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Public Finance Alert
Published Tuesday, September 20, 2011 6:00 am

Stephen Pugh

Lorraine Tyson

Glenn Weinstein

Recent IRS Guidance on Written Post-Issuance Compliance Procedures For Tax-Advantaged Bonds

On August 5, 2011, the IRS released revised administrative procedures under Section 7.2.3 of the Internal Revenue Manual ("IRM") for the voluntary closing agreement program for tax-exempt bonds, tax credit bonds and direct pay bonds (collectively, "Tax-Advantaged Bonds") known as TEB VCAP ("VCAP"). VCAP is an alternative dispute resolution program allowing an issuer (or where appropriate, a conduit borrower) of Tax-Advantaged Bonds to voluntarily identify a federal tax law violation or violations with its bond issue and negotiate with the IRS for an appropriate resolution. Generally, an issuer (or where appropriate, a conduit borrower) receives more favorable treatment through VCAP than if the same violation was discovered through an IRS examination of the bond issue. VCAP is administered by the Compliance & Program Management staff within the IRS' Office of Tax Exempt Bonds.

The revised VCAP procedures add a new Section to the IRM providing for a reduced settlement amount when an issuer (or where appropriate, a conduit borrower) timely submits a VCAP request following the identification of a violation pursuant to due diligence monitoring processes established in the issuer (or where appropriate, the conduit borrower's) written post-issuance compliance procedures. Paragraph (2)(A) of Section describes what are "written procedures" for VCAP purposes: "Such procedures must, at a minimum, specify the official(s) with responsibility for monitoring compliance, a description of the training provided to such responsible official(s) with regard to monitoring compliance, the frequency of compliance checks (must be at least annually), the nature of the compliance activities required to be undertaken, the procedures used to timely identify and elevate the resolution of a violation when it occurs or is expected to occur, procedures for the retention of all records material to substantiate compliance with the applicable federal tax requirements, and an awareness of the availability of TEB VCAP and other remedial actions to resolve violations. Generally, a reference to reliance on the bond documents, without more, will not (emphasis added) qualify as written procedures that satisfy this paragraph."1


New IRM Section, the discussion of this Section during a September 8, 2011 teleconference presented by Compliance & Program Management staff and statements on the IRS' website2 seem to indicate that it is good practice for every issuer and conduit borrower to adopt written compliance procedures setting forth post-issuance compliance procedure applicable to all their Tax-Advantaged Bonds instead of solely relying on tax representations certificates for individual bond issues which may or may not contain the provisions described in new section IRM If an issuer or conduit borrower already has written post-issuance compliance procedures in place, they should review and revise them as necessary to make sure they include the provisions described in new IRM Section

For further information or for assistance in drafting new written post-issuance compliance procedures or reviewing your existing procedures, please contact Lorraine Tyson at 312-768-7820 ( or Glenn Weinstein at 312-768-7850 (



1 Internal Revenue Manual, Section, Paragraph (2)(A).

2 "Issuers should adopt written procedures, applicable to tax-advantaged bonds, which go beyond reliance on tax certificates included in bond documents provided at closing. Sole reliance on the closing bond documents may result in procedures insufficiently detailed or not incorporated into an issuer's operations." (Excerpt from IRS webpage located at,,id=243503,00.html. (last updated or reviewed on August 11, 2011)

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