The Internal Revenue Service (“IRS”) has strengthened its stance on tax compliance plans through the newly released Form 990. On December 20, 2007, the IRS released a redesigned Form 990, which 501(c)(3) organizations must use beginning with the calendar year 2008. The new form includes Schedule K, which requests information regarding tax-exempt bonds issued by the 501(c)(3) organization. The requested information in Schedule K is another example of the IRS’s initiative to monitor and promote compliance by 501(c)(3) organizations with tax code requirements related to the use of tax-exempt bond proceeds after the closing of a bond transaction (“post-closing compliance”).
In recent years, the IRS has engaged in random audits of outstanding tax-exempt bonds and has sent out thousands of post-closing compliance surveys to 501(c)(3) organizations. It is clear that the IRS finds that ensuring post-closing compliance with tax requirements for 501(c)(3) organizations is a high priority.
The IRS has stated that all 501(c)(3) organizations with outstanding bonds should have in place written policies for monitoring post-closing requirements, with proper record keeping for at least as long as they have any bonds outstanding. As a result of these developments, we are encouraging our 501(c)(3) clients to establish a post-closing compliance plan (the “Plan”) as soon as possible.
Your Plan should cover topics such as:
1. Who in your organization will be responsible for monitoring compliance?
2. How will that individual(s) collect, review and retain the necessary information?
3. How often should the individual(s) collect and review such information?
4. When should the individual(s) contact bond counsel for assistance?
In addition, your Plan should address the monitoring information related to:
1. Restricted fundraising
2. Private Use for bond financed facilities
3. Change-in-use issues for bond financed facilities
4. Investment of bond proceeds
5. Final allocations of bond proceeds
6. Tax information filings
7. Arbitrage rebate
8. Record retention
Your Plan should be tailored to your organization’s particular needs and procedures. We would be happy to assist you in instituting a Plan or in reviewing your Plan before it is final.
If you would like any additional information regarding instituting a post-closing compliance plan or regarding the new Schedule K of the Form 990, please contact