The essentials of a post-issuance tax compliance program.

• Author: Oswald, Edwin G.
• Position: Best Practices

This article is reprinted with permission from Post-Issuance Tax Compliance and Continuing Disclosure Responsibilities for Issuers and Borrowers of Tax-Exempt Bonds, published in 2013 by Orrick, Herrington & Sutcliffe LLP.

Every issuer and borrower needs a post-issuance tax compliance program. Failing to comply with federal tax law requirements could result in losing the tax-exempt status of the bonds. Implementing a post-issuance tax compliance program requires a focus on hardware, software, policies, culture, staff, and resources. Because most tax-exempt bonds will remain outstanding for many years, it is important to have reliable systems, procedures, and policies that provide appropriate safeguards for tax compliance and provide accurate and timely data to the parties responsible for such matters. The particular appropriate procedures will vary, depending on the size of the issuer or borrower, the complexity of the financings, the number of bond issues to be monitored, and the type of bond issue involved.

An effective post-issuance program will significantly improve the ability of issuers and borrowers to both prevent and tax violations and identify any violations in a timely manner. Post-issuance tax compliance should be an integral part of an issuer's or a borrower's debt management process. In some organizations, compliance may be adequately supported by the efforts of a single individual. In the case of organizations that frequently issue or borrow on a tax-exempt basis, compliance may be adequately supported by adopting practices that are integrated within the day-to-day practices of such entity.

ELEMENTS OF A POST-ISSUANCE TAX COMPLIANCE PROGRAM

The elements of a post-issuance tax compliance program are as follows:

* Designating a tax compliance point person (one or more);

* Maintaining ongoing communication with an outside tax specialist and continuing education;

* Tracking and allocating bond proceeds;

* Monitoring the use of bond-financed property;

* Monitoring investment income and arbitrage compliance;

* Performing record keeping and retention;

* Addressing changes in use of bond-financed property through self-help remediation and the IRS VCAP program;

* Having written post-issuance tax compliance procedures; and

* Addressing conduit borrower tax compliance.

DESIGNATING A TAX COMPLIANCE POINT PERSON

Issuers and borrowers should designate an employee responsible for managing post-issuance tax compliance matters. Depending on the size of the organization and the volume of outstanding tax-exempt debt, this individual could directly address such matters or do so through a coordinated team or group. This designation and process should be part of the written post-issuance compliance procedures described below.

ONGOING COMMUNICATION WITH A TAX SPECIALIST AND CONTINUING EDUCATION

The federal tax rules are complex and they change frequently. Maintaining an ongoing relationship and dialogue with a specialist who is an expert in federal tax law...