Sunday, September 21, 2008

IRS Issues Report on 501(c)(3) Organizations' Compliance with Tax-Exempt Bond Financing Requirements

On September 11, 2008, the IRS released a report entitled: "Tax Exempt Bonds Compliance Check Questionnaire Initiative Interim Report on Charitable Financings: A Summary of Reported Data and Analysis." According to the IRS, this report presents the analysis and preliminary conclusions on the data collected during the Tax-Exempt Charitable Financings Compliance Check Questionnaire project, which sought to identify and measure the overall knowledge of 501(c)(3) exempt organizations of the post-issuance compliance and record retention requirements generally applicable to qualified 501(c)(3) bond issues for which they are a beneficiary. Steven T. Miller, Commissioner, Tax Exempt and Government Entities, says of the report: “I am pleased with the positive response we have received on this project, both in the high percentage of completed questionnaires and the interest of industry associations in the responses.” Here are the report's findings:

The compliance questionnaire addressed policies, practices, and recordkeeping of § 501(c)(3) organizations benefitting from tax-exempt financing in such key areas as use of proceeds and property, arbitrage, expenditures, and other filings and requirements.

Almost all (95%) of the responding § 501(c)(3) organizations reported that they had implemented written post-issuance compliance procedures or guidelines to ensure continued compliance with applicable federal tax requirements. However, a closer analysis of the narrative responses suggested that only 49% either had written specific procedures (16%) or implemented an ad hoc process (33%) to ensure effective monitoring of post-issuance compliance. Although this does not necessarily mean that one group or the other is more or less compliant with the tax exempt bond rules, our examination experience suggests that the adoption and consistent utilization of formal procedures and practices generally improves the likelihood of post-issuance compliance.

Almost all (89%) of the responding § 501(c)(3) organizations reported that they assigned a management official the primary responsibility of monitoring post issuance compliance. Moreover, a high percentage (89%) of the respondents reported that they provide some level of related training to these officials.

Almost all (97%) of the responding § 501(c)(3) organizations indicated that they maintained books and records necessary to substantiate compliance. However, some of the respondents indicated that they are not retaining certain types of required records on a consistent basis.

This Interim Report summarizes the data as reported to us. Other than review the narrative responses and supplemental information provided by the respondents, we have not independently tested or attempted to verify the accuracy or completeness of the responses.

To see the entire report, go to this website: http://www.irs.gov/pub/irs-tege/interim_report_-_draft_09-11-08_v1.pdf

DAB

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