On Friday, March 8, 2013, the Internal Revenue Service (“IRS”) released Form 14429, Tax Exempt Bonds Voluntary Closing Agreement Program Request. The new form is required for a Tax Exempt Bonds Voluntary Closing Agreement Program (“VCAP”) submission request. VCAP provides remedies for issuers of tax-advantaged bonds (e.g., 501(c)(3) tax-exempt bonds) who voluntarily come forward to resolve a violation of the federal tax requirements applicable to a bond issue that the issuer cannot self-correct under programs described in the Income Tax Regulations or other published guidance. An issuer will generally receive more favorable treatment in resolving its tax violation under VCAP than it would for the same violation discovered during an IRS examination. Still more favorable treatment may be possible where an issuer can demonstrate that the violations were discovered as a result of the issuer following written procedures adopted to ensure that its tax-exempt bonds remain in compliance with all post-issuance related federal tax requirements that are conditions to the tax-exempt status of the bonds. (See Hall Render’s December 2011 Practical Health article, IRS to Audit Based on Schedule K Disclosures, here.)
The new Form 14429 provides an issuer with the opportunity to include an affirmative or negative statement as to whether the issuer has adopted comprehensive written procedures intended to promote post-issuance compliance with, and to prevent violations of, the federal tax requirements for tax-exempt bonds. If such procedures were adopted, the issuer is provided the opportunity to describe the portion of the procedures that relates to the disclosed violation, and to disclose the date the procedures were adopted and the date the violation was discovered. The ability to respond to these questions appropriately will be key to potentially establishing a basis for a reduced settlement amount under VCAP.
According to the IRS, the purpose of the new form is to assist issuers in organizing VCAP submission requests and to ensure that their submissions are complete and in accordance with the requirements under Notice 2008-31, 2008-11 I.R.B. 592 and IRM 7.2.3. While other parties (such as a 501(c)(3) conduit borrower) may participate in a VCAP request, only the issuer may use this form to submit a VCAP request. Use of the new form is intended to reduce delays in processing VCAP requests caused by missing information and to facilitate the process for accepting and assigning requests.
Practical Takeaways
The introduction of the new Form 14429 is the latest reminder for issuers and borrowers of tax-exempt bonds of the importance of adopting written, comprehensive post-issuance compliance procedures for their outstanding tax-exempt bonds. Hospitals with outstanding tax-exempt bonds that have not implemented written post-issuance compliance procedures or are unsure if their existing procedures meet the requirements for receiving, potentially, more favorable settlement terms under VCAP should consider adopting or amending their procedures as appropriate.
If you have any questions about the new Form 14429, please contact Kendall A. Schnurpel at 317-977-1480 or kschnurpel@hallrender.com or your regular Hall Render attorney.
