IRS explains longer audits, uptick in exams to bond lawyers
4 min read
The Internal Revenue Service has been hiring different kinds of workers in its Office of Tax-Exempt Bonds, and bringing on more of them, resulting in more newly started cases, more people on calls to issuers and longer audit times, officials from the TEB office said Wednesday at the National Association of Bond Lawyers annual conference in Chicago.
The changes are due to two key laws passed in the last seven years. The Tax Cuts and Jobs Act brought a reorganization to the IRS; the Inflation Reduction Act brought all of
IRS Director of Government Entities Steve Chamberlin told the bond lawyers that the TEB office will be standing up six total field groups, fully staffed with about 12 revenue agents each.
“We’re looking to build [the tax-exempt program] back to approximately where it was at its height, in the 2010 to 2012 range,” he said. “With all of our growth, we have a lot of new managers. We currently have four in position now, three of whom have very little experience in tax-exempt bonds.”
Allyson Belsome, program manager for the TEB office, said that before the IRA funding, it barely had two exam groups staffed. While she acknowledged that “we’re largely hiring accountants,” she contrasted their current hiring with their traditional hiring practices.
“Our [previous] hiring was IRS employees who were revenue agents in other parts of the IRS; very little of our hiring was external,” she said. “But what we’re faced with now is really training our new hires on bond law and how to be an IRS revenue agent. So it’s a big ask.”
Chamberlin said the IRA “has put us in a posture that we are casting a wider net.” They are hiring at all grade levels in TEB, he said, which means bringing in people earlier in their careers without much experience on bond matters.
“We’re bringing a lot of them on board at once,” he said. “A lot of the students who are in our classes have a much wider range of experiences and are needing different levels of support.”
Belsome shared some data from fiscal year 2023: during that year, TEB started 196 cases and closed 226. There was a 43% change rate (when there are no compliance issues raised, the case is closed as “no change”; everything else is classified as a “change”).
“In FY24, you can expect that the newly started cases will be much higher,” she said. “FY25 will be even greater than that.”
The conference organizers took a poll — “Has there been a noticeable uptick in the number of IRS exams of your clients’ bond issues in the past 12 months?” – and asked for a show of hands. At least half the audience raised a hand.
“That looks like a resounding yes,” said panelist Todd Cooper, managing partner of Locke Lord’s Cincinnati office.
Carol Lew, tax partner with Stradling, Yocca, Carlson & Rauth, noted that the IRS’s new hires come as a generational changing of the guard is taking place.
“Having experienced the new program for a year or so, with the new agents… you may notice that audits may be taking a longer time, and you may notice that the revenue agents appear to be having to input a lot of information into a document management system that the IRS has,” she said. “But it has to all be in the context of, this is an investment by the IRS who had a number of senior employees retire.”
But Cooper pushed the IRS officials to explain their standard operating procedures around Information Document Requests, the process by which agents gather information during an examination.
“I’ve had audits recently where the IDR asked for all sorts of information about the new money project, but there was no new money project,” he said. “The entire transaction was a refunding. And that information is available on [the Municipal Securities Rulemaking Board’s] EMMA [website]. If it’s a publicly offered deal, there’s an official statement on EMMA. Is the agent able to go to EMMA and see what some of the basics are of the transaction and tailor the IDR?”
Lew also raised the question of whether, as some clients seek tax credits and issue tax-exempt bonds, there is the possibility of tax credit audits and tax-exempt bond audits bleeding into each other.
Chamberlin noted that the agency has recently emerged from COVID-19 restrictions and is back in normal operating mode, which includes site visits – those are more likely to happen when it’s important to see the use of bond proceeds, the officials said – but the IRS is also
“It’s going to be different going forward,” Chamberlin said.
