IRS Understanding the Tax Exempt Bonds Examination Process Form

In order to know your basic rights as a taxpayer with the IRS, the following form can be used as a reference.

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Understanding the Tax Exempt Bonds Examination Process
The first part of this publication explains some of your most important rights as a taxpayer. 
The second part explains the Tax Exempt  Bonds examination, appeal and compliance 
resolution processes.  	
Declaration of Taxpayer Rights 	
The IRS Mission 
Provide America’s taxpayers 
top quality service by helping 
them understand and meet their 
tax responsibilities and by 
applying the tax law with 
integrity and fairness to all. 	
Useful IRS Publications 	
556	  Examination of Returns, 
Appeal Rights, and Claims for 
Refund 
3755
  Tax Exempt Bonds—Filing  Requirements 
4077
  Tax-Exempt Bonds for  501(c)(3) Charitable 
Organizations 
4078
  Tax-Exempt Private Activity  Bonds  
4079
 Tax-Exempt Governmental  Bonds 	
Tax Information 	
The IRS provides the following 
sources for forms, publications, 
educational resources and additional 
information. 
Internet:  www.irs.gov/bonds 
Bond Questions:  202-283-2999 
Forms and Publications:  800-829-3676 
Treasury Inspector General for Tax 
Administration: If you want to 
confidentially report misconduct, 
waste, fraud, or abuse by an IRS 
employee, call 1-800-366-4484 
(1-800-877-8339 for TTY/TDD).  
You can remain anonymous. 	
I. Protection of Your Rights 
IRS employees will explain and protect 
your rights as a taxpayer throughout 
your contact with us.  
II. Privacy and Confidentiality 
The IRS will not disclose to anyone the 
information you give us, except as 
authorized by law.  You have the right 
to know why we are asking you for 
information, how we will use it, and 
what happens if you do not provide 
requested information. 
III. Professional and Courteous 
Service  
If you believe that an IRS employee 
has not treated you in a professional, 
fair, and courteous manner, you 
should tell that employee’s supervisor.  
If the supervisor’s response is not 
satisfactory, you should write to the 
Director, Tax Exempt Bonds or the 
center where you file your return.  
IV. Representation 
You may either represent yourself or, 
with proper written authorization, have 
someone else represent you in your 
place. Your representative must be a 
person allowed to practice before the 
IRS, such as an attorney, certified 
public accountant, or enrolled agent.  If 
you are in an interview and ask to 
consult such a person, then we must 
stop and reschedule the interview in 
most cases. 
You can have someone accompany 
you at an interview.  You may make 
sound recordings of any meetings with 
our examination, appeal, or collection 
personnel, provided you tell us in 
writing. 	
V. Payment of Only the Correct 
Amount of Tax 
You are responsible for paying only 
the correct amount of tax due under 
the law -no more, no less. If you 
cannot pay all of your tax when it is 
due, you may be able to make monthly 
installment payments. 
VI. Help with Unresolved Tax 
Problems 
The Taxpayer Advocate Service can 
help you if you have tried 
unsuccessfully to resolve a problem 
with the IRS. Your local Taxpayer 
Advocate can offer you special help if 
you have a significant hardship as a 
result of a tax problem. For more 
information, call toll free 1-877-777-
4778 (1-800-829-4059 for TTY/TDD) 
or write to the Taxpayer Advocate at 
the IRS office that last contacted you.  
VII. Appeals and Judicial Review  
If you disagree with us about the 
amount of your tax liability or certain 
collection actions, you have the right to 
ask the Office of Appeals to review 
your case. You may also ask a court to 
review your case.  
VIII. Relief from Certain 
Penalties and Interest  
The IRS will waive penalties when 
allowed by law if you can show you 
acted reasonably and in good faith or 
relied on the incorrect advice of an IRS 
employee. We will waive interest that 
is the result of certain errors or delays 
caused by an IRS employee.

Introduction 
The primary objective of an examination is 
to determine if a municipal debt issuance 
complies with Internal Revenue Code 
provisions. 
This document discusses general rules and 
procedures that we follow in examinations 
and how certain compliance problems can 
be corrected. 
Selection of Returns 
There are several ways a municipal debt 
issuance is selected for examination. It may 
be selected as a part of an initiative, project 
or referral, due to a questionable or unusual 
item on the return, or as a random 
selection. We use a centralized case 
selection and review process to enhance 
consistency of enforcement activities and to 
focus resources on the areas that will have 
the most positive impact on municipal debt 
issuances. Our tasks include identifying 
areas of noncompliance, developing 
corrective strategies, and assisting with 
those strategies. 
Your Role in the Process 
The issuer of the municipal debt is treated 
as the "taxpayer" throughout the 
examination process. You, any conduit 
borrower and any other party to the 
transaction, have the responsibility of 
maintaining and producing adequate 
records to substantiate the tax-exempt 
status of the bonds.  If the requested 
information is organized and complete, we 
can conduct the examination in a timely and 
efficient manner.  For certain tax credit 
bonds where direct payment of the 
allowable credit has been elected, the 
issuer of the debt is the party subject to 
taxation. As the actual taxpayer, the 
general provisions of Publication 556, 
including those dealing with assessments, 
collections, and appeals, apply to you. 
Because qualified tax credit bonds are 
similar in many respects to tax-exempt 
bonds, the remainder of this publication 
may be useful in understanding the 
examination process of such bonds.  See 
your examiner regarding questions about 
the difference between tax-exempt and tax 
credit bond examination processes. 
The Examination 
A Tax Exempt Bonds (TEB) examiner 
notifies you by phone or letter that a 
municipal debt issuance has been selected 
for examination. If the initial contact is by 
phone, a confirmation letter will follow.  The 
letter may indicate how the return was 
selected for examination and will detail the 
required items for the examination. We 
may, however, request additional items at a 
later date. 
The examination may include a 
comprehensive review of the municipal debt 
issuance, or focus on specific aspects. The 
examination continues until the examiner is 
reasonably certain that the municipal debt 
issuance has met the applicable 
requirements.  You can authorize someone to represent 
you if they are eligible to practice before the 
IRS. If you have someone represent you in 
your absence, you must furnish written 
authorization.  See Form 2848, Power of 
Attorney and Declaration of Representative, 
for more information. 
Your representative may have a conflict of 
interest if they also had a role in the 
issuance of your municipal debt, such as 
providing the approving opinion as to the 
qualifications of the municipal debt 
issuance, or is also representing other 
parties to the transaction, such as the 
conduit borrower.  A representative with a 
conflict of interest may not represent a 
client before the IRS unless:  (1) The 
practitioner reasonably believes that the 
practitioner will be able to provide 
competent and diligent representation to 
each affected client; (2) The representation 
is not prohibited by law; and (3) Each 
affected client gives informed consent, 
confirmed in writing.  The examiner may 
request a copy of such written confirmation 
of your informed consent from your 
representative. 
You may deem it appropriate to permit 
direct communication between the 
examiner and any conduit borrower.  If the 
examiner agrees to conduct the 
examination in that manner, you must 
provide us with a Form 8821, Tax 
Information Authorization. This form permits 
the examiner to discuss your tax matter 
with the conduit borrower. 
During the examination, we may need to 
contact various third parties including 
underwriters, financial advisors, bond 
counsel, and any other parties, as well as 
their counsel, with
 a transactional 
relationship to the municipal debt issue. 
If the examiner identifies a potential 
problem, this problem will be discussed with 
you or your representative.  In some 
instances, Form(s) 5701-TEB, Notice of 
Proposed Issue, and Form(s) 886-A, 
Explanation of Items, may be issued to 
identify any areas of noncompliance. Upon 
completion of the examination, all 
unresolved issues will be included in a 
Notice of Proposed Adverse Determination 
Letter and Form(s) 886-A, Explanation of 
Items. 	Resolving Qualification Issues— 
The Closing Agreement Process 
With respect to tax-exempt bonds, a failure 
to comply with the federal tax laws that 
govern municipal debt issuances may result 
in the loss of the tax-exempt status of the 
bonds under examination.  With respect to 
tax credit bonds, a failure to comply with the 
federal tax laws that govern municipal debt 
issuances may result in the loss of the tax 
credit status of the bonds under 
examination.  As a result, holders of bonds 
issued as tax-exempt bonds would be taxed 
on the interest they received and holders of 
bonds issued as tax credit bonds would 
lose the ability to claim tax credits with 
respect to the bonds.  In most situations,  however, the IRS will, as an alternative, 
allow the issuer to enter into a closing 
agreement where you agree to correct the 
compliance failures and pay a settlement 
amount to the US Treasury.  As a result, 
the corrected violation will not cause the 
bond interest payable to the holders of tax-
exempt bonds to lose its tax-exempt 
treatment or the holders of tax credit bonds 
to lose the ability to claim tax credits.   	
Closing Letter 
The final step in the examination process is 
a letter explaining the examiner’s 
conclusions. Sometimes the conclusion 
results in a tax liability for related entities 
and/or individuals; and may require 
coordination with other business units 
within the IRS. 
Appeal Rights 
The Office of Appeals settles unresolved 
issues. Your appeal rights are explained in 
detail in Publication 5, Your Appeal Rights 
and How to Prepare a Protest if You Don’t 
Agree. Appeal requests must be in writing 
and timely.  If not, we will issue a Notice of 
Final Adverse Determination. In certain 
situations, Fast Track Mediation, an 
expedited appeals process, is used. You 
should discuss this with your examiner. For 
more information about the appeals 
process, see Rev. Proc. 2006-40, 
Administrative Appeal of Proposed Adverse 
Determination of Tax-Exempt Status of 
Bond Issue. 
Post-issuance Compliance and the 
TEB Voluntary Closing Agreement 
Program 
In furtherance of its mission, TEB promotes 
post-issuance compliance with federal tax 
requirements applicable to tax-exempt and 
tax credit bonds in order to prevent or 
correct violations before they are 
discovered during an examination.  Issuers 
should understand and refer to their bond 
documents.  Additionally, TEB encourages 
issuers to adopt and follow written 
procedures for moni
toring and achieving 
post-issuance compliance with federal tax 
requirements applicable to their tax-exempt 
and/or tax credit bonds.  
TEB has a Voluntary Closing Agreement 
Program (TEB VCAP) available to issuers 
who are not under exam and who have 
discovered a violation of the law associated 
with the issuance of tax-exempt or tax 
credit bonds.  TEB VCAP is intended to 
encourage issuers and other parties 
involved in bond transactions to exercise 
due diligence in complying with applicable 
federal tax laws and to provide a vehicle to 
correct violations  as expeditiously as 
possible before the violations are 
discovered during an examination.  You can 
find additional information regarding TEB 
VCAP on the TEB website and in Notice 
2008-31, Voluntary Closing Agreement 
Program for Tax-Exempt Bonds and Tax 
Credit Bonds. 	
Publication 1-TEB (7-2011) Catalog Number 58150P Department of the Treasury Internal Revenue Service  www.irs.gov