Bond lawyers struggling with IRS

Bond attorneys are encountering odd requests from the Internal Revenue Service on routine audits and having difficulty dealing with an agency that appears rudderless. 

“I normally try to have an upbeat attitude with respect to my dealings with the IRS,” said Carol Lew, a partner at Stradling Law. “I’m having a little bit of trouble being optimistic right now given budget cuts and loss of personnel.” 

The comments came during a panel discussion at the National Association of Bond Lawyers Workshop event in Washington D.C. 

Friction between practitioners and the agency is a recurring theme that appears to be getting worse as seasoned bond specialists are being replaced by personnel with limited experience. 

“There are a lot of new agents, but they are not all novices,” said Lew. “Some are at the end of their career, but they are auditors from another area, so they may be quite skilled at auditing, but just not as familiar with our particular area.”  

The IRS is currently helmed by Scott Bessent, who is also serving as the Secretary of the Treasury.   Bessent replaced Billy Long a former Congressman and auctioneer who was in the position for less than two months. 

Michael Faulkender, who had served as a deputy secretary of the Treasury also lasted less than two months. 

IRS veteran Gary Shapely was the commissioner for three days.  IRS veterans Melanie Krause, and Doug O’Donnell also served less than two months. 

Danny Werfel was the most recent non-acting commissioner and ran the agency for most of the Biden Administration.  

The turnover is affecting the day-to-day operations between the agency and the bond lawyers during the audit process. 

“Some agents want to use TE/GE Connect (secure messaging platform), they start the audit then the agent is gone due to cuts,” said Lew. “If time elapses enough, you can get locked out of TE/GE Connect. It’s a problem.”  

Trying to solve complex questions by reaching out to senior management is also problematic. 

“The calls you could make to people at the bond branch, or people you knew at Treasury, there’s really no one there right now in terms of depth,” said Ed Oswald, partner at the Washington, D.C. office at Orrick.  

The material being requested during bond rebate audits, which typically target possible arbitrage violations also has the attorneys scratching their heads.   

“Full blown rebate audits,” said Lew. “Wanting to do the math on the check, the math of the rebate report, and get the underlying data that was transmitted by the issuer to the rebate analyst.”  

The agency continues to have issues with notices about Form 8038s, requesting signatures on forms that have already been signed. The problem has been going on since at least May.

The 8038 form is used to by the agency to verify the tax-exempt status of outstanding bonds. Some bond attorneys have resorted to using “wet signatures,” on the documents which seems to reduce the number of incorrect notices. 

Anecdotal evidence has also emerged that the agency seems particularly interested in auditing bonds from certain years, jails, tribal economic development bonds, and health care facilities.