CHICAGO -- The Internal Revenue Service should give the municipal bond industry more timely guidance on emerging complex transactions and products such as gray boxes, derivatives, and portfolio sales, Henry S. Klaiman, a lawyer with Brown & Wood, told those attending a National Association of Bond Lawyers meeting here.

The industry and the IRS "would be better served if the IRS were to give guidance before these products escalate to the point where confusion reigns" and grow "into 900-pound gorillas that the IRS cannot practically control without upsetting the market," Mr. Klaiman said in a speech on the "state of the municipal tax bar."

The IRS has been debating the tax law issues associated with these transactions for many months without issuing any guidance.

One of the key issues regarding gray boxes is whether they create a source of money that can be viewed as investment property or sinking funds that must be yield-restricted when invested. gray-box transactions are most often current refundings of troubled, federally insured multifamily housing issues that involve the sale of a mortgage note.

Derivatives -- secondary-market transactions in which the underlying municipal bonds are changed to create a different financial project -- raise questions about the arbitrage treatment or tax-exempt status of bonds. Mr. Klaiman bemoaned what he said was an increasing tendency on the part of lawyers to issue "less than unqualified opinions" on the tax law issues associated with these products.

One of the key questions about portfolio financings, or asset sales as they are sometimes called, is whether they should be treated as lease sales or refundings. These deals typically involve the sale of loan obligations that underlie tax-exempt bond issues.

Mr. Klaiman also ticked off a list of almost a dozen other issues for which the industry need for a definition of what constitutes "construction" under the two-year rebate relief law and the need for guidance when a change in the use of a bond-financed facility will threaten the tax-exempt status of the bonds.

While chiding the IRS for delays in giving guidance, Mr. Klaiman acknowledged that the agency appears to be operating under severe manpower constraints.

He also praised the new group of officials at the IRS for "being more evenhanded" with rulings in recent months. They "appear more willing to attempt to believe that most practitioners are not out to [cheat] the IRS" and are, instead, trying to "address difficult questions in a cooperative manner," he said.

He criticized the IRS for being too slow to go after the abusive deals that were done in the mid-1980s and questioned whether the IRS would have gone as far as it has in recent months "had the press not kept these cases alive."

Meanwhile, Richard Chirls, who just stepped down as president of the NABL, told lawyers at the meeting late Wednesday he was concerned "some of the most important ills of our profession seem to have not gone away or to have even been reduced and may, in fact, be getting worse." Among these ills, he said, are opinion shopping, the undercutting of fees, and political appointments of counsel.

Mr. Chirls, a partner at Orrick, Herrington & Sucliffe, said he is afraid such practices will not stopped until the IRS or Securities and Exchange Commission take enforcement actions.

Fredric A. Weber, a partner at Fulbright & Jaworski who replaced Mr. Chirls as the association's president, told members on Wednesday that he is pleased Congress and the Treasury have recognized the industry needs relief from some of the 1986 bond curbs that were excessively restrictive. However, he said, "the degree and the pace of relief have been disappointing, given the very substantial administrative burdens that weigh on state and local governments" from these restrictions.

He said the association can "impact the shape of the law" by continuing to point out when regulations "impose excessive administrative burdens, expose issuers and other marketplace participants to undue liability, or otherwise result in advereral consequenes" that were unforeseen.

Named to serve the association in the coming year with Mr. Weber were: M. Jane Dickey, with the Rose Law Firm, as president-elect; Andrew R. Kintzinger, with Briggs and Morgan, as secretary; and Karen J. Hedlund, with Skadden, Arps, Slate, Meagher & Flom, as treasurer. Three new board members were also named: Helen Atkeson, with Davis, Graham & Stubbs; Stephen Edwards, with Morgan, Lewis & Bocklius; and William McBride, with Hunton & Williams.

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