n-08-31.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

1

Part III - Administrative, Procedural, and Miscellaneous

Voluntary Closing Agreement Program For Tax-Exempt Bonds and Tax Credit Bonds

Notice 2008-31

SECTION 1. PURPOSE

This Notice provides information about the voluntary closing agreement program
for tax-exempt bonds and tax credit bonds (“TEB VCAP”). In particular, the Notice
updates procedures whereby issuers of tax-exempt bonds and tax credit bonds can
resolve violations of the Internal Revenue Code (the “Code”) through closing
agreements with the Internal Revenue Service (the “Service”). The Tax Exempt Bonds
Compliance & Program Management (“TEB CPM”) function of Tax Exempt and
Government Entities (TE/GE) is continuing to develop voluntary compliance initiatives to
insure compliance by issuers of tax-exempt bonds and tax credit bonds with applicable
provisions of the Code. TEB VCAP is part of the TEB CPM voluntary compliance
initiatives and provides appropriate remedies when issuers voluntarily come forward and
express a desire to resolve violations of the Code. TEB VCAP is intended to encourage
issuers and conduit borrowers to exercise due diligence in complying with the Code and
to provide a vehicle to correct violations of the Code. It is the continuing policy of the
Service to attempt to resolve violations of the Code without taxing bondholders. TEB
VCAP reflects this policy.
The Service is continuing to work on more detailed procedures about the
program, and intends to provide those procedures in forthcoming guidance. For
example, the Service anticipates specifying standardized closing agreement terms and
amounts for particular violations.

SECTION 2. CHANGES

This Notice modifies and supersedes Notice 2001-60, 2001-2 C.B. 304. In
general, Notice 2001-60 is amended by: (1) changing references to Outreach Planning
and Review (OPR) to Compliance & Program Management (CPM); (2) incorporating
tax credit bonds into the TEB VCAP program; (3) simplifying section 5(a) by referring to

2

Internal Revenue Manual (“IRM”) 7.2.3 for the specific information required for a VCAP
submission; (4) clarifying that under section 5(b) CPM staff will obtain additional
information as needed; (5) clarifying that all information for a VCAP submission must be
provided in electronic format; and (6) providing email and regular mail addresses for
submissions.
SECTION 3. BACKGROUND

Gross income does not include interest on any state or local bond that meets the
requirements of section 103 and related provisions of the Code. A credit against tax is
provided to a holder of a qualified tax credit bond issued under sections 54, 1397E or
1400N that meets the requirements of those sections and related provisions of the
Code. Under certain circumstances, an issuer may take remedial action under
provisions such as sections 1.141-12, 1.142-2, 1.144-2, 1.145-2, and 1.147-2 of the
Income Tax Regulations and similar provisions that are applicable to tax credit bonds in
order to cure a violation of the Code.

The Service has previously provided formal tax-exempt bond closing agreement
programs such as the program described in Rev. Proc. 97-15, 1997-1 C.B. 635.
Violations of section 103 and related provisions of the Code that cannot be remediated
under existing remedial action provisions or other tax-exempt bond closing agreement
programs contained in regulations or other published guidance may be resolved by
entering into a closing agreement under TEB VCAP.

Section 7121 of the Code and the regulations thereunder authorize the
Commissioner to enter into written closing agreements with any person in connection
with the tax liability of such person (or of the person or estate for which he acts).
Section 301.7121-1 of the Income Tax Regulations provides, in part, that a closing
agreement may be entered into in any case in which there appears to be an advantage
in having the case permanently and conclusively closed, or if good and sufficient
reasons are shown by the taxpayer for desiring a closing agreement and it is
determined by the Commissioner that the United States will sustain no disadvantage
through consummation of such an agreement.

SECTION 4. SCOPE OF TEB VCAP

Under TEB VCAP, an issuer may request a closing agreement with respect to its
bonds to resolve violations of sections 103, 54, 1397E, 1400N and related provisions of
the Code. TEB VCAP is not available when:

(a) Absent extraordinary circumstances, the violation can be remediated under
existing remedial action provisions or tax-exempt bond closing agreement programs
contained in regulations or other published guidance.

(b)The bond issue is under examination. A bond issue is generally treated as

3

under examination on the date a letter opening an examination on the bond issue is
sent.

(c) The tax-exempt status of the bonds or qualified status of tax credit bonds is at
issue in any court proceeding or is being considered by the IRS Office of Appeals.

(d) The Service determines that the violation was due to willful neglect.

SECTION 5. PROCEDURES FOR REQUESTING A CLOSING AGREEMENT UNDER
TEB VCAP

(a) Information Required in Requests
. An issuer or its authorized representative
requesting a closing agreement must submit the information specified in IRM 7.2.3 and
the information reporting return for the applicable bonds on IRS Form 8038 or other
comparable form that was filed with respect to the issue. (For convenience of
reference, the relevant portions of the Internal Revenue Manual (IRM) are available on
the IRS website, at www.irs.gov
, in the section on the Tax-Exempt Bond Community,
under the subheading of Published Guidance.) All information concerning the closing
agreement must be submitted under penalty of perjury signed by an official of the issuer
with knowledge of the issue and authorized to make the submissions on behalf of the
issuer. The request may also contain a Form 2848 with the name, address, phone
number, and fax number of an authorized contact person.

(b) Additional Information for Requests
. CPM staff may require additional
information depending on the facts and circumstances. All additional information must
be submitted under penalty of perjury signed by the person who initially signed the
submission or who would have been authorized to make the original submission.

(c) Electronic Format
. All information submitted in support of a closing
agreement request must be provided in an electronic format that is either emailed in
PDF format or provided on a compact disc (“CD”) sent via regular mail to the address
provided by this Notice. Hard copies of the submissions can be provided but are not
required.

(d) Anonymous Closing Agreement Requests
. An issuer or its authorized
representative may initiate discussions regarding the appropriate terms of a closing
agreement on an anonymous basis. An anonymous request may be made on behalf of
a group of similarly situated issuers. However, the execution of a closing agreement
must be between the Service and a disclosed issuer, and all terms of a closing
agreement must be consistent with section 7121 of the Code. Until the name of the
bond issue is disclosed to the Service, a request for a closing agreement under TEB
VCAP will not prevent the Service from beginning an examination of the bond issue. An
issue for which a request has been submitted under this paragraph (d) that has been
placed under examination prior to the date the issue is identified to the Service will no

4

longer be eligible for TEB VCAP.

(e) TEB VCAP Mailing Address
. TEB VCAP submissions should be mailed to:

Internal Revenue Service
Attn: TEB VCAP
1122 Town & Country Commons
St. Louis, MO 63017

(f) TEB VCAP E-Mail Address
. In the alternative, VCAP information may be
submitted in PDF format to TEBVCAP@irs.gov. TEB CPM will provide an
acknowledgement of receipt of an email request.

SECTION 6. CLOSING AGREEMENT TERMS

Closing agreements under TEB VCAP will generally follow the model closing
agreement in IRM 4.81.1, Exhibit 9, as the same may be modified or changed. Specific
closing agreement terms will depend on the facts and circumstances of the case,
including the degree of diligence exercised by the issuer and any conduit borrower. Any
standardized closing agreement terms that are developed for TEB VCAP will be set
forth in the Internal Revenue Manual and/or other published guidance.

SECTION 7. EFFECT OF CLOSING AGREEMENT EXECUTED UNDER TEB VCAP

A closing agreement properly executed by the issuer and the Service will protect
bondholders from including in their gross income any interest on the bonds or from
recapturing tax credits during the period specified in the agreement for any violation
described in the agreement. A closing agreement executed under section 7121 of the
Code shall be final and conclusive except that: (1) the matter it relates to may be
reopened in the event of fraud, malfeasance, or misrepresentation of a material fact; (2)
it is subject to the sections of the Code that expressly provide that effect be given to
their provisions (including any stated exception for section 7122 of the Code)
notwithstanding any other law or rule of law; and (3) it is subject to any law, enacted
after the date of the agreement, that applies to a tax period ending after the date of the
agreement covered by the agreement.

SECTION 8. REQUESTS FOR COMMENTS

We anticipated that TEB VCAP will continue to be expanded and refined over
time based on experience and public comment. The Service welcomes comments
regarding the format and operation of TEB VCAP, and suggestions with regard to the
general framework of closing agreement terms including standardized closing
agreement terms and amounts that may be specified for particular violations.
Comments should be submitted in writing and should be emailed to

5

Steven.A.Chamberlin@irs.gov or mailed to the following address:

Steven A. Chamberlin
Manager, Tax Exempt Bonds Compliance & Program Management
SE:T:GE:TEB:CPM
1122 Town & Country Commons
St. Louis, MO 63017

SECTION 9. EFFECT ON OTHER DOCUMENTS

Notice 2001-60, 2001-2 C.B. 304, is modified and superceded.

SECTION 10. EFFECTIVE DATE

TEB VCAP is effective February 27, 2008.

SECTION 11. DRAFTING INFORMATION

The principal authors of this notice are Steven A. Chamberlin of Tax Exempt
Bonds Compliance & Program Management, Tax Exempt & Government Entities,
and Carla Young of the Office of Associate Chief Counsel (Financial Institutions &
Products). For further information regarding this notice contact Steven Chamberlin at
(636) 255-1290 or Carla Young at (202) 622-3980 (not toll-free calls).