TaxNewsFlash-Exempt Organizations

September 12, 2008
No. 2008-89

PRINTABLE VERSION

IRS Interim Report on Post-Issuance Compliance, Record Retention Requirements for Tax-Exempt Bonds

The IRS released an interim report on charitable financings as part of an IRS tax-exempt bond compliance check initiative.

The report, dated September 11, 2008, presents the analysis and preliminary conclusions on data collected during the Tax-Exempt Charitable Financings Compliance Check Questionnaire project. The project’s mission was to identify and measure the overall knowledge of section 501(c)(3) organizations with respect to post-issuance compliance and record retention requirements that apply to qualified 501(c)(3) bond issues for which they are a beneficiary.

The IRS noted that this project was the first major step in the use of a “soft-contact approach”—i.e., one using informal, non-audit contacts to measure and promote tax compliance within the tax-exempt bond market. Previously, the IRS had limited this type of approach to late-filed returns relating to the issuance of tax-exempt bonds.

According to the IRS, the interim report identifies a high level of recognition by exempt organizations of the importance of post-issuance compliance and record retention procedures, but indicates “significant gaps” in the effective implementation of such procedures. Specifically, less than 50% of all responding organizations were able to describe in detail their procedures when asked to do so in the questionnaire. As the IRS noted, ineffective post-issuance compliance and record retention programs may result in qualified 501(c)(3) bonds forfeiting their tax-exempt status.

The IRS reported it is considering a similar soft-contact questionnaire project to focus on the post-issuance compliance and record retention processes of governmental issuers of tax-exempt bonds. This second project is expected to begin before the end of calendar year 2008.

An electronic version of the IRS interim report is available on the IRS Web site: http://www.irs.gov/pub/irs-tege/interim_report_-_draft_09-11-08_v1.pdf

For more information, contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or rspeizma@kpmg.com

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