4.70.14.2.1.5.9.10, TEB - Computation of Alternative Minimum Tax Adjustment) beginning on the date of the Deliberate Action and ending on the date the bonds are no longer outstanding.
Capital Expenditure Limitation Failure. Under IRC 144(a)(1), qualified small issue bonds must have an aggregate face amount of not more than $1,000,000, unless an issuer makes an election under IRC 144(a)(4)(A) for the $10,000,000 limitation to apply. Under IRC 144(a)(4), in determining whether an issue meets or exceeds the $10,000,000 limitation, the issuer must include the sum of:
The aggregate amount of certain outstanding qualified small issue bonds described in IRC 144(a)(2).
The aggregate amount of capital expenditures described in IRC 144(a)(4)(A)(ii) with respect to facilities described in IRC 144(a)(4)(B) (as modified by IRC 144(a)(4)(G), when applicable).
Covered violation. When the sum of the face amount of the bonds, other outstanding bonds required to be taken into account and capital expenditures to be taken into account for purposes of IRC 144(a)(4) exceeds $10,000,000 (as modified by IRC 144(a)(4)(G), when applicable).
Base Amount. The Base Amount for this violation is the taxpayer exposure on the Total Nonqualified Bonds, with the period for determining taxpayer exposure beginning on the date the violation occurs and ending on the date the Total Nonqualified Bonds are redeemed and retired or cancelled.
For this purpose, the Total Nonqualified Bonds are bonds of the issue having a principal amount equal to the amount by which the applicable limitation is exceeded and for which the average maturity of the bonds remaining after these bonds are redeemed will not be greater than the average maturity of the bond issue before these bonds are redeemed.
Additional requirements. The issuer must redeem and retire or cancel the Total Nonqualified Bonds.
Maturity Exceeding 120% of Economic Life. The average maturity of certain qualified private activity bonds may not exceed 120% of the average reasonably expected economic life of the facilities being financed with the net proceeds of the issue (IRC 147(b)).
Covered violation. When the net proceeds allocated to property are from bonds that have an average maturity exceeding 120% of the average reasonably expected economic life of that property.
Resolution standards. When the issuer submits the VCAP request within six calendar months of the violation date giving rise to the request, the issuer may resolve the violation by redeeming or defeasing to an early redemption date an amount of the bonds sufficient to reduce the weighted average maturity of the issue to 120% of the economic life of the financed property and paying the IRS a resolution amount of $2,500.
Note:
When an issuer submits the request more than six calendar months but within one year of the date of the violation giving rise to the VCAP request, the issuer must redeem or defease an amount of the bonds sufficient to reduce the weighted average maturity of the issue to 120% of the economic life of the financed property and pay the greater of 110% of taxpayer exposure on the redeemed or defeased bonds or $5,000.
Impermissible Advance Refunding. IRC 149(d) generally prohibits the advance refunding of any other bond. IRC 149(d), as in effect before January 1, 2018, generally prohibited the advance refunding of:
Any qualified private activity bond issue other than a qualified 501(c)(3) bond issue, or
Any governmental bond issue or qualified 501(c)(3) bond issue that has already been advance refunded.
Note:
IRC 149(d) notes that a bond is treated as issued to advance refund another bond if issued more than 90 days before the redemption of the refunded bond. A current refunding issue is defined as a refunding issue that is issued not more than 90 days before the final payment of principal and interest on the prior refunded issue. An advance refunding issue is a refunding issue which is not a current refunding issue. See 26 CFR 1.150-1(d)(3) and (4).
Covered violation. When the issuer of a refunding issue uses proceeds intended for a current refunding to pay the principal on a prior issue more than 90 days from the issue date of the refunding issue and, if the refunding issue is issued before January 1, 2018, the prior issue is not permitted to be advance refunded under IRC 149(d) as in effect prior to January 1, 2018.
Base Amount. The taxpayer exposure on the refunding bonds, with the period for computing the taxpayer exposure beginning 90 days after the issue date of the refunding bonds and ending on the final redemption date of the prior refunded issue.
Additional resolution standards. The issuer must represent that the refunded bonds were callable within 90 days of the issue date of the refunding issue, and the refunding was intended to result in redemption of the refunded bonds within 90 days of issuance of the refunding bonds, but an error resulted in the actual redemption of the refunded bonds occurring later than intended.
Failure to Timely Reinvest Proceeds into SLGS. An issue is treated as consisting of arbitrage bonds if any portion of the proceeds is intentionally used directly or indirectly to acquire higher yielding investments (IRC 148(a)). Under IRC 148(b)(1), a higher yielding investment is any investment property which produces a yield over the term of the issue which is materially higher than the yield on the issue. For this purpose, see definitions of materially higher yield in 26 CFR 1.148-2(d).
Example:
Investments held in a refunding escrow are treated as higher yielding investments when the yield on those investments over the life of the escrow produces a yield which is more than 1/1000 of 1% higher than the yield on the bond issue.
Covered violation. When a party to the escrow agreement violates the escrow agreement by not timely reinvesting proceeds of a refunding issue, upon the maturity of investments (for example, failure to reinvest proceeds of a matured guaranteed investment contract in Zero Percent Time Deposit SLGS in an efficient escrow).
Resolution standards. When the issuer submits the VCAP request within 60 days of the next required computation date after the date of the reinvestment failure, the issuer may resolve the violation by ensuring the IRS receives payment of an amount equal to the sum of the following:
An amount which, if treated as a payment for the investments held in the escrow, would reduce the yield on the escrow to the bond yield; plus
An amount equaling interest accrued at the underpayment rate under IRC 6621 on the payment described above, computed for the period beginning on the date the payment would have been due if treated as a yield reduction payment and ending on the date the payment is actually paid to the IRS. For this purpose, proceeds the trustee holds because it failed to reinvest as required may, absent an alternative investment, be treated as if such had been invested in, and received interest payments from, SLGS bearing the maximum available interest rate on the date of the investment failure for a SLGS investment with a maturity on the scheduled maturity date under the escrow agreement for the Zero Percent Time Deposit SLGS that failed to be acquired, or such earlier date as of which Zero Percent Time Deposit SLGS were actually purchased with the proceeds subject to the investment failure. The maximum available SLGS interest rate for any day of investment and applicable maturity is to be determined from the SLGS Daily Rate Table available on the Treasury Direct website.
Failure to Satisfy TEFRA Public Approval Requirement in Connection with Status of Applicable Elected Representative. Certain private activity bonds are not qualified bonds unless the issuer of the bonds has satisfied the public approval requirement (TEFRA Approval) of IRC 147(f)(2).
Covered violation. A violation is covered by this paragraph when an issuer of private activity bonds for which TEFRA Approval is required issues the bonds without obtaining approval from an applicable elected representative as defined in IRC 147(f)(2)(E)(i).
Resolution standards. When the issuer submits the TEB VCAP request within six calendar months of the date of issuance, the issuer may resolve the violation by paying an amount equal to the greater of (i) $2,500 or (ii) 5% of taxpayer exposure, with the period for computing taxpayer exposure beginning on the issue date of the bonds and ending either on the date TEB received VCAP or on an alternative date which is more appropriate for the VCAP (for example, the date that otherwise proper approval is obtained or a date that is based on the issuer’s subsequent actions with respect to the violations).
Additional Resolution Standards. The issuer will represent in the closing agreement that:
It made a good faith effort to obtain a TEFRA Approval before the bond issuance.
It reasonably relied on an approval from an individual that it mistakenly thought met the requirements of an "applicable elected representative" under IRC 147(f)(2)(E)(i).
Its records relating to the bonds (including any records relating to the issuer's good faith effort to obtain TEFRA Approval) do not indicate substantial public opposition to the bonds.
The issuer has taken actions that would constitute TEFRA Approval for the bonds if taken prior to issuance of the bonds.
Extinguishment/Merger.Notice 2008-41, as modified by Notice 2008-88, and Notice 2010-7 provided certain temporary rules that allowed certain issuers to purchase and hold their own tax-exempt bonds for temporary holding periods ("extinguished bonds" ) without causing those bonds to be treated as retired under IRC 103 and 141-150. Those temporary rules expired on December 31, 2010. Notice 2020-25 provided a similar temporary rule for bonds purchased and held during 2020. Announcement 2011-19 provided additional relief when issuers were unable to resell their bonds by December 31, 2010 by providing certain terms under VCAP if the VCAP request was submitted no later than December 31, 2012.
Covered violation. When the holder of an obligation that is extinguished for purposes of IRC sections 103 and 141-150 excludes from gross income the interest income paid on such obligation.
Resolution standards. The issuer may treat the extinguished bonds as outstanding even though the issuer holds the bonds during the period (the "extinguished period" ) that:
Begins on the later of January 1, 2011, or the date the issuer purchases its own bonds.
Ends on the earlier of the date 180 days after the execution of the closing agreement or such earlier date requested by the issuer. To receive this treatment, the issuer must:
Adopt a resolution that it intends to resell or currently refund the issuer’s extinguished bonds as tax-exempt bonds within specified timeframes.
Represent in writing that the issuer’s extinguished bonds are legal, valid and binding obligations under state law and that the bonds qualify as tax-exempt obligations of the issuer under IRC 103.
Pay an amount equal to the greater of $2,500 or the par value of the extinguished bonds multiplied by 0.029% for each month during the extinguished period.
Generally, the resolution standards described in this section only apply to violations that relate to the Direct Pay Bonds.
Excessive Nonqualified Use; expenditure period failure. Build America bonds under IRC 54AA or recovery zone economic development bonds under IRC 1400U-2(b) are taxable state and local government bonds that cannot be private activity bonds under IRC 141 (IRC 54AA(d)). Under IRC 54AA(g)(2), IRC 1400U-2, and IRC 54A(d)(2), as applicable proceeds of Build America Bonds, Recovery Zone Economic Development Bonds and Qualified Tax Credit Bonds are subject to certain use of proceeds requirements and limitations.
Covered violation. When the issuer of build America bonds, recovery zone economic development bonds or qualified tax credit bonds fails to use proceeds of the bonds as required by, or takes a Deliberate Action that causes proceeds to be used in a way that doesn’t comply with, the requirements or limitations under IRC 54AA, IRC 1400U-2, or IRC 54A(d)(1), as applicable.
Base Amount. The credit maintenance amount is calculated based on the Total Nonqualified Bonds. For this purpose, the credit adjustment period used to calculate the credit maintenance amount begins on the date of the violation and ends on the date the nonqualified bonds are redeemed and retired or cancelled. The credit adjustment period may be shortened when the issuer and TEB Technical agree to modify the debt service schedule to treat the nonqualified bonds as no longer outstanding for purposes of requesting IRC 6431 credits (See IRM 4.70.14.2.1.5.9.8, TEB - Computation of Credit Maintenance Amount).
Additional Resolution standards. The issuer must identify the nonqualified bonds in a manner consistent with 26 CFR 1.141-12(j) for build America bonds and recovery zone economic development bonds that meet the private activity bond tests and in a manner consistent with Rev. Proc. 2018-26, section 4.05, for other nonqualified uses of build America bonds under IRC 54AA and recovery zone economic development bonds under IRC 1400U-2 and tax credit bonds subject to IRC 54A. The issuer must identify the amount of disposition proceeds, if any, resulting from the compliance failure. Any disposition proceeds not applied to the redemption of bonds or the payment of the resolution amount under the agreement must be used for a qualifying use of proceeds of the bonds (without considering time limits imposed for use of those proceeds). Any closing agreement permitting the shortening of the credit adjustment period through a prospective modification of the debt service schedule for purposes of calculating IRC 6431 credits must require such modification to be structured such that the issuer is prevented from requesting refundable credits with respect to an amount of bonds equal to 100% of the nonqualified bonds.
De Minimis Premium Violation. The issue price of build America bonds and recovery zone economic development bonds for which the issuer receives direct payments, per IRC 6431, equal to a portion of the interest on those bonds must be not greater than the principal amount of each bond plus a de minimis amount of premium over the stated principal amount of each bond pursuant to IRC 54AA(d)(2)(C). Notice 2010-35 imposes a rule similar to the rule in IRC 54AA(d)(2)(C) on specified tax credit bonds under IRC 6431(f)(3) with more than a de minimis amount of premium.
Covered violation. A violation is covered by this paragraph on the issue date when any maturity of bonds for which the issuer receives direct payments, pursuant to IRC 6431 is issued at a price in excess of the permissible price.
Resolution standards. When the issuer submits the VCAP request with respect to one or more fixed rate direct pay build America bonds, recovery zone economic development bonds, or specified tax credit bonds described in IRC 6431(f)(3), the issuer may resolve the violation under the following closing agreement terms. For purposes of the closing agreement, the stated interest rate for each maturity originally issued at a price in excess of the permissible price will be adjusted to an interest rate that corresponds to the yield of the maturity assuming that the maturity was sold at the maximum permissible price (the “Adjusted Interest Rate”). The issuer will pay an amount equal to the greater of (i) $2,500 or (ii) 120% of the credit maintenance amount on the bond maturity, computed by assuming that the bond maturity accrued or will accrue interest (taking into account scheduled sinking fund payments but without regard to any optional call) at an interest rate equal to the difference between the original interest rate on the bond maturity and the Adjusted Interest Rate. For this purpose, the credit adjustment period that begins on the issue date and is used to calculate the credit maintenance amount may be shortened when the issuer and TEB Technical agree to modify the debt service schedule for purposes of requesting IRC 6431 credits (See IRM 4.70.14, Resolving the Examination). Any closing agreement permitting the shortening of the credit adjustment period through a prospective modification of the debt service schedule may provide an Adjusted Interest Rate for each maturity that will be used for purposes of calculating IRC 6431 credits thereafter.
Extinguishment/Merger. A debt instrument generally is treated as retired or extinguished when an issuer acquires its own debt because a merger of the interests of the issuer and the holder occurs. When direct pay bonds are acquired by the issuer of the bonds (for purposes of this section, the "Initial Acquisition" ), such bonds become extinguished for federal tax purposes and the issuer is not entitled to refundable credit payments equal to a portion of the interest on the extinguished bonds from and after the date of the Initial Acquisition.
Covered violation. When an issuer claims a refundable credit with respect to interest on extinguished bonds that accrued or that will accrue from and after the date of the Initial Acquisition. An issuer may later sell those bonds to the public, a Subsequent Sale, in which case the bonds may be treated as reissued. The Deliberate Action occurs on the date the issuer engages in the transaction that extinguishes the bonds.
Base Amount. The credit maintenance amount on the portion of the bonds acquired by the issuer through the Initial Acquisition (taking into account scheduled sinking fund payments on a pro rata basis, if any). For this purpose, the credit adjustment period used to calculate the credit maintenance amount begins on the date of the Initial Acquisition and ends on the first interest payment date on the bonds scheduled after the date of the closing agreement. If the Initial Acquisition occurred during the primary offering of the direct pay bonds, the Base Amount also includes an amount equal to any profits realized by the issuer or any related party to the issuer from the Subsequent Sale.
Additional resolution standards. In the request, the issuer must represent that at all times from their original issue date the bonds acquired by the issuer through the Initial Acquisition:
Are outstanding for purposes of state law and constitute legal, valid and binding obligations of the issuer under applicable state law.
Assuming that the bonds are treated as remaining outstanding for purposes of IRC 103, 141-150, or IRC 54A and either 54C, 54D, 54E, or 54F (as applicable), qualify as "obligations" of the issuer under IRC 103 or 54A, as applicable.
The closing agreement will provide that:
The Initial Acquisition will not have resulted in an extinguishment of the bonds before the closing agreement’s effective date for federal tax purposes (except for direct pay bonds under IRC 6431 as otherwise provided by the closing agreement terms).
The IRS will treat the bonds as having not been extinguished due to the Initial Acquisition or reissued as a result of the Subsequent Sale (except for direct pay bonds under IRC 6431 as otherwise provided by the closing agreement terms).
| Form 5666 is prepared whenever an information notice is required or a referral for a future year examination is recommended. A review of the data from CC ERTVU or BRTVU (for TEB referrals) must be used in making the determination to make a referral for incomplete VCAP requests. Prepare Form 5666 as follows: |
| Position Number | Description | Definition |
| Line 1 | ||
| 1-5 | CC AM424 | Self-explanatory |
| 6 | Definer Code | Enter "P" for EPMF only |
| Referral or Information Report | "X" the applicable box to indicate whether it is a referral or an information request. | |
| A | Organization/Taxpayer/Plan Name | Enter the complete name of the organization, taxpayer or plan name. |
| B | Street Address | Enter the organization’s, taxpayer’s or plan name’s complete street address. |
| C | City, State and Zip Code | Enter the city, state and zip code. |
| 7-8 | Source Code | Enter the appropriate 2-digit source code. Refer to Document 11308, Information System Codes for TE/GE Employees, for a listing of valid source codes. |
| 10-12 | Primary Business Code (PBC) | Enter the 3-digit business segment code established for the TE/GE Technical Time Reporting System (ETS). |
| 14-18 | Secondary Business Code (SBC) | Enter 5 zeros (00000) - the secondary business code is currently not being used for TE/GE. |
| 20-23 | Employee Group Code (EGC) | Enter the appropriate 4-digit employee group code established for the TE/GE Technical Time Reporting System (WebETS). The Employee Group Code must be in the range of:
|
| 25-26 | MFT | Enter the appropriate 2-digit Master File Tax account code (MFT). Refer to Document 11308, Information System Codes for TE/GE Employees, for a listing of valid MFTs. |
| 28-29 | Status Code | Status code "06" is preprinted on the form. Do not make any changes to this entry. |
| 31 | Return Not Requested | When only an examination assembly is required, enter an "X" in the box. When both the return and an examination assembly are required, leave this item blank. |
| 33-36 | Project Code | Enter the appropriate 4-digit project code. If a project code does not apply, leave this item blank. Refer to Document 11308, Information System Codes for TE/GE Employees, for a listing of valid project codes. |
| 38 | EP Plan Type For EPMF Returns Only | Enter the 1-digit type of plan. Valid plan types are:
|
| 39-40 | Aging Reason Code | Aging Reason Code 026 is used by TE/GE when establishing the record with an Alpha Code "EE" statute. |
| 41-43 | Push Code | When establishing an account for which the return has not yet posted (delinquent return, substitute for return, current or future year pick- up, etc.), enter the appropriate 3-digit Push Code:
|
| 45-46 | Alpha Day | Enter a 2-character alpha statute code, if needed. The 2-character alpha code will overlay the "DD" (day) portion of the statute date that comes from MF. |
| 48 | Flowthru Indicator | Enter a "1" if this is a discrepancy adjustment for excise, individual, partnership, employment, or corporate return requests. |
| Line 2 | ||
| 1-12 | TIN/File Source | Beginning in the left-most position, enter the organization/taxpayer/plan name 9-digit EIN/SSN (including the dashes). Example: EIN is 12-1234567 or 12- 3456789P. SSN is 123-45-6789. |
| 14-17 | Name Control/Check Digit | Enter the 2-digit check digit. If the check digit is not available, enter the four-character name control. |
| 19-24 | Tax Period | Enter the tax period being requested in YYYYMM format. Example: If a 1999 return is being requested, enter 199912. |
| 26-28 | Activity Code | If the activity code is not known, it must be estimated. When the record comes down from IMF or BMF, the correct activity code will be entered automatically. Exception: If the request is for substitutes for return and returns manually re-established from the retention register. On substitutes for return, enter an estimated activity code because this activity code will override the BMF activity code of 000. |
| 29-38 | Amount Claimed (Dollars Only) | If a claim is involved, enter the amount (in dollars only). Right-justify the entry and do not enter leading zeros, commas, a decimal point, or a dollar sign. If a claim is not involved, leave this item blank. Example: A claim for $11,233.35 would be entered 11233. |
| 40-42 | Plan Number (MFT 74) / Report Number (MFT 46 | Enter the 3-digit plan or report number as reflected on the annual return. |
| D | Forward report to: (Name / Date / Organization / Telephone) | For a referral/information notice enter the name, date, organization and telephone number which the notice is to be sent. For a future year examination, enter "ADMINISTRATIVE FILE." |
| E | Source of Information | For an information notice, indicate the source of the information by entering an "X" in the applicable box. Leave blank for a future year examination. |
| F | Tax Period | Enter the tax period in YYYYMM format. |
| G | MFT / Plan / Report Number | Enter the 2-digit MFT or 3-digit Plan/Report Number. |
| H | Future Year (EP/EO/GE) | For an information notice, leave this item blank. For a future year examination, enter the tax year for which the future examination is being recommended. |
| I | Future Year Code (EP/EO/GE) | For an information notice, leave this item blank. For a future year examination, enter the Push Code that was used on Form 5597, prepared to establish the future year request on IMF/BMF. The Push Codes are:
|
| J | Name/EIN of Related Cases | Enter the name and EIN of any related cases. |
| K | Statute Date | Enter the statute of limitations date in MMDDYYYY format. |
| L | Prepared By | Enter the preparer’s name. |
| M | Approved by / Date | Requests for returns or AIMS controls initiated by a Specialist must be signed by the manager, or their designee, of the preparer and include their title and the date. |
| N | Record on File | These items are completed by the Terminal Operator and are completed whenever an account being established is already on AIMS. The following information (reading columns from left to right) is recorded when applicable:
|
| O | Information Obtained | Provide the information needed by the receiving function to handle the referral. If an examination is being recommended, include a brief description of the circumstances involved, the appropriate Code section, dollar amount and statute date. |
| P | Action Taken | Leave this item blank. To be completed by the function receiving the referral. |
| Q | Examination Classification Action | Leave this item blank. To be completed by the function receiving the referral. |
| a | Bond issuer’s information |
| 1 | Name | |
| 2 | EIN | |
| 3 | Street address, city, state, and zip code | |
| 4 | Name, title, and telephone number of an official of the issuer we may contact for additional information. |
| b | Bond issue information |
| 1 | Name and issue date of the bond issue | |
| 2 | Issue price | |
| 3 | A full debt service schedule for the issue showing principal maturities and interest rates (for variable rate issues, describe how the rate is set and the interest payments to the date of the request) | |
| 4 | CUSIP number(s), if any |
| c | Violation description for VCAP resolution, including a: |
| 1 | Clear statement of the specific federal tax requirement that provides a basis for finding a violation | |
| 2 | Description of the identified violation(s) and the relevant facts and circumstances pertaining to the identified violation and its occurrence | |
| 3 | Statement as to when and how the facts surrounding the identified violation were discovered. | |
| 4 | If an issuer requests consideration of the lack of clarity about a legal answer as a factor in determining an appropriate resolution, the issuer must also include the following information to support its request:
|
| d | Proposed resolution terms for violation. Describe, with respect to any proposed payment of a closing agreement amount, the: |
| 1 | Method in IRM 4.70.14, Resolving the Examination, used to compute the amount or a description of an alternative method used (describe why the alternative method is appropriate under the facts and circumstances). | |
| 2 | Source of funds the issuer will use to pay the closing agreement amount. If redemption, defeasance, tender, or purchase of any amount of the bonds comprising the bond issue is proposed, the source of funds for this purpose and the maturities of the bonds subject to this action. |
| e | Issuer representations |
| 1 | That the VCAP request is permitted under IRM 7.2.3. | |
| 2 | Whether it knew or reasonably expected on the issue date that the violation might occur. | |
| 3 | Whether the bonds are under review in any court (other than a federal court), administrative agency, commission, or other proceeding (identify the proceeding). | |
| 4 | Date(s) of the violation, the date and circumstances surrounding the discovery of the violation, and the date and nature of any actions taken in response to the discovery of violation (for example, redemption, defeasance). |
| f | Whether or not the issuer submitted any previous or contemporaneous VCAP requests (including anonymous requests) for: |
| 1 | This bond issue. | |
| 2 | A violation of the same type for another bond issue submitted in the past five years. Include: the name(s) of the bond issue(s), brief summaries of the violation(s) identified, the letter received as a result of the request, and resolution(s) of all previous requests. | |
| 3 | If applicable:
|
| g | Whether or not the issuer requested a private letter ruling for the bonds for this VCAP’s violation. If so, briefly summarize the matters addressed in that private letter ruling request. |
| h | Whether or not the issuer has publicly disclosed the VCAP’s potential violation (in other words, did issuer disclose via the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System (EMMA) or to any state or local taxing jurisdiction that grants tax-advantaged treatment to the issuer’s bonds). If so, how was the disclosure made. |
| I | If requesting that the IRS consider that another party caused the violation in determining the appropriate resolution: provide information on the other person(s) acts or omissions that gave rise to the violation and describe the circumstances surrounding the violation (including identifying the person(s) whose acts or omissions caused the violation). |
| j | Any other relevant information for the VCAP request and resolution. |
Original Bond Issue
| Issue Date | Principal Maturities | Coupon | Semiannual Interest | Annual Interest3 | Principal Outstanding |
|---|---|---|---|---|---|
| 01/01/13 | |||||
| 07/01/13 | 22,162.50 | 22,162.50 | 1,000,000 | ||
| 01/01/14 | 22,162.50 | ||||
| 07/01/14 | 22,162.50 | 44,325.00 | 1,000,000 | ||
| 01/01/15 | 120,000 | 4.00% | 22,162.50 | ||
| 07/01/15 | 19,762.50 | 41,925.00 | 880,000 | ||
| 10/01/151 | |||||
| 01/01/16 | 130,000 | 4.25% | 19,762.50 | ||
| 07/01/16 | 17,000.00 | 36,762.50 | 750,000 | ||
| 01/01/17 | 150,000 | 4.25% | 17,000.00 | ||
| 07/01/17 | 13,812.50 | 30,812.50 | 600,000 | ||
| 10/01/172 | |||||
| 01/01/18 | 170,000 | 4.50% | 13,812.50 | ||
| 07/01/18 | 9,987.50 | 23,800.00 | 430,000 | ||
| 01/01/19 | 180,000 | 4.50% | 9,987.50 | ||
| 07/01/19 | 5,937.50 | 15,925.00 | 250,000 | ||
| 01/01/20 | 250,000 | 4.75% | 5,937.50 | 5,937.50 | 0 |
| Totals | 1,000,000 | 221,650.00 | 221,650.00 |
| Footnotes: |
| 1 Violation Date |
| 2 Submission Date |
| 31 Interest paid January 1 (accrued during prior calendar year) and July 1 is included in the annual interest each year. |
Scenario #1:
Violation Date: 10/01/2015
Submission Date: 10/01/2017
Total Nonqualified Bonds: $225,000
| Date | Nonqualified Principal | Coupon | Semiannual Interest | Nonqualified Semiannual Interest | Nonqualified Annual Interest5 |
|---|---|---|---|---|---|
| 01/01/13 | Issue Date | ||||
| 07/01/13 | 5,179.69 | 0.00 | 0.00 | ||
| 01/01/14 | 5,179.69 | 0.00 | |||
| 07/01/14 | 5,179.69 | 0.00 | 0.00 | ||
| 01/01/15 | 5,179.69 | 0.00 | |||
| 07/01/15 | 5,179.69 | 0.00 | 0.00 | ||
| 10/01/15 | Violation Date | ||||
| 01/01/16 | 5,179.69 | 2,589.844 | |||
| 07/01/16 | 5,179.69 | 5,179.69 | 7,769.536 | ||
| 01/01/17 | 5,179.69 | 5,179.69 | |||
| 07/01/17 | 5,179.69 | 5,179.69 | 10,359.38 | ||
| 10/01/17 | Submission | ||||
| 01/01/18 | 63,7501 | 4.50% | 5,179.69 | 5,179.69 | |
| 07/01/18 | 3,745.31 | 3,745.31 | 8,925.00 | ||
| 01/01/19 | 67,5002 | 4.50% | 3,745.31 | 3,745.31 | |
| 07/01/19 | 2,226.56 | 2,226.56 | 5,971.88 | ||
| 01/01/20 | 93,7503 | 4.75% | 2,226.56 | 2,226.56 | 2,226.56 |
| Totals | 225,000 | 63,740.63 | 35,252.34 | 35,252.34 |
| Footnotes: |
| 1 $63,750 = 170,000 * (225,000 / 600,000) |
| 2 $67,500 - 180,000 * (225,000 / 600,000) |
| 3 $93,750 = 250,000 * (225,000 / 600,000) |
| 4 Interest from October 1, 2015 Violation Date, paid January 1, 2016. |
| 5 Interest paid January 1 (accrued during prior calendar year) and July 1 is included in the annual interest each year. |
| 6 Interest from October 1, 2015, paid January 1, 2016 and July 1, 2016. |
| Tax Year | Due Date | Total Interest | Relevant Tax % | Taxpayer Exposure |
| 2016 | 4/15/17 | 7,769.53 | 29.00% | 2,253.16 |
| 2017 | 4/15/18 | 10,359.38 | 29.00% | 3,004.22 |
| 2018 | 4/15/19 | 8,925.00 | 27.80% | 2,481.15 |
| 2019 | 4/15/20 | 5,971.88 | 27.80% | 1,660.18 |
| 2020 | 4/15/21 | 2,226.56 | 27.80% | 618.98 |
| Totals | 35,252.34 | 10,017.70 |
Scenario #2:
Violation Date: 10/01/2015
Submission Date: 10/01/2017
Total Nonqualified Bonds: $650,000
| Date | Nonqualified Principal | Coupon | Semiannual Interest | Nonqualified Semiannual Interest | Nonqualified Annual Interest2 |
|---|---|---|---|---|---|
| 01/01/13 | Issue Date | ||||
| 07/01/13 | 14,875.00 | 0.00 | 0.00 | ||
| 01/01/14 | 14,875.00 | 0.00 | |||
| 07/01/14 | 14,875.00 | 0.00 | 0.00 | ||
| 01/01/15 | 14,875.00 | 0.00 | |||
| 07/01/15 | 14,875.00 | 0.00 | 0.00 | ||
| 10/01/15 | Violation Date | ||||
| 01/01/16 | 14,875.00 | 7,437.501 | |||
| 07/01/16 | 14,875.00 | 14,875.00 | 22,312.503 | ||
| 01/01/17 | 50,000 | 4.25% | 14,875.00 | 14,875.00 | |
| 07/01/17 | 13,812.50 | 13,812.50 | 28,687.50 | ||
| 10/01/17 | Submission | ||||
| 01/01/18 | 170,000 | 4.50% | 13,812.50 | 13,812.50 | |
| 07/01/18 | 9,987.50 | 9,987.50 | 23,800.00 | ||
| 01/01/19 | 180,000 | 4.50% | 9,987.50 | 9,987.50 | |
| 07/01/19 | 5,937.50 | 5,937.50 | 15,925.00 | ||
| 01/01/20 | 250,000 | 4.75% | 5,937.50 | 5,937.50 | 5,937.50 |
| Totals | 650,000 | 178,475.00 | 96,662.50 | 96,662.50 |
| Footnotes: |
| 1 Interest from October 1, 2015 Violation Date, paid January 1, 2016. |
| 2 Interest paid January 1 (accrued during prior calendar year) and July 1 is included in the annual interest each year. |
| 3 Interest from October 1, 2015, paid January 1, 2016 and July 1, 2016. |
| Tax Year | Due Date | Total Interest | Relevant Tax % | Taxpayer Exposure |
|---|---|---|---|---|
| 2016 | 4/15/17 | 22,312.50 | 29.00% | 6,470.63 |
| 2017 | 4/15/18 | 28,687.50 | 29.00% | 8,319.38 |
| 2018 | 4/15/19 | 23,800.00 | 27.80% | 6,616.40 |
| 2019 | 4/15/20 | 15,925.00 | 27.80% | 4,427.15 |
| 2020 | 4/15/21 | 5,937.50 | 27.80% | 1,650.63 |
| Totals | 96,662.50 | 27,484.18 |