4.81.1 Tax Exempt Bonds Examination Process Overview

Manual Transmittal

August 07, 2017

Purpose

(1) This transmits revised IRM 4.81.1, Tax Exempt Bonds (TEB) Examination Program and Procedures, Tax Exempt Bonds Examination Process Overview.

Material Changes

(1) Revised IRM 4.81.1, Introduction, to add the internal controls of the IRM as required by IRM 1.11.2.2.5. Renamed the section to Program Scope and Objectives.

(2) Updated manual to delete all references to Subject Matter Expert (SME) and replace with the TEB Knowledge Network (TEB K-NET). Updated 4.81.1.3 Techniques to meet the new internal controls requirements.

(3) Updated manual to change the program owner from Tax Exempt Bonds (TEB) Division to Indian Tribal Governments/Tax Exempt Bonds (ITG/TEB) as a result of the TE/GE reorganization.

Effect on Other Documents

This supersedes IRM 4.81.1 dated April 4, 2016.

Audience

Tax Exempt and Government Entities
Government Entities & Shared Services
Indian Tribal Governments/Tax Exempt Bonds

Effective Date

(08-07-2017)

Christie J. Jacobs
Director, Indian Tribal Governments/Tax Exempt Bonds
Government Entities & Shared Services
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM section provides an overview of the Tax Exempt Bond examination process. The purpose of the Tax Exempt Bonds Examination Program is to identify and correct noncompliance in municipal debt issuances with fairness, consistency and the highest level of integrity. Examiners must perform their professional responsibilities in a manner that supports both the missions of ITG/TEB and the IRS.

    Note:

    For purposes of this IRM, any reference to tax-advantaged bonds includes tax-exempt bonds, tax credit bonds and direct pay bonds, unless otherwise specified.

  2. Audience: These procedures apply to:

    • TEB revenue agents (examiners).

    • TEB tax law specialists.

    • TEB K-Nets.

    • TEB group managers (managers).

  3. Policy Owner: Tax Exempt and Government Entities (TE/GE).

  4. Program Owner: Indian Tribal Governments/Tax Exempt Bonds

Background

  1. The guidelines, procedures and techniques in this manual are meant to help examiners conduct an effective examination and to ensure a uniform approach to all TEB examinations (exams).

  2. The procedures contained in this IRM are not intended to be all inclusive. Examiners should continue to use their professional judgment in completing their exam cases and other compliance activities.

Authority

  1. TEB’s examination’s authority to resolve issues is derived from its authority to examine any books, papers, records, or other date which may be relevant to its authority to summon, etc. under IRC 7602, Examination of books and witnesses.

Responsibilities

  1. The Director, Indian Tribal Governments/Tax Exempt Bonds is the program manager responsible for the Indian Tribal Governments/Tax Exempt Bond program.

  2. The Field Operations Manager is the program manager responsible for the TEB examination program.

  3. Group Managers are responsible for:

    1. Assigning the cases to each examiner in accordance with departmental procedures.

    2. Ensuring the examiners have proper guidance to conduct each examination.

Acronyms

  1. Acronyms used in this IRM section:

    Acronym Description
    TE/GE Tax Exempt Government Entities Division of the IRS
    TEB The Tax Exempt Bonds function of TE/GE:ITG/TEB
    TEB Technical The technical program within TEB
    FO The Field Operations program within TEB
    TEB K-NET Members of the Tax Exempt Bond Knowledge Network team
    AIMS Audit Information Management System
    IDRS Integrated Data Retrieval System
    RCCMS Reporting Compliance Case Management System

Terms and Definitions

  1. Analyst: a tax analyst or systems analyst responsible for TEB activities related to AIMS, IDRS, RICS, DINS, case establishment and case closure.

  2. Classifier: a revenue agent, tax law specialist or tax analyst responsible for evaluating return information for exam selection.

  3. Examiner: a TEB revenue agent.

  4. Issuer: a state, local government, municipality, authority, political subdivision or any other entity that can legally issue bonds on behalf of a state or local government.

  5. FO Support Staff: the group secretary, compliance assistant or administrative assistant reporting to a FO group manager.

    Note:

    Generally, the FO Support Staff have access to one or more FO group's unassigned inventory on RCCMS.

  6. Focused Examination: TEB exam in which the scope of the exam is limited to one or more specific areas identified prior to assignment to the examiner.

  7. Full Scope Examination: TEB exam in which the scope of the exam is not limited to specific areas prior to assignment.

    1. Examiners will generally consider all compliance issues relevant to the determination of the proper tax status for the bonds.

    2. If the examiner determines that the scope of an exam should be limited, he/she documents the case workpapers explaining the limitation.

  8. K-NET: Members of the TEB K-NET team perform such tasks as developing technical Knowledge Libraries, responding to technical questions and participating in K-NET community and training events.

  9. Taxpayer: refers to the Issuer. The definition of taxpayer for TEB purposes is in IRM 25.1.9.7.1. This states that while bondholders may ultimately be liable for federal taxes due as a result of a TEB exam, for purposes of conducting the exam and determining the tax-advantaged status of a bond issuance, the issuer is deemed the taxpayer.

  10. Document 11308: Document 11308, Government Entities Computer System Codes, is a quick reference booklet that contains essentially all of the Government Entities computer codes (and their definitions) specialists use to prepare case related documents input to case tracking systems such as AIMS, IDRS AND RCCMS (see the definitions below).

  11. AIMS: a computerized system used to secure returns, maintain inventory control of examinations, record examination results and provide management with statistical reports. The system traces examination results from the establishment of the return through the final disposition of the examination.

  12. IDRS: an application consisting of databases and operating programs that manages data from the BMF, EPMF, IMF and CADE accounts. It allows IRS employees to take specific actions on taxpayer account issues, track the status and update the Master File. It provides a systemic review of the case status.

  13. RCCMS: a case management system that handles the electronic processing of TE/GE compliance activities.

Jurisdiction

  1. IRS is authorized to examine any books, papers, records, or other data which may be relevant to verify that a return is correct (IRC 7602(a)(1)). The TEB exam program was established to ensure compliance with the appropriate provisions of the Internal Revenue Code (IRC) applicable to tax-advantaged bonds, including tax-exempt bonds and tax credit bonds under IRC sections 54, 54A-54F, 54AA, 103, 141–150, 1394, and 7871.

  2. Returns within TEB's jurisdiction include, but are not limited to:

    • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues

    • Form 8038–G, Information Return for Tax-Exempt Governmental Obligations

    • Form 8038–GC, Information Return for Small Tax-Exempt Governmental Bond Issues, Leases and Installment Sales

    • Form 8038–T, Arbitrage Rebate, Yield Reduction, and Penalty in Lieu of Arbitrage Rebate

    • Form 8038–R, Request for Recovery of Overpayment Under Arbitrage Rebate Provisions

    • Form 8038–B, Information Return for Build America Bonds and Recovery Zone Economic Development Bonds

    • Form 8038–TC, Information Return for Tax Credit Bonds and Specified Tax Credit Bonds

    • Form 8038–CP, Return for Credit Payments to Issuers of Qualified Bonds

    • Form 8328, Carryforward Election of Unused Private Activity Bond Volume Cap

    • Form 8703, Annual Certification of a Residential Rental Project

  3. TEB examiners have the authority to assert civil penalties when warranted.

Techniques

  1. There are two basic types of TEB exams: full scope exams or focused exams.

  2. In full scope exams, the examiner considers all items necessary to determine correct compliance including the existence of internal controls. With the manager’s agreement, examiners may limit the scope of the exam. The examiner should document the group manager’s agreement to limit the scope in the case workpapers.

  3. In focused exams, the scope of the exam is limited to one or more specific areas identified by the classifier before case assignment. Examiners should, however, consider any large, unusual or questionable items as well as the presence or absence of effective internal controls in a focused exam. With the manager’s agreement, examiners may expand the scope of the exam to include additional items. Document the group manager’s agreement with your decision to expand the scope in the case workpapers.

  4. In full scope and focused exams, the examiners should use a variety of techniques to resolve the exams in the most effective way possible.

    Example:

    Examiners can use exam techniques, such as interviews and site tours, for both full scope and focused exams.