WASHINGTON -- Closing agreements involving tax-exempt bond issues that are audited by the Internal Revenue Service must be coordinated by the agency's headquarters and district offices, the IRS announced Friday.
The new procedure, which had been mentioned in speeches by IRS officials in the last few weeks, was formally sent to district offices as a written insert to be included in training manuals that are being used as part of the IRS' new tax-exempt bond enforcement program.
"The purpose of these procedures is to provide necessary consistency in order to administer this program fairly," the insert said.
Closing agreements, which are usually used by the IRS to settle disputes over bond issues that violate tax law rather than revoking the tax-exempt status of the bonds, are normally handled by district officials, an IRS spokeswoman said Friday.
But under the new procedures, she said any proposed closing agreements must be coordinated with the IRS headquarters here.
The notice also said that when district officials decide to enter into a closing agreement on a bond issue, they must submit the agreement to the national office before entering into negotiations.
But district officials also must consult with the national office in cases where they decide not to reach a closing agreement and plan to tax the bondholders, the insert said.
"While we anticipate that many bond examinations will be closed through closing agreements, closing agreements will not always be the appropriate remedy. Each examination should be analyzed to determine whether a closing agreement is the appropriate remedy," the notice said.
The IRS also said that requests for closing agreements submitted directly to the national office by an issuer or a conduit borrower will be handled by the national office, but any proposed action or closing agreement will be sent to the district office for review before negotiations are started with the issuer.