Purpose: This IRM section provides guidelines for TEB revenue agents (Examiners) and other staff to identify bondholders, extend statutes, and make referrals to other operating divisions.

Audience: Examiners, tax law specialists, group managers, senior managers and other employees who examine or process Tax Exempt Bond (TEB) cases that may require identification of the bondholders.

Policy Owner: Director, Exempt Organizations/Government Entities

Program Owner: Director, Exempt Organizations/Government Entities

The issuer of a bond isn’t liable for any taxes due on interest that becomes taxable as a result of a failure to meet the requirements for tax-exempt financing under IRC 103. The bondholders who receive the interest payments are liable for any taxes due on such interest. Consequently, when appropriate, the IRS identifies bondholders to collect tax liability.

Interest and principal payments on the bonds generally are not paid directly by the issuer of the bonds to the bondholders. If there is a trustee/paying agent for the issue, the trustee/paying agent often receives payments from the issuer and distributes payments to the bondholders. The trustee/paying agent may also distribute payments to a nominee. There may be several tiers of nominees between the trustee/paying agent and the bondholder (the beneficial owner of the bonds) responsible for any tax on interest.

When the Examiner issues a proposed adverse determination letter, the Examiner notifies the Coordinator that it may be necessary to take actions to identify bondholders in order to protect the government’s interest in connection with the case (Bondholder Case Notification).

The Bondholder Case Notification must be forwarded by e-mail through the Examiner’s Manager to the Coordinator (copy to the Coordinator’s Manager, if different), and include the following, if applicable:

Within 15 days of receiving the Bondholder Case Notification, the Coordinator:

The Coordinator’s Manager approves establishment of the bondholder case. The RCCMS case activity should be established using the following guidelines:

Generally, TEB will follow additional procedures described in sections IRM 4.81.7.4 through IRM 4.81.7.6 to identify bondholders upon a final adverse determination (see IRM 4.81.14.6). However, the TEB Program Manager may direct the Coordinator to follow such procedures prior to a final adverse determination based on facts and circumstances (such direction to be documented in writing and included in the RCCMS file).

Unless the TEB Program Manager directs the Coordinator to follow such procedures prior to a final adverse determination as described in paragraph (1), the Coordinator will update the status on the RCCMS case file to Status 38 (suspense) until a final adverse determination is made (or such a direction is received by the Coordinator). Once the Coordinator is following such procedures, the Coordinator will update the status on the RCCMS case file to Status 12.

See IRM 4.81.14.6, Final Adverse Determination, and IRM 4.81.14.7, Possible Actions Taken by Appeals, for guidance regarding when a proposed adverse determination becomes final.

IRC 6103 imposes limitations on disclosure of returns and return information but provides certain exceptions, including for certain tax administration purposes. (See IRM 4.2.5.2, Disclosure of Official Information, General Rule and IRM 11.3.2.1.8, Internet Research). The Coordinator must adhere to applicable limitations on disclosure of returns and return information.

When contacting third parties following the procedures described in sections IRM 4.81.7.4 through IRM 4.81.7.6, the Coordinator must verify the most recent 45-day third-party contact notification to the issuer is less than one year old. If the notification was issued more than one year prior to the third-party contact, the Coordinator must request the Examiner to issue a new notification to the issuer with a new waiting period of 45 days.

For any identified potential bondholders, the Coordinator will follow the procedures in IRM 4.81.7.6 to confirm details of the bond holdings.

The Coordinator will use the information in the Bondholder Case Notification to conduct research to identify potential bondholders using internal database queries, such as with RAAS tools, and public information sources (subject to disclosure limitations). The Coordinator may require assistance of support personnel with access to certain systems and data in order to perform this research and will request such support through the Coordinator’s manager.

RAAS provides access to 1099-INT form data through use of the CDW Tool. By using CUSIP Numbers this tool can be useful in identifying bondholders. The CDW Tool currently requires the Coordinator to contact RAAS personnel to request assistance in running TEB-related queries. The CDW Tool requires information about the bond issue including the affected CUSIP Numbers and the impacted tax years.

The Securities and Exchange Commission’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) database is also available to assist with bondholder identification, as permitted under IRC 7602(c) and Treasury Regulation section 301.7602-2(f)(5) when contacting governmental entities.

The Municipal Securities Rulemaking Board (MSRB) has several databases available that may also be used to assist with bondholder identification.

The National Association of Insurance Commissioners (NAIC) maintains several databases including INSDATA and a comprehensive database through its affiliate the National Insurance Producer Registry (NIPR) which provide information on the bond holdings of insurance companies, including descriptions and CUSIP numbers. The NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.

The Bloomberg database can also provide some basic information about potential bondholders for a given bond issue. The search query uses commands to list current known holders and find historical transactions that can be useful in identifying past bondholders.

The Coordinator may attempt to obtain bondholder information by sending a request letter to any identified third party. If information isn’t provided by the third party in response to the letter request, the Coordinator will elevate the issue to the TEB Program Manager for potential use of summonses to identify potential bondholders.

IRM 25.5.1, the Summons Handbook, provides guidelines for use by TE/GE employees and covers topics including provisions of law, authority and factors to consider when issuing a Third-Party Summons or a John Doe Summons to identify bondholders. Upon a determination by the TEB Program Manager to use summonses to identify potential bondholders under paragraph (1) above, the Coordinator and the Examiner will brief their manager(s) on a plan to prepare, issue, and follow up on any summonses, as appropriate, and will implement the plan subject to adjustments based on input from their managers.

IRM 25.5.6 provides detailed guidelines for handling Third-Party Summonses and IRM 25.5.7 provides detailed guidelines for handling John Doe Summonses.

IRM 5.17.6 also provides information as a Legal Reference Guide for Revenue Officers, Summonses about basic legal concepts governing the use and enforcement of administrative summonses.

The Coordinator will correspond with potential bondholder(s) identified under IRM 4.81.7.2 (by the Examiner), IRM 4.81.7.4 (through electronic research and contacts), and IRM 4.81.7.5 (through written contact with third parties) to confirm the amount of bonds held and holding period(s) as described below. Generally, such correspondence with potential bondholders will not begin prior to the issuance of a final adverse determination except as directed by the TEB Program Manager.

If no response is received, the Coordinator may (subject to input from their manager) submit a referral to the appropriate operating division for an examination as provided in IRM 21.3.5.4, Taxpayer Contacts, Taxpayer Inquiry Referrals Form 4442, Referral Procedures; IRM 4.50.2.2.5.2, LB&I Compliance Integration, Other Workload Selection – Non-Campaign Workstreams, Supplemental GHW Inventory Sources; or IRM 4.1.1.6.11, Planning, Monitoring and Coordination, Information Referrals.

The Coordinator may rely on a party’s response to Letter 4415 or 4416 (or other communication) confirming the amount of bonds held and the holding period to treat the party as a confirmed bondholder.

If a response is received, the Coordinator will request from appropriate support personnel (in consultation with their manager) AMDISA for taxpayer identification numbers of the confirmed bondholders. The Coordinator will review the AMDISA and such other internal systems information as necessary to determine whether the return periods during which confirmed bondholder held the bonds are under exam by another operating division.

If a confirmed bondholder’s return for the applicable return periods is under examination, the Coordinator will request direction from management on whether to submit a referral to the operating division examining the return. Upon making such a referral, the Coordinator will coordinate with the examining operating division to provide information necessary to propose the adjustment to income. (See IRM 4.81.7.10 for Referral Procedures.)

If a confirmed bondholder’s return for the applicable return periods is not under examination, the Coordinator will mail the bondholder Letter 4414 including: (i) copies of the proposed or final adverse determination letter, as applicable, (ii) information on available resolution options, and (iii) requests for restricted consents for statute extension related to open statute years. See Letter 4414, Proposed Adverse Transmittal Letter.

Upon the issuance of a final adverse determination, the Coordinator will identify potential statute expiration dates for identified bondholders and consult with management on next steps on requests for additional consents for statute extensions or referrals to other operating divisions.

The Coordinator may periodically repeat the search process to determine subsequent transfers as directed by management.

The Coordinator, upon direction from the TEB Program Manager, may take steps to control statutes on returns of identified bondholders. Generally, the Coordinator will follow the Statute Control procedures in IRM 25.6.23 when controlling statutes.

If a confirmed bondholder requests a closing agreement to resolve its potential tax liability resulting from an adverse determination (rather than filing an appropriate return), TEB may consider such request subject to applicable jurisdictional limitations. Generally, such a closing agreement would be based on the bondholder's tax liability related to interest on the bond issue.

If TEB agrees to the closing agreement, the Coordinator will prepare a closing agreement following procedures similar to the TEB closing agreement procedures under IRM 4.81.6.

When the bondholder identification process starts after the adverse determination becomes final, skip paragraphs (2) through (4) below and move forward with referrals except to the extent bondholders resolve outstanding tax liabilities related to the bonds pursuant to a closing agreement as provided in IRM 4.81.7.8 or by filing appropriate tax returns.

When a final adverse determination letter is issued at the group level, the manager will forward a copy of the letter to the Coordinator’s Manager. If a final adverse letter is issued by Appeals, a copy will be provided to the Coordinator’s Manager.

The Coordinator’s Manager will forward a copy of the final adverse determination letter to the Coordinator.

The Coordinator will obtain AMDISA for taxpayer identification numbers of confirmed bondholders and determine whether those return periods are under examination by another operating division.

For bondholders that are regulated investment companies, within the meaning of IRC 851, the Coordinator with the approval of their manager will make a referral of the bondholder to the appropriate operating division following the procedures starting in paragraph (6) of this section.

If a confirmed bondholder’s return for the applicable return periods is under examination, the Coordinator will make a referral to another operating division by contacting the manager of the group conducting the examination of the bondholder. Examiner with assistance of the Coordinator will coordinate with the examining group to provide information necessary to propose the adjustment to income resulting from the adverse determination. See IRM 4.81.7.10 for Referral Procedures.

If a confirmed bondholder’s return for the applicable return periods is not under examination, the Coordinator will send copies of the final adverse determination letter if not previously sent (see IRM 4.81.7.6(4)) to the bondholder and make a referral to another operating division, subject to approval from their manager. See Letter 4417, Final Adverse Transmittal Letter. See also IRM 4.81.7.10 for Referral Procedures.

The Coordinator may determine the trustee or paying agent is required to issue Forms 1099 for interest to any bondholders or nominees. In the case where a trustee or paying agent is required to issue Forms 1099 for interest, the Coordinator will notify the trustee or paying agent by issuing Letter 4418, Trustee Notification Letter, through certified mail. Generally, financial institutions are not required to issue Forms 1099 to bondholders that are corporations or nominees such as Cede & Co. (nominee name for the Depository Trust Company (DTC)).

The Coordinator will review MSRB databases for information or communications provided by the trustee or paying agent to the bondholders or nominees as a result of the final adverse determination.

The Coordinator may determine a nominee is required to issue Forms 1099 for interest to any bondholders. The Coordinator will notify bondholder nominees required to issue Forms 1099 for interest of the final adverse determination and request delinquent or corrected information returns by issuing Letter 4418, Trustee Notification Letter.

The Coordinator requests closure of the bondholder case within RCCMS upon concurrence from management after notified bondholders:

Referrals to other operating divisions are completed by the Coordinator. See referral procedures in IRM 21.3.5.4.2, How to Prepare a Referral; IRM 21.3.5.4.3, How to Transmit Referrals to Another Office/Function; and IRM 21.5.4.4.3, Referrals to Other IRS Functions/Government Agencies.

When bond examinations within the jurisdiction of Appeals are resolved without issuance of a final adverse determination letter, the TEB Program Manager will notify the Coordinator’s Manager.

The Coordinator’s Manager will notify the Coordinator that the issue was resolved in Appeals. The Coordinator must notify any identified bondholders that have been contacted that the case has been closed by issuing Letter 4419 , Bondholder No Change Advisory Letter.

The Coordinator must then include all correspondence in the RCCMS case file and request closure of the bondholder case within RCCMS.