rp-21-10.pdf

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26 CFR 601.106: Appeals functions.
(Also Part I, § 1.148-3)

Rev. Proc. 2021-10

SECTION 1. PURPOSE

This revenue procedure provides procedures for an issuer of tax-advantaged
bonds (as defined in § 1.150-1(b)

of the Income Tax Regulations (Regulations))

to
request an administrative appeal to the Independent Office of Appeals (Appeals) within
the Internal Revenue Service (IRS) of a proposed adverse determination made by the
office that is responsible for examinations of tax-advantaged bonds, presently the Office
of Tax Exempt Bonds (and including any successor IRS office performing such
examinations, the TEB Examination Office), with respect to issues within the scope of
this revenue procedure.
SECTION 2. BACKGROUND
.01 Appeals jurisdiction. Section 3105 of the Internal Revenue Service
Restructuring and Reform Act of 1998, P.L. 105-206, 112 Stat. 685 (1998 IRS
Restructuring Act), directed the IRS to modify its administrative procedures to allow
issuers an expeditious appeal of a proposed adverse determination by the IRS with

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respect to a bond issue to a senior officer in Appeals before the IRS proceeds to tax
bondholders.
.02 Bond appeals guidance. Rev. Proc. 2006-40, 2006-2 C.B. 691, sets forth
procedures for an issuer of bonds to appeal a proposed adverse determination
regarding the qualification of an issue of bonds as tax-exempt bonds (as defined in
§ 150(a)(6) of the Internal Revenue Code (Code)) or a
claim for recovery of asserted
overpayments of arbitrage rebate under § 148. However, the procedures in Rev. Proc.
2006-40 do not apply to an appeal of a proposed adverse determination regarding the
qualification of other types of tax-advantaged bonds, such as tax-credit bonds.
.03 Other applicable appeals procedures. Procedures under § 601.106 et seq. of
the Statement of Procedural Rules, including those governing submissions and
taxpayer conferences, apply to appeals regarding bond issues, bondholders, and
arbitrage rebate. A bondholder’s appeal rights under § 601.106 of the Statement of
Procedural Rules are independent and separate from an issuer’s appeal rights under
this revenue procedure. Section 1.148-3(i)(3)(iii) of the Regulations also applies to
appeals concerning an Arbitrage Rebate Claim Denial (as defined in section 4.02 of this
revenue procedure).
.04 Issuers as taxpayers. To conduct an examination (including any related
administrative appeal) of a tax-advantaged bond expeditiously, the IRS generally treats
an issuer as the taxpayer for the bond issue under examination.
.05 Conduit borrowers as taxpayers. In appropriate circumstances, Appeals may
consider, concurrently with an issuer’s appeal, issues relating to those raised in a
Proposed Adverse Bond Determination (as defined in section 4.02 of this revenue

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procedure) that affect the tax liability (other than any potential penalties) of the borrower
of bond proceeds of a conduit financing issue. Appeals will consider an issue relating to
the borrower’s tax liability only if the borrower is under examination with respect to the
issue, the resolution of that issue is affected by the Proposed Adverse Bond
Determination (for example, issues under § 150(b) or 168(g)), and the borrower agrees
to resolve the issue concurrently with the issuer’s appeal under this revenue procedure.
See § 601.106 of the Statement of Procedural Rules for procedures applicable to the
borrower.
.06 Technical advice. An issuer may submit a request to the TEB Examination
Office or Appeals for referral of a tax matter to the IRS Office of Chief Counsel for
technical advice while a tax-advantaged bond issue is under the jurisdiction of the TEB
Examination Office or Appeals, respectively. See Rev. Proc. 2021-2, 2021-01 I.R.B.
116, or annual successor revenue procedure.
.07 Alternative dispute resolution programs. Alternative dispute resolution
methods permit Appeals officers to mediate, facilitate, or propose settlements in the
resolution of matters identified during the course of an examination prior to the issuance
of a Proposed Adverse Bond Determination or an Arbitrage Rebate Claim Denial.
Alternative dispute resolution methods within Appeals applicable to bonds currently
include TE/GE Fast Track Settlement (FTS) (Announcement 2012-34, 2012-36 I.R.B
334), Post Appeals Mediation (Rev. Proc. 2014-63, 2014-53 I.R.B. 1014), and Early
Referral (Rev. Proc. 99-28, 1999-2 C.B. 109).

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SECTION 3. SCOPE
This revenue procedure applies to Proposed Adverse Bond Determinations and
Arbitrage Rebate Claim Denials as defined in section 4.02 of this revenue procedure.
SECTION 4. INITIATING THE APPEAL PROCESS
.01 In general. Section 4.02 through 4.06 of this revenue procedure set forth the
circumstances and procedures under which an issuer may request that certain adverse
determinations by the TEB Examination Office be reviewed by Appeals.
.02 Availability of appeal request to issuer. An issuer is eligible to request an
appeal under this revenue procedure upon the receipt from the TEB Examination Office
of a: (1) proposed adverse determination that an issue of bonds fails to qualify for the
exclusion of the interest on the bonds from the gross income of the bondholders under
§ 103 (a Proposed Adverse Bond Determination); (2) proposed adverse determination
that an issue of bonds fails to qualify for the tax credits for the bondholders or direct
payments to the issuer with respect to the bonds under provisions of the Code
applicable to tax-advantaged bonds, such as former §§ 54, 54A, 54AA, 1397E, and
6431 (also a Proposed Adverse Bond Determination); or (3) proposed adverse
determination that denies a claim for recovery of an asserted overpayment of arbitrage
rebate under § 148 with respect to tax-exempt bonds or under § 148 as modified by
relevant provisions of the Code with respect to other tax-advantaged bonds (an
Arbitrage Rebate Claim Denial). Except as provided in alternate dispute resolution
programs, including any applicable programs referenced in section 2.07 of this revenue
procedure or in any subsequently issued published guidance, appeal rights are not

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available to an issuer prior to the receipt of a Proposed Adverse Bond Determination or
an Arbitrage Rebate Claim Denial.
.03 Requesting an appeal. An issuer’s appeal request must be submitted in
writing to the TEB Examination Office within 30 days of the date of the Proposed
Adverse Bond Determination or Arbitrage Rebate Claim Denial. The appeal request
must include the information listed in section 4.04 of this revenue procedure. The TEB
Examination Office may extend this 30-day submission period based on an issuer’s
written request to the TEB Examination Office within the 30-day submission period that
justifies such extension.
.04 Required information and signature. An appeal request made under this
revenue procedure must include the information listed in this section 4.04.
(1) A detailed written response to the Proposed Adverse Bond Determination or
Arbitrage Rebate Claim Denial, including a detailed explanation of the issuer’s position
regarding each issue in dispute.
(2) A declaration in the following form: “Under penalties of perjury, I declare
that I have examined this request for an appeal, including accompanying documents,
and that, to the best of my knowledge and belief, the facts presented are true, correct,
and complete.”
(3) The issuer or the issuer’s authorized representative must sign an appeal
request. An issuer may designate an authorized representative by submitting a duly
executed Form 2848, Power of Attorney and Declaration of Representative, when
making an appeal request under this revenue procedure.

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.05 Response to an appeal request. Upon receipt of an appeal request, the TEB
Examination Office will review the request to determine whether it meets the
requirements of this revenue procedure. If the request does not meet such
requirements, the TEB Examination Office will notify the issuer in writing of the request’s
deficiencies and the issuer will have 30 days from the date of the notification to correct
the deficiencies. If the request meets the requirements of this revenue procedure and
contains no new information or analysis of the taxpayer’s position, the TEB Examination
Office will transfer the case file to Appeals. If the request meets the requirements of this
revenue procedure and contains new information or analysis of the taxpayer’s position,
the TEB Examination Office will notify the issuer that such new information or analysis
may change the case’s outcome and requires the TEB Examination Office’s further
consideration prior to transfer of the case file to Appeals.
.06 Failure to make appeal request. If an issuer does not submit a written appeal
request in the manner and within the time periods described in section 4.03 through
4.05 of this revenue procedure, the Proposed Adverse Bond Determination or Arbitrage
Rebate Claim Denial will become final.
.07 Jurisdiction over tax matters. Once the TEB Examination Office sends the
case file to Appeals, jurisdiction over the issues raised in the Proposed Adverse Bond
Determination or Arbitrage Rebate Claim Denial will transfer from the TEB Examination
Office to Appeals. Except for matters considered by Appeals under section 2.05 of this
revenue procedure (relating to the tax liability of the conduit borrower of the bond
proceeds), the TEB Examination Office will retain jurisdiction over all tax matters related

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to the bond issue under examination that are not specifically raised as an issue in the
Proposed Adverse Bond Determination or Arbitrage Rebate Claim Denial.
.08 Notification to issuer. Simultaneously with the transfer of the case file to
Appeals, the TEB Examination Office will furnish to the issuer a copy of the TEB
Examination Office’s transmittal letter and response, if any, to the issuer’s positions
stated in its appeal request.
SECTION 5. ARBITRAGE REBATE CLAIM DENIAL FOR TIMELINESS
When an appeal of a claim described in either § 1.148-3(i)(3)(iii)(A) or (B) of the
Regulations (regarding timeliness) is determined in favor of the issuer, Appeals will
release jurisdiction and return the case to the TEB Examination Office for further
consideration of the substance of the claim.
SECTION 6. EFFECT OF CERTAIN FINAL ADVERSE BOND DETERMINATIONS OR
FINAL ARBITRAGE REBATE CLAIM DENIALS

.01 Final Adverse Bond Determination. If a Proposed Adverse Bond
Determination becomes final under section 4.06 of this revenue procedure or because
Appeals sustains the Proposed Adverse Bond Determination without entering into a
closing agreement with the issuer, then, depending on the type of bond that was issued:
(i) the interest on those bonds will no longer be treated as excludable from gross
income under § 103 of the Code, (ii) holders will not be allowed any credit against
income tax with respect to interest on those bonds, or (iii) issuers will not be allowed a
direct payment. In addition, IRS functions other than Appeals may initiate procedures
with respect to open years to, respectively, (i) impose tax on interest on the bonds, (ii)
disallow the tax credits, or (iii) if it has not already done so, disallow direct payments

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with respect to the interest on the bonds. Further, a notice of deficiency may be issued
to recover overpayments of direct payments.
.02 Final Arbitrage Rebate Claim Denial. If an Arbitrage Rebate Claim Denial
becomes final under section 4.06 of this revenue procedure or Appeals sustains the
Arbitrage Rebate Claim Denial in full, the IRS will notify the issuer of the final
determination and the issuer’s right to bring suit for recovery.
SECTION 7. NO USER FEE
No user fee applies to either a request for an appeal pursuant to this revenue
procedure or a closing agreement resulting from the appeal.
SECTION 8. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2006-40 is modified and superseded.
SECTION 9. EFFECTIVE DATE
This revenue procedure applies to Proposed Adverse Bond Determinations or
Arbitrage Rebate Claim Denials issued by the TEB Examination Office on or after
February 4, 2021.
SECTION 10. DRAFTING INFORMATION
The principal authors of this revenue procedure are B. Darrell Smelcer, Office of
Tax-Exempt Bonds (Technical), and Lewis Bell, Office of Associate Chief Counsel
(Financial Institutions & Products). For further information regarding this revenue
procedure, contact Mr. Smelcer at 470-639-2425 (not a toll-free call).