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Treasury Inspector General for Tax Administration

Press Release

October 15, 2009
Contact: Li-Yun Chien
(202) 622-6500

TIGTA Reviews IRS's Oversight of Tax-Exempt Bonds

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its review of the Internal Revenue Service's (IRS) oversight of State volume cap limits for tax-exempt private activity bonds.

The Internal Revenue Code places a limit (volume cap) on the amount of tax-exempt private activity bonds that can be issued annually within each State. Any bonds issued above the maximum yearly dollar limit would be taxable. For private activity bonds to be tax-exempt, 95 percent or more of the net bond proceeds must be used for qualified purposes such as financing water, sewage, and solid waste disposal facilities, and financing student loans.

TIGTA found that the IRS's existing compliance program does not determine whether aggregate bond issuances exceeded yearly dollar limits. In addition, the IRS does not regularly receive all of the information it will need to verify volume cap compliance, and bond data is not always accurately entered into the IRS's computer systems.

TIGTA recommended that the IRS: develop and implement processes to identify and address tax-exempt private activity bonds that exceed volume cap limitations; ensure that required State certifications and carryforward elections are received with filed bond returns; and identify and implement a methodology to ensure that transcription errors for bond documentation are detected.

IRS management agreed with TIGTA's recommendations and plans to identify and address volume caps compliance, improve guidance for processing bond information returns, and identify errors in previously processed bond information returns.

To view the full report, including the scope, methodology and full IRS response, go to: https://www.treasury.gov/tigta/auditreports/2009reports/200910097fr.pdf.


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