4.81.1  Tax Exempt Bonds Examination Process Overview

Manual Transmittal

September 04, 2015


(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) Completely revised IRM 4.81.1, TEB Program, and changed the title to TEB Examination Process Overview.

(2) Updated procedures for the Tax Exempt Bonds Examination Process to include focused examination guidelines.

(3) Revised definition of subject matter expert.

(4) Made plain language edits throughout.

Effect on Other Documents

This superseders IRM 4.81.1, dated October 2, 2012.


Tax Exempt and Government Entities
Tax Exempt Bonds

Effective Date


Rebecca Harrigal
Director, Tax Exempt Bonds
Tax Exempt and Government Entities  (09-04-2015)
Tax Exempt Bonds (TEB) Examination Process Overview

  1. 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 IRS and TEB mission statements. The guidelines, procedures and techniques in this manual are meant to help examiners to conduct an effective examination (exam) and to ensure a uniform approach to all TEB examinations. These procedures, however, are not intended to be all inclusive. Examiners are expected to use their professional judgment in completing their examination cases and other compliance activities.


    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.  (09-04-2015)

  1. The primary objective of a TEB exam is to determine if the bond issuance complies with the applicable provisions of the Internal Revenue Code. This generally includes determining compliance with the yield restriction and rebate requirements under IRC 103 and IRC 148.  (09-04-2015)
Organizational References

  1. The following references apply in this IRM:

    1. TE/GE refers to the Tax Exempt and Government Entities Division of the Internal Revenue Service.

    2. TEB refers to the Tax Exempt Bonds function of TE/GE.

    3. CPM refers to the Compliance & Program Management program within TEB.

    4. FO refers to the Field Operations program within TEB.

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

    6. Classifier refers to a CPM revenue agent, tax law specialist or tax analyst responsible for evaluating return information for exam selection.

    7. Examiner refers to TEB revenue agents.

    8. Issuer is 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.

    9. FO Support Staff refers to the group secretary, compliance assistant or administrative assistant reporting to a FO group manager with access to one or more FO group's unassigned inventory on RCCMS.

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

    11. Full Scope Examination refers to TEB exams in which the scope of the exam is not limited to specific areas prior to assignment. Examiners will generally consider all compliance issues relevant to the determination of the proper tax status for the bonds. If the examiner determines that the scope of an exam should be limited, he/she should document the case work papers explaining the limitation.

    12. SME refers to the Subject Matter Expert (SME) who is a tax law specialist or revenue agent in CPM and has been assigned responsibility for technical assistance for specified TEB exams. An FO revenue agent with extensive knowledge and/or experience with a particular area of law or type of bond may also be an SME.

    13. Taxpayer refers to the Issuer. The definition of taxpayer for TEB purposes is in IRM 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 examination and determining the tax-advantaged status of a bond issuance, the issuer is deemed the taxpayer.

    14. Document 11308, Government Entities Computer Systems 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).

    15. AIMS (Audit Information Management System) is 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.

    16. IDRS (Integrated Data Retrieval System) is 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.

    17. RCCMS (Reporting Compliance Case Management System) is a case management system that handles the electronic processing of TE/GE compliance activities.  (09-04-2015)

  1. IRC 7602(a)(1) authorizes the IRS to examine any books, papers, records, or other data which may be relevant to verify that a return is correct. 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.  (09-04-2015)

  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.

  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 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 work papers.

  4. The examiner should employ a variety of techniques to resolve the exam in the most effective way possible.


    Exam techniques such as interviews and site tours may be used for either type of examination.

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