Nonprofit Insider

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March 2012 Vol. 3 No. 2

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
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Post-Issuance Concerns

Tax-Exempt Bonds
By Luke Smith, Senior

he Office of Tax Exempt Bonds (TEB), a branch of the IRS, sent questionnaires focusing on two main categories of postissuance compliance to two hundred and seven 501(c)(3) organizations. The categories of concern were: 1) qualified use of proceeds and financed property 2) arbitrage yield restrictions and rebate. The questionnaires asked organizations to respond about their written procedures, recordkeeping and retention policies and who performed the post-issuance compliance monitoring. The results were mixed, but the TEB concluded that there was significant need for improvement in postissuance compliance, particularly with respect to the maintenance of records throughout the life of the bonds. It is important for organizations to adopt written procedures, which go beyond reliance on tax certifications included in the bond documentation provided at time of issuance.

Sole reliance on these documents may result in insufficiently detailed procedures or may result in the documents not being incorporated into the organizations operations at all. Written procedures should include specific details and requirements relating to the bonds.

Not-for-Profit Reporting Rules Could Be Changing

By Jennine Anderson, Partner

Written procedure guidelines

Due diligence review at regular intervals; Identifying the official(s) or employee(s) responsible; Training of those individuals responsible; Retention of adequate records to substantiate compliance (such as expenditure of proceeds); Procedures reasonably expected to timely identify noncompliance, and; Procedures to ensure that the issuer will take steps to timely correct noncompliance. The goal of establishing and following written procedures is to identify and resolve noncompliance on a continued on page 2

t seems like just yesterday that the not-for-profit (NFP) world was shaken up by imposition of all those new accounting and reporting rules. Organizations had to go back into deep storage to determine if gifts were unrestricted, temporarily restricted or permanently restricted. We struggled with the definitions of restrictions. We had to explain to boards why they could not restrict under the new rules. They could only designate. We had to deal with the absurd concept of recording as current revenue, promises for gifts in the future. We studied and read ... and finally implemented. Well, despite seeming like just yesterday, it has actually been almost two decades since the rules changed. Leslie Seidman, Chairman of the Financial Accounting Standards Board (FASB), pointed that out on November 9, 2011, when she
continued on page 2

For more information, please contact Jennine Anderson at janderson@uhy-us.com

UHY LLP brings specialists in nonprofit solutions in accounting and tax.

March 2012 Vol. 3 No. 2

Tax-Exempt Bonds, Post-Issuance Concerns

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timely basis so that there is no danger of losing the tax-exempt status of the bond. An organization that has written guidelines is less likely to be noncompliant than one that does not. It is important to ensure that the current person(s) responsible for post-issuance compliance will be able to fulfill their duties. Since bonds are usually issued for a long period (sometimes spanning over decades), it is completely in the realm of possibilities that several individuals could be responsible for oversight over the life of the bond. Sufficient records need to be maintained so that the new personnel can continue with the compliance moni-

toring. Monitoring and recordkeeping should be integrated into the existing accounting system, if practical. Formal record retention policies for tax-exempt bond records can provide a strong foundation for ensuring continuity in maintaining effective compliance practices. The TEB has several programs in place to help promote post-issuance compliance. The TEB administers the Voluntary Closing Agreement Program (TEB VCAP) to assist issuers in resolving federal tax violations related to their bonds. Generally, an issuer will receive a more favorable resolution under the TEB VCAP than for the same tax

violation if it were to be discovered during an IRS examination of those bonds. Issuers of tax-exempt bonds are required to file a Form 8038 series of informational returns. These returns include questions regarding whether the issuer has established written procedures to timely identify and correct any violations. There are also questions on these forms to help the issuer with compliance relating to the arbitrage yield restrictions and rebate requirements. If your organization has issued taxexempt bonds, you will want to review the policies and procedures that are in place, and determine whether they are sufficient to identify and correct any noncompliance with IRS requirements timely.

Not-for-Profit Reporting Rules Could Be Changing

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announced the addition of two agenda projects: a standard-setting project and a research project-intended to improve the financial reporting of not-for-profit organizations. The objective of the standard-setting project is to reexamine financial statement presentation in order to improve net asset classification, better address financial performance in the statements of activities and cash flows, and improve information about liquidity. The research project involves studying other means of communicating an NFPs financial story including looking at best practices in commu-

nications to enhance understanding of donors, creditors, and other stakeholders about financial health and performance and to consider the role of FASB in promoting such communications. FASB reached this decision based on suggestions made by the FASB Notfor-Profit Advisory Committee (NAC) at their meeting in September 2011. NAC was established in October 2009 to serve as a standing resource for the FASB in obtaining input from the NFP sector. It has 17 members, plus three participating observers. Representation consists of NFP financial officers, auditors, foundation (and other)

donors, representatives from watchdog agencies, a charities regulator and an attorney. There is also the FASB NFP Resource Group, currently with approximately 150 members, that provides feedback to questions from NAC and NAC staff. Three NAC subgroups were charged at the February 2011 NAC meeting with the task of identifying potential improvements in NFP financial reporting for discussion at the September 2011 NAC meeting. The subgroups reported back with recommendations. FASB took these recommendations under consideration and then issued the November press release announcing the two projects. It will be very interesting to see what develops.

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