Joint GFOA / NABL Letter to IRS re Model IRS Audit Contact Letter
Jan 16, 2001
Joint GFOA / NABL Letter to IRS re
Model IRS Audit Contact Letter
January 16, 2001
Mr. Mark Scott
Internal Revenue Service
111 Constitution Avenue NW
Washington, DC 20224
RE: Audit of Bond Issues
Dear Mr. Scott:
As you know the Government Finance Officers Association formed a
working group to explore the ramifications of the Internal Revenue
Service's expanded enforcement efforts, including audits of bond issues.
This group is currently working on an article addressing issues which
should be considered if an issuer receives a notice of audit. One
concern that has become apparent is the need to know more about the
purpose of the audit.
In order to fashion an appropriate response to a notification letter,
the issuer needs to know the nature of the audit at the earliest point
in the process. One of the most significant obligations an issuer
undertakes upon entering the bond market is the duty to disclose
information which would be material to investors. Without some
understanding of the reason its bonds have been selected for
examination, the issuer will be without critical information necessary
for assessing the materiality of the audit. In addition, providing such
information would facilitate efficient resolution of audits by enabling
the issuer to marshal the proper participants and focus on potential
problems from the outset.
Attached are changes which we would recommend in the model contact
letter from the IRS advising issuers that bonds are to be audited. The
suggestions were developed jointly by GFOA and the National Association
of Bond Lawyers and with participation from the National Federation of
Municipal Analysts and The Bond Market Association. It is our
expectation that such collaborative efforts, and the communication among
market participants, will result in a better understanding of the IRS's
expanded audit program. Such increased awareness of IRS concerns can
expand voluntary compliance with tax laws and produce a more efficient
market system.
We thank you for your openness and inclusiveness in addressing this
issue. We are available at your convenience to discuss the
attached suggestions.
Very truly yours,
J. Hobson Presley, Jr.
President, National Association of Bond Lawyers |
J. Ben Watkins III
Co-Chair, GFOA Tax Audit Working Group |
Attachment
Alternative 1 - Random Audits to Study Certain
Types of Bonds
These bonds were selected for examination as part of a random sample
in connection with a study of [Specify Types of Bonds]. The
purpose of the examination is to gather information to evaluate
compliance with tax requirements related to [Specify Types of
Bonds]. The examination is not designed to address any specific
concern regarding this issueand we have no reason to
believe the bonds are not in compliance with applicable tax
requirements. However, we reserve the right to examine any
aspect of the transaction.
Alternative 2 - Audit of Certain Types of
Transactions
These bonds were selected for examination as part of our ongoing
efforts to keep abreast of developments in the municipal bond
market. We routinely examine new types of transactions, in this
case [Specify Types of Bonds], to determine compliance with tax
requirements related to [Specify Types of Bonds]. We have no
reason to believe the bonds are not in compliance with applicable tax
requirements. The primary focus of the examination will be to determine
compliance with tax requirements related to [Insert IRC Reference and
Description of Tax Issue]. However, we reserve the right to
examine any aspect of the transaction.
Alternative 3 - Targeted Audit of a Specific
Problem Area
These bonds were selected for
examination because they may be similar to bonds which we have
determined are not in compliance with certain tax requirements. Based on
this similarity, we have reason to believe the bonds may not be in
compliance with certain tax requirements. The examination is designed
specifically to address compliance with [Insert IRC Reference and
Description of Tax Issue]. However, we reserve the right to expand the
examination to any aspect of the transaction.
Alternative 4 - Audits Based on External
Information Received
These bonds were selected for examination because of information we
received regarding this transaction that alleges the bonds may not be in
compliance with [Insert IRC Reference]. The examination is
designed to determine compliance with [Insert IRC Reference and
Description of Tax Issue]. However, we reserve the right to expand
the examination to any aspect of the transaction.