RECOVERY ACT
Initial Build
July 14, 2010
Reference Number: 2010-11-083
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Phone Number |
202-622-6500
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
HIGHLIGHTS
INITIAL BUILD
Highlights
Final
Report issued on July 14, 2010
Highlights of Reference Number:
2010-11-083 to the Internal Revenue Service Commissioner for the Tax Exempt and
Government Entities Division.
IMPACT ON TAXPAYERS
The American Recovery and Reinvestment Act of 2009 (Recovery
Act) created a new type of bond, known as the Build America Bond, for which the
Federal Government will partially offset the State and local governments’ cost
of paying bond interest. As of September
2009, State and
local governments received almost $26.4 billion in funding for capital improvements
through 315 Build America Bond issuances.
Generally, all complete
requests for payment of Build America Bond Federal subsidies were processed
accurately, timely, and without indications of fraudulent or erroneous
disbursement. As a result, the public
has assurance that Federal subsidy payments reduced the cost of financing, as
intended by Congress, by more than $110 million.
WHY TIGTA DID THE AUDIT
The
Recovery Act authorized the issuance of $17 billion in additional tax‑exempt
bonds and greatly expanded the market for tax credit bonds by at least $28.4
billion. Proceeds from these bonds are
intended to provide State and local governments funding for capital projects
such as construction of highways, bridges, or schools. The overall objective of this review was to
assess whether the Tax Exempt Bonds office had developed and implemented
controls to assure the direct subsidies for Build
America Bonds (direct payment option) were accurate and timely and whether controls
prevented disbursement of erroneous payments.
WHAT TIGTA FOUND
TIGTA
determined that, generally, all complete requests for payment of the Build
America Bond Federal subsidies were processed accurately, timely, and without
indications of fraudulent or erroneous disbursement. The total amount of Federal subsidy payments
was more than $110 million for the 80 bond issuances requesting payment by the
time of our review.
To
achieve this, Internal Revenue Service management provided instructions for
using Information Returns for Build America Bonds, created the Subsidy Request
Form for bond issuer use in requesting Federal subsidy payments, updated
processing for Build America Bond forms, created manual processes, and
programmed computer systems to process the Federal Subsidy payments. While minor problems were encountered when
processing the initial Information Returns, the problems were identified and
corrected, and all State and local governments submitting complete Subsidy
Request Forms from May 2009 through September 2009 received the correct Federal
subsidy payments.
WHAT TIGTA RECOMMENDED
TIGTA
made no recommendations in this report. Tax
Exempt and Government Entities Division management reviewed the report prior to
issuance and agreed with the facts and conclusions presented.
July 14, 2010
MEMORANDUM FOR COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final
Audit Report – Initial Build
This report presents the results of our review of the
Internal Revenue Service’s processing of Build America Bond Federal subsidy
payments under the American Recovery and Reinvestment Act of 2009 (Recovery
Act).[1] The overall objective of this review was to assess whether the Tax Exempt Bonds office had
developed and implemented controls to assure the direct subsidies for Build
America Bonds (direct payment option) were accurate and timely and whether
controls prevented disbursement of erroneous payments. This review was conducted as part of the
Treasury Inspector General for Tax Administration Office of Audit Fiscal Year
2010 Annual Audit Plan and addresses the major management challenge of Tax
Compliance Initiatives.
The Recovery Act provides
separate funding to the Treasury Inspector General for Tax Administration
through September 30, 2013, to be used in oversight activities of Internal Revenue
Service programs. This audit was
conducted using Recovery Act funds.
We did not make any recommendations in this report. However, Tax Exempt and Government Entities Division management reviewed it prior to issuance and agreed with the facts and conclusions presented.
Copies of this report are also being sent to
the Internal Revenue Service managers affected by the report finding. Please contact me at (202) 622-6510 if
you have questions or Nancy A. Nakamura, Assistant Inspector General for Audit
(Management Services and Exempt Organizations), at (202) 622-8500.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix III –
Report Distribution List
Appendix IV – Build America
Bond Processes
The American Recovery and Reinvestment Act of 2009[2] (Recovery Act) was enacted on February 17, 2009, and authorized the issuance of $17 billion in additional tax‑exempt bonds[3] and greatly expanded the market for tax credit bonds[4] by at least $28.4 billion.[5] In contrast, during Calendar Year 2006, State and local governments issued $428.3 billion in tax-exempt bonds,[6] and tax credit bonds were only a small part of the bond market.
Build
America Bonds were created by the Recovery Act in response to the unprecedented
challenge that State and local governments encountered accessing the credit
markets during Calendar Year 2008.
During that time, banks and other financial institutions suffered
significant investment losses and reduced their involvement in tax-exempt
municipal bonds. As a result, State and
local governments were unable to easily obtain funding for capital projects
such as construction of highways, bridges, or schools.
Build
To
alleviate this situation and potentially lessen the costs of borrowing, the
Recovery Act introduced Build America Bonds to provide State and local
governments with the option of accessing the corporate[7] taxable bond market to
obtain funding for capital improvements.
Bond investors earn interest income on their Build America Bond
investment, which is paid by the State or local government that issued the bonds. Unlike tax‑exempt bonds, Build America
Bond bondholders must claim this interest income on their tax returns for the
bond interest payments. Build America
Bonds can be issued with a direct payment option or a tax credit option.
Recovery Zone Economic Development Bonds are a special type of Build America Bond that provides incentives for State and local governments to promote job creation and economic recovery in areas particularly affected by increases in unemployment. These bonds provide a larger Federal subsidy under the direct payment option by paying the issuers an amount equal to 45 percent (rather than 35 percent) of the cost of the bond interest. Recovery Zone Economic Development Bonds have a limitation of $10 billion that may be issued through December 31, 2010.
For the period April through September 2009, 315 Information Returns for Tax-Exempt Governmental Obligations (Form 8038-G),[8] hereafter referred to as Information Returns, were filed by State and local governments notifying the Internal Revenue Service (IRS) of the issuance of Build America Bonds.[9] For the same time period, 80[10] Returns for Credit Payments to Issuers of Qualified Bonds (Form 8038-CP), hereafter referred to as Subsidy Request Forms, were filed requesting Federal subsidy payments.
Bond issuers pay interest to bond investors on dates that are predetermined at the time the bond is issued. Subsidy Request Forms must be filed at least 45 calendar days before, but not earlier than 90 calendar days before, the issuer’s interest payment date. Issuers should expect to receive requested Federal subsidy payments within 45 calendar days of the date that a complete[11] Subsidy Request Form is filed with the IRS. If the IRS receives an incomplete or incorrect Subsidy Request Form, minor information such as an address will be corrected. However, the form will be returned to the issuer for significant inaccuracies such as no signature or bond issue price.
The Tax Exempt Bonds office within the Tax Exempt and Government Entities Division is responsible for administering the new Recovery Act bonds. All bond forms are filed at the Ogden Campus[12] and processed by IRS Wage and Investment Division employees. This audit occurred at a time when IRS controls over Build America Bond payment processing were evolving. Therefore, this report reflects processing controls that were in effect when Information Returns and Subsidy Request Forms were filed as of September 30, 2009. As a result, this report may not reflect the current status of IRS procedures related to processing Build America Bond forms.
This review is the Treasury Inspector General for Tax Administration’s third audit related to the IRS’ implementation of tax-exempt and tax credit bond Recovery Act provisions. Our first audit concluded that the IRS will need to be vigilant to ensure that Recovery Act bonds are not issued in excess of annual limits or the Federal Government risks losing future tax revenue because excess bonds may not be eligible for tax credits or may be taxable. The Tax Exempt Bonds office believes it has taken steps to ensure it is adequately monitoring the volumes of Recovery Act bonds.[13] Our second audit concluded that the initial guidance published by the IRS in the form of notices[14] was complete,[15] accurate, and consistent with the tax-exempt and tax credit bond requirements of the Recovery Act.[16] A future audit is planned to assess the IRS’ process for identifying Build America Bonds with a potential for noncompliance.
This review was performed at the Tax Exempt and
Government Entities Division Headquarters Office in
Federal Direct Subsidy
Payments for Build America Bonds Were Accurate, Timely, and Did Not Have Indications
of Fraud
Our review determined that, generally, all complete requests for payment of the Build America Bond Federal subsidies were processed accurately, timely,[17] and without indications of fraudulent or erroneous disbursement. State and local governments received almost $26.4 billion in funding for capital improvements through 315 bond issuances. The Federal subsidy payment reduced the cost of financing, as intended by Congress, by more than $110 million for 80 bond issuances requesting payment by the time of our review.
To achieve this, IRS management provided instructions for using Information Returns for Build America Bonds, created the Subsidy Request Form for use in requesting Federal subsidy payments, updated IRS processing for Build America Bond forms, created manual processes, and programmed IRS computer systems to process the Federal subsidy payments.[18] While minor problems were encountered when processing the initial Information Returns, the problems were identified and corrected and all State and local governments submitting complete Subsidy Request Forms from May 2009 through September 2009 received Federal subsidy payments.
Federal subsidy payments
for Build
Controls and procedures developed and implemented by the IRS assured all 80 Federal subsidy payments that had completed processing by the time of our review were accurate. For the purpose of this report, accurate is defined as the correct subsidy payment amount paid to the correct recipient. To verify the accuracy of the payments, we reviewed all 80 Subsidy Request Forms, associated Information Returns, and related IRS records. We then recalculated the Federal subsidy payments to ensure the payments were processed in the correct amount and checked to ensure that the payments were made to the correct recipients.
· Controls assured that all 80 payment requests were from known bond issuers. The bond issuers requesting payment through submission of the Subsidy Request Forms were the same as those listed on the Information Returns and the IRS Master File.[19] In addition, research was performed by the Tax Exempt Bonds office[20] prior to releasing the Federal subsidy payments to verify that the filers of the Information Returns and the Subsidy Request Forms were known bond issuers. This ensures Federal subsidy requests are from established bond issuers and the requests are valid.
· Controls assured all 80 subsidy payments were issued to the correct recipients. Fifty‑four (68 percent) of the 80 Federal subsidy payments were made to the bond issuers. The remaining 26 Subsidy Request Forms designated that the Federal subsidy payment should be sent to a third party. Bond issuers can enter into agreements with third parties, such as trustee banks, for the third party to make the periodic interest payments to bond investors instead of the bond issuers.
o 22 of 26 designated Federal subsidy payments were sent to trustee banks to make the issuer’s interest payments.
o 4 of 26 designated Federal subsidy payments were sent to a different office within the same State or local government that issued the bonds.
Based
on this information, we determined that sending the 26 payments to designated
third-party addresses was reasonable.
Currently, the IRS does not send confirmation to the bond issuer when a
payment is made to a third party on its behalf.
IRS management stated that beginning in July 2010, a notice will be sent
to each Build America Bond filer to acknowledge receipt of the Subsidy Request Form. The notice
will show the credit interest payment and suggest the third-party filer provide
a copy of the notice to the bond issuer.
· Controls assured all 80 Federal subsidy payment amounts were correct. All 80 Federal subsidy payments processed by the IRS were correct based on our recalculations.[21] To verify the subsidy payment amounts are correct, IRS employees and computer systems recalculate Federal subsidy payment amounts submitted by bond issuers when processing Subsidy Request Forms. IRS employees and computer systems identified the following errors.
o Two Subsidy Request Forms had the bond interest calculated incorrectly by the bond issuers on the Subsidy Request Form. Tax Exempt Bonds office personnel identified this condition and contacted the bond issuers and obtained agreement for correction of errors prior to processing the Federal subsidy payments.
o One Subsidy Request Form included a transposed number in the Federal subsidy payment amount. This error was corrected by IRS computer systems while processing the Federal subsidy payment.
The Internal Revenue Manual permits correction of the Subsidy Request Forms by processing employees or by Tax Exempt Bonds office agents if minor errors are identified. When dollar value errors are identified, Tax Exempt Bonds office agents forward a document to the bond issuer explaining the error and requesting that the issuer sign and return the document signifying agreement to the change. Tax Exempt Bonds office management provides instructions to the Government Entities Compliance Unit to make the appropriate correction and to attach the document signed by the bond issuer to the Subsidy Request Form for completion of processing and payment.
Federal
subsidy payments for Build America Bonds were timely
Controls and procedures developed and implemented by the IRS assured that 79 of 80 Federal subsidy payments processed by the time of our review were timely. We reviewed all 80 complete Subsidy Request Forms that were received by the IRS and related IRS records for the Federal subsidy payments to ensure the payments were processed within the IRS’ 45-calendar day time standard. We determined the dates that Subsidy Request Forms were received by the IRS and the dates the Federal subsidy payment transactions were posted to the IRS Master File and identified the following:
· 79 of the 80 Federal subsidy payments were made within 45 calendar days after receipt of complete Subsidy Request Forms. Eight of the 79 initially appeared to have been paid late, but further review determined the forms were received incomplete and returned to the issuers for correction. After receipt of the corrected forms, all 8 payments were paid within the 45-calendar day standard.
· 1 of the 80 Federal subsidy payments was paid more than 45 calendar days after receipt of the Subsidy Request Form. This payment was systemically identified as a potential duplicate payment request and was rejected by the IRS’ computer system. IRS employees performed research to ensure the payment request was not fraudulent or erroneous, determined the form was not a duplicate, and processed the payment manually to ensure the fastest payment possible. However, the payment was made 53 calendar days after receipt of the Subsidy Request Form, thereby exceeding the 45-calendar day standard. Because payment guidelines were exceeded, the IRS paid interest to the customer for making the payment 8 calendar days late. Eight additional Subsidy Request Forms had similar characteristics and could have been systemically identified as potentially duplicate payment requests; however, they were corrected timely and paid within the 45-calendar day standard. Therefore, we viewed the one late payment as an isolated incident.
No indications of fraudulent
or erroneous disbursements were identified for initial Build
The Government Accountability Office reported that when assessing risks, agencies receiving funds for Recovery Act programs should consider whether their internal controls are sufficient to decrease the risk of fraud, waste, and abuse. Also, in recent testimony before Congress, the Government Accountability Office stated,
Our work has shown that building internal controls in up front is of
the utmost importance and that fraud prevention is the most efficient and
effective means to minimize fraud, waste, and abuse. Once Federal dollars are disbursed
fraudulently or improperly, the Government is only likely to recover a few
pennies on the dollar. Thus, preventive
controls are the most important component of a fraud prevention system. These controls prevent ineligible individuals
and questionable firms from gaining access to Government funds in the first
place.
We determined there were no indications of fraudulent or erroneous disbursements in the 80 initial Federal subsidy payments that the IRS processed. To test for potentially fraudulent or erroneous disbursements, we reviewed areas vulnerable to fraud or mistakes, such as inappropriate address changes, amended and duplicate returns, and manually processed payments. The IRS had designed preventive controls to reduce the chances of fraudulent or erroneous disbursements.
· Address changes were reasonable. The filing of a Change of Address form[22] followed by the filing of a Subsidy Request Form could be an indication that someone is trying to divert funds to a new address inappropriately. Address changes occurred for 7 (9 percent) of 80 Federal subsidy payment requests within 3 weeks of the Federal subsidy payment date. However, none of the address changes indicated any potential for fraudulent or erroneous disbursement of the Federal subsidy payment.
o For three of seven address changes, the bond issuer and the recipient were the same entity. Rather than indicating a potential fraudulent or erroneous disbursement, these address changes indicate that the addresses were changed to ensure the Federal subsidy payments were sent to the correct department of the entity.
o For four of seven address changes, the recipients were large banks or trusts, or departments within a State government. The address changes were reasonable because State and local governments often enter into agreements with trustee banks to make their periodic interest payments to investors. In addition, departments within State and local governments other than those that file Information Returns may make the periodic interest payments to investors.
The IRS has reduced the chance of fraudulent or erroneous disbursements associated with address changes by implementing controls to verify that the correct recipient and address are being used for each Federal subsidy payment before the payments are disbursed, as discussed previously in this report.
· Amended or duplicate payment requests were not submitted. Amended or duplicate Subsidy Request Forms can be filed in an attempt to change the payment amount or to obtain a duplicate payment. Duplicate Subsidy Request Forms could also be filed inadvertently. Our review of IRS Master File data and Subsidy Request Forms did not identify any duplicate or amended payment requests. However, the IRS reduced the chance of making an improper payment due to receipt and processing of amended or duplicate requests. This is accomplished by reviewing every Subsidy Request Form that is filed and by maintaining a database that has information on Subsidy Request Form filings to allow verification of the payment requests.
· Controls assured manually processed payments were reasonable. Payments that are processed manually have an increased risk of fraud because an IRS employee could potentially change the payee or the address and redirect the manual payment for his or her personal use. In addition, manual procedures are subject to human error. The IRS manually processed 10 (13 percent) of 80 Federal subsidy payments (the remaining payments were computer generated) according to IRS guidelines in place when the Subsidy Request Forms were received. In July 2009, IRS guidelines were changed to allow processing of computer-generated Federal subsidy payments up to $10 million due to the expected large volume of subsidy payment requests. Payments processed before and after the guidelines change were processed properly, according to the guidelines in place at the time.[23] All 10 manual payments appeared to be reasonable and correct, without suspicious activity such as address changes or redirected payments.
The IRS has reduced the chance of fraudulent or erroneous disbursements related to manually processed refunds by implementing the following controls for all manual payments.[24] All manual payment requests must be reviewed and approved by a manager who is an authorized signer for manual payments. After approval by the manager, another employee reviews the forms and the customer account on the IRS Master File to identify any outstanding tax obligations and to ensure the credit is available[25] for payment. All requests for manual payments must be controlled and monitored on the IRS’ computer systems by the initiator (or other employee designated by management) to prevent duplicate or erroneous refunds. Each month, random reviews of manual payment requests are performed to detect and deter inappropriate adjustment activities.
Based on our review of how address changes, amended or duplicate returns, and manual payments associated with the 80 requests were processed, we believe the IRS has established controls that are reasonable to prevent erroneous or fraudulent disbursement of Federal subsidy payments on Build America Bonds.
Appendix I
Detailed Objective, Scope, and Methodology
Our overall objective was to assess whether the Tax Exempt Bonds office had developed and implemented controls to assure the direct subsidies for Build America Bonds (direct payment option) were accurate and timely and whether controls prevented disbursement of erroneous payments. To accomplish our objective, we:
I.
Determined
whether the Tax Exempt Bonds
office developed and implemented controls for Build America Bond (direct payment option) payment processing.
A.
Determined whether procedures were
implemented to identify and associate (when filed) the Build America
Bond Information Returns and Subsidy
Request Forms.
B.
Determined whether procedures were
implemented for timely processing of Build America Bond subsidy payments.
C.
Determined whether procedures were
implemented for accurately issuing Build America Bond direct subsidy payments, including the receipt
of amended and duplicate requests.
II.
Obtained
paper and electronic data for Build America Bond Information Returns and Subsidy Request Forms.
A.
Obtained an extract of Build America
Bond Information Returns and Subsidy
Request Forms from the IRS Master
File.[26] From
the extract we identified 315 Information Returns filed between April and
September 2009, and 80 Subsidy Request Forms filed between May and September 2009.
We validated the data extract by comparing the data to the scanned images
of the filed Information Returns and Subsidy Request Forms, comparing the data
to information on the Integrated Data Retrieval System,[27] and recalculating the subsidy payment dollar
amounts.
B.
Obtained copies of Information Returns and Subsidy
Request Forms related to the data
extract as of September 30, 2009.
III.
Determined
whether the controls established to process Build America Bond direct subsidies were working as intended.
A.
Determined the accuracy of the Build
America Bond direct subsidy payments.
1.
Obtained and reviewed the guidelines
developed for employees to verify the accuracy of Build America Bond direct subsidy payments.
2.
Determined whether the bond issuer listed on the
Information Return was also listed as the issuer on the Subsidy Request Form
and whether a payment recipient was designated on the Subsidy Request Form.
3.
Determined whether the correct subsidy
payment amounts were processed for Build America Bonds by identifying (and recalculating) the
payment amount calculated by the issuer on the Subsidy Request Form and comparing
it to payment information on the IRS Master File.
B.
Determined whether Build America Bond subsidy payments were made within 45 calendar
days of receipt of complete Subsidy Request Forms by identifying the IRS
receipt date of the form and comparing it to the IRS Master File payment transaction
date.
C.
Assessed the risk of fraud occurring for Build
America Bond direct subsidy payments.[28]
1.
Performed Integrated Data Retrieval System
research to determine if a change of address of record occurred immediately
prior to receipt of Subsidy Request Forms requesting payment.
2.
Determined
whether direct subsidy payments of $10 million and less were processed as
computer-generated payments.
3.
Determined whether direct subsidy payments of
greater than $10 million were processed manually. If so, we determined if subsidy payments were
issued to the original name and address on the Subsidy Request Forms.
4.
Identified whether any amended or duplicate
returns were processed and if erroneous payments were made.
Internal
controls methodology
Internal
controls relate to management’s plans, methods, and procedures used to meet
their mission, goals, and objectives.
Internal controls include the processes and procedures for planning,
organizing, directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.
We determined the following internal controls were relevant to our audit
objective: the Internal Revenue Code,
the American Recovery and Reinvestment Act of 2009,[29] and Tax Exempt Bonds office policies and procedures for
developing and implementing controls to assure the direct subsidies for Build
America Bonds (direct payment option)
are accurate and timely to prevent fraudulent or erroneous disbursements. We evaluated these controls by interviewing
management and reviewing Information Returns, Subsidy Request Forms, and other
applicable documentation.
Appendix II
Major Contributors to This Report
Nancy
A. Nakamura, Assistant Inspector General for Audit (Management Services and
Exempt Organizations)
Troy
D. Paterson, Director
Gerald
T. Hawkins, Audit Manager
Andrew
J. Burns, Lead Auditor
Yolanda
D. Brown, Auditor
Carol
A. Rowland, Auditor
Brian W. Hattery, Information Technology
Specialist
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy
Commissioner, Tax Exempt and Government Entities Division SE:T
Director, Government Entities, Tax Exempt and Government Entities Division SE:T:GE
Director, Tax Exempt Bonds, Tax Exempt and Government Entities Division SE:T:GE:TEB
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaison: Director, Communications and Liaison, Tax Exempt and Government Entities Division SE:T:CL
Appendix IV
In response to the American Recovery and Reinvestment Act of
2009,[30]
new forms and instructions were developed for bond issuers, and procedures and
controls were implemented by the IRS to process Build America Bond returns and
Federal subsidy payments.
When a Federal subsidy payment is processed on the IRS’ computer systems, a transaction is systemically generated based on information from the Subsidy Request Form to allow the subsidy payment to be paid. The tax account for the subsidy payment will identify the issuer, recipient address, type of bond issuance, and subsidy payment amount processed. The subsidy payment amount is validated by the IRS’ computer systems based on the information from the Subsidy Request Forms.
[1] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[2] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[3] Tax-exempt bonds are issued by State or local governments, and the interest income paid by the bond issuer to bond investors is not taxable by the Federal Government.
[4] Tax credit bonds are issued by State or local
governments, and an investor must include the total interest income received in
gross income. The amount of the tax
credit available to a bondholder on each credit date is a percentage of the
credit rate multiplied by the outstanding face amount of the bond.
[5] This figure could be much higher because one type of
bond, known as Build America Bonds, was not limited in the total dollar amount
that can be issued through December 31, 2010.
[6] This information was published by the Internal Revenue Service Statistics of Income Division and was the latest year available. Since the accuracy of this Internal Revenue Service-provided statistic did not affect the accomplishment of our audit objective, we did not verify its accuracy.
[7] Corporate bonds are debts issued by industrial, financial, and service companies to finance capital investment and operating cash flow.
[8] Information Returns must be filed on or before the 15th day of the 2nd calendar month after the close of the calendar quarter in which the bond is issued.
[9] This includes Recovery Zone Economic Development Bonds.
[10] One additional Subsidy Request Form was not complete when received and was returned to the bond issuer for completion.
[11] A complete Subsidy Request Form has all required information and is ready for processing by the IRS.
[12] The campuses process paper and electronic
submissions, correct errors, and forward data to the Computing Centers for
analysis and posting to taxpayer accounts.
[13] Observations About Annual Dollar Limits for American Recovery and Reinvestment Act of 2009 Bonds (Reference Number 2010-11-016, dated January 8, 2010).
[14] Notices are public pronouncements by the IRS that contain guidance involving substantive interpretations of the Internal Revenue Code or the law.
[15] The Treasury Inspector General for Tax Administration defines complete as addressing all Recovery Act bond provisions. This is not an indication that the current guidance is final and that additional guidance will not be issued. The IRS can issue additional guidance as issues arise or when interpretations of the law are needed. In addition, the Tribal Economic Development Bonds Notice did not contain the effective date of the Recovery Act provision. This notice was not considered to be incomplete because it is an interpretation of laws already in effect.
[16] Initial Published Guidance for American Recovery and Reinvestment Act of 2009 Bonds Was Complete, Accurate, and Consistent (Reference Number 2010-11-035, dated March 16, 2010).
[17] One Federal subsidy was not paid timely because it appeared to be a potential duplicate request and required further review.
[18] See Appendix IV for additional information on Build America Bond processes.
[19] The IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.
[20] Tax Exempt Bonds office employees access the Internet web site “Electronic Municipal Market Access,” which contains municipal bond trading statistics and trends. The Electronic Municipal Market Access web site provides a snapshot of daily trade data based on municipal bond characteristics such as trade type, size, sector, maturity, source of repayment, and type of coupon.
[21] For six cases, we determined the payment was different than the subsidy amount requested because the subsidy was reduced by the amount of prior tax obligations or the IRS paid interest on late subsidy payments.
[22] Change of Address (Form 8822).
[23] Two Federal subsidy payments more than $10 million were processed correctly as manual payments and 8 additional Federal subsidy payments less than $10 million were processed manually because they were either in jeopardy of being paid late or were processed prior to the IRS decision to computer generate payments less than $10 million.
[24] A manual payment is a payment that is not generated through normal IRS Master File processing.
[25] A credit in the amount of the subsidy payment must be input to the customer account before payment can be made.
[26] The IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.
[27] The IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer’s account records.
[28] Absolute assurance that subsidy payments are not being redirected cannot be attained due to the nature and characteristics of fraud. For example, two or more individuals acting in collusion can compromise any system of internal controls.
[29] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[30] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[31] Information Returns must be filed on or before the 15th day of the 2nd calendar month after the close of the calendar quarter in which the bond is issued.
[32]
Tax-exempt obligations are used for such capital
improvements as the construction of airports, hospitals, and schools. However, tax-exempt government obligations
can not be issued as private activity bonds.
Private activity bonds are municipal securities where the proceeds are
used by private entities such as housing authorities or community development
authorities.
[33] A schedule that generally provides details about the issuer’s periodic interest payment dates, the total interest payable, and the total principal outstanding.
[34] The IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.