3.12.26. Tax Exempt Bond Error Resolution Procedures

(1) The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS), led by the National Taxpayer Advocate. Its job is to protect taxpayers’ rights by striving to ensure that every taxpayer is treated fairly and knows and understands their rights under the Taxpayer Bill of Rights (TBOR). TAS offers free help to taxpayers, including when taxpayers face financial difficulties due to an IRS problem, when they are unable to resolve tax problems they haven’t been able to resolve on their own, or when they need assistance to address an IRS system, process, or procedure that is not functioning as it should. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

(2) TAS uses Form 12412, Operations Assistance Request (OAR), to start the OAR process of referring a case to the Wage and Investment (W&I) Division, to affect the resolution of the taxpayer’s problem. For more information, refer to IRM 13.1.19, TAS Operations Assistance Request (OAR) Process.

(3) Refer taxpayers to TAS when the contact meets TAS criteria or when Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), is attached and steps cannot be taken to resolve the taxpayer’s issue the same day.

(4) The definition of "same day resolution" is within 24 hours. The following two situations meet the definition of "same day resolution":

• The issue can be resolved within 24 hours.

• IRS takes steps within 24 hours to resolve the taxpayer’s issue.

(5) When making a TAS referral, use Form 911 and forward to TAS following your local procedures.

(6) See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria, for more information.

(1) The Taxpayer Advocate reached agreements with the Commissioners of the Tax Exempt Government Entities (TEGE), Wage and Investment (W&I), Small Business/Self Employed (SB/SE) Division, Criminal Investigation (CI), Appeals, and Large Business and International (LB&I) that outline the procedures and responsibilities for processing Taxpayer Advocate Service (TAS) casework when either the statutory or delegated authority to complete case transactions rests outside of TAS. These agreements are known as Service Level Agreements (SLAs). SLAs contain basic requirements for handling TAS-referred cases, and includes specific actions to take on TAS referrals and specific time frames to complete those actions.

(2) The SLAs are found at https://irsgov.sharepoint.com/sites/TAS/SitePages/SLA.aspx

(1) Form 8038, Information Return for Tax Exempt Private Activity Bond Issues, is used by the issuers of tax exempt qualified private activity bonds to provide the IRS with the information required by Section 149(e) and to monitor the requirements of Section 141 through 150.

(2) Form 8038-G, Information Return for Tax Exempt Governmental Obligations, is used by issuers of tax exempt governmental bonds of $100,000 or more, to provide the IRS with information required by section 149(e).

(3) Form 8038-GC, Information Return for Small Tax Exempt Governmental Bond Issues, Leases, and Installment Sales , is used by issuers of tax exempt governmental bonds of less than $100,000, to provide the IRS with information required by Section 149(e).

(4) Form 8038-T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate, is used by issuers of tax exempt bonds when paying arbitrage rebate (or penalty in lieu of rebate) to the United States as required under Section 148(f), or the corresponding provisions of the 1954 Code; or to make a yield reduction payment in accordance with Section 1.148-5(c) of the Regulations. Payments may be made by a person acting on behalf of the Issuer for bonds subject to Section 103(c)(6)(D) of the 1954 Code. Under Section 148(f), interest on a state or local bond isn't Tax Exempt unless the Issuer of the bond rebates to the United States on Form 8038-T, arbitrage profits earned from investing proceeds of the bond in higher yield nonpurpose investments.

(5) Form 8328, Carryforward Election of Unused Private Activity Bond Volume Cap, is used by the issuing authority of private activity bonds to elect to carry forward its unused volume cap for one or more carryforward purposes (see Section 146(f)). Form 8328 may also be used by a state to carryforward the unused volume cap under Section 142(k).

(6) Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, is used by issuers of bonds who elect to receive a direct payment pursuant to IRC 6431.

(7) Form 8038-B, Information Return for Build America Bonds and Recovery Zone Economic Development Bonds, is used to report Build America Bonds and Recovery Zone Economic Development Bonds to provide the IRS with information required by section 149(e).

(8) Form 8038-TC, Information Return for Tax Credit and Specified Tax Credit Bonds as the result of the new Hire bill, is used by the issuers of qualified private activity bonds to provide the IRS with the information required by Section 149(e).

(9) Form 8703, Annual Certification of a Residential Rental Project, is used by an operator of a residential rental project to provide annual information the IRS will use to determine whether a project continues to be a qualified residential rental project under section 142(d). If so, and certain other requirements are met, bonds issued in connection with the project are considered "exempt facility bonds" and the interest paid on them isn't taxable to the recipient.

(1) Municipal Bonds can be classified as tax exempt (government or qualified private activity bonds) or taxable (other private activity bonds).

(2) Municipal bonds may be issued as governmental bonds or non-governmental bonds. Some non-governmental bonds are also called "qualified private activity bonds". The following identifies a few bond categories:

1. Governmental Bonds are issued to finance governmental activities of a state or local government. That is, the government entity uses the bond proceeds for its own purposes. Certain lease arrangements may be treated as tax exempt bonds when the lease transaction is treated as a conditional sales contract.

   Example: Funds used to build and maintain highways, schools, government buildings (e.g., courthouses), or sewer and water facilities.

2. Qualified Private Activity Bonds are issued by state and local governments. The facilities financed with the bond proceeds can be owned and operated by non-governmental entities for limited purposes specified in IRC 142(a), 143, 144, and 145.

Code Section	Examples
IRC 142 exempt facility bonds	Airports Docks and wharves Mass commuting facilities Facilities for the furnishings of water Sewage facilities Solid waste disposal facilities Qualified residential rental projects Facilities for the local furnishing of electric energy or gas Local heating or cooling facilities Qualified hazardous waste facilities High-speed intercity rail facilities Environmental enhancements of hydroelectric generating facilities (142(a)) Qualified public educational facilities Qualified green building and sustainable design projects Qualified highway or surface freight transfer facilities.
IRC 143 bonds	Qualified Mortgage Bonds Qualified Veteran's Mortgage Bonds
IRC 144 bonds	Qualified Small Issue Bonds Qualified Student Loan Bonds Qualified Redevelopment Bonds
IRC 145 bonds	Qualified IRC 501(c)(3) bonds

Example: A county needs a nursing home in its community. It loans bond proceeds to a section 501(c)(3) corporation who will construct and operate the facility.

3. Pooled financing may involve proceeds of governmental bonds or certain types of private activity bonds. In a pooled financing, the proceeds of the issuer loans the bonds to more than one borrower. The borrower of the proceeds may be tax exempt organizations or other state or local governments.

   Example: A school district issues a bond for multiple schools within its district. One school uses the proceeds to buy computer equipment. Another school uses the proceeds to construct administrative offices.

4. Registered Warrants are a short term obligation (30 - 60 day bond) of a municipality.

5. Commercial Paper Bonds are a short term bond having a maturity date of 270 days or less. These bonds are issued pursuant to a commercial paper program that is treated as part of a single issue.

6. Commercial Paper Program is a program to issue commercial paper to finance or refinance the same governmental purpose pursuant to a master legal document.

7. The Liberty Bond is due to the September 11, 2001 terrorist attack. The IRS provided guidance Notice 2002-42 2002–27 IRB 36) on the effects of various tax benefits that were enacted for areas of New York City. IRC 1400L(a) provides for a new targeted group for the Work Opportunity Tax Credit (WOTC): New York Liberty Zone business employees. The new targeted group includes individuals who perform substantially all of their services in the New York Liberty Zone (NYLZ), and may include individuals who perform substantially all of their services elsewhere in New York City for a business that relocated from the NYLZ due to the physical destruction or damage of its workplace within the NYLZ by the September 11, 2001 terrorist attack.

8. Lease Installment Sales are unconditional sales agreements under which a municipal government leases equipment that it acquires at the end of the lease period.

9. Promissory Notes are interest bearing certificates of governments that come due in a shorter time than bonds. Municipal notes have maturities up to approximately one year.

10. Lines of Credit are pre-approved loans where the municipality draws down money as It's needed. The loans have specified dollar limits, terms and interest rates.

    Note: This is similar to a home equity loan of a homeowner.

11. Green bonds are issued to finance projects designated by the Secretary after consultation with the Environmental Protection Agency Administrator. Green building and sustainable design projects must meet certain eligibility requirements.

12. The Gulf Opportunity Zone Bond is due to the Hurricane Katrina disaster area determined by the President to warrant individual or individual and public assistance from the federal government. The IRS provided guidance (Notice 2006-41 2006–18 IRB 857), which authorizes the states of Alabama, Louisiana, and Mississippi to issue certain exempt facility bonds and qualified mortgage bonds pursuant to IRC 1400N(a). Gulf Opportunity Zone Bonds must be issued before January 1, 2011. Notice 2006-41 also provides guidance on Gulf Opportunity Zone Advance Refunding Bonds that are permitted to be issued under IRC 1400N(b).

(3) Bonds are an "obligation" of any state or political subdivision thereof. Obligation means any valid evidence of indebtedness under general federal tax principles. Obligations are not limited to bonds or other securities but may also include written contracts such as installment sales contracts and loans to a municipality.

(4) To be an obligation, money must be borrowed by a governmental entity, used for governmental or qualified purposes, and there must be an obligation to repay.

(5) Income from certain obligations of states and their political subdivisions may likewise be excluded from gross income. Such obligations include:

1. Installment sales contracts

2. Equipment leases

3. Bank loans

(1) Use these definitions throughout this IRM:

(1) An" ISRP" error is detected by the Integrated Submission and Remittance Processing.

(2) The display for the ISRP error includes the code identifying the type of ISRP error.

1. "1" - Split screen transmission, Key Verifier attempted to change Check Digit, Key Verifier changed 4 or more digits of a TIN, or the Original Entry operator entered required section as missing.

2. "3" - Invalid section ending point.

3. "4" - Invalid field length.

4. "Questionable Section" - The ISRP operator input the same section more than once or entered out of sequence by ISRP. The computer program will drop all duplicate sections and display on the error register the first one encountered.

(3) When displayed, ISRP errors will display all input fields of the section in error, except for the Remittance in Section 01. Transcribed data will be present. Computer generated data will not be present.

(1) A "terminus" error occurs when a section with variable length input fields contains an erroneous sized field.

(2) When displayed, a terminus error will show all input fields of the terminus section.

1. Transcribed data is present.

2. Computer generated fields or remittance field for Section 01 won’t be present.

(1) All fields with a Priority III error will be displayed in the order encountered in the record.

(2) This chapter lists the fields, errors and correction procedures for Priority III errors for the following forms.

• Form 8038

• Form 8038-G

• Form 8038-GC

• Form 8038-T

• Form 8328

• Form 8038-CP

• Form 8038-B

• Form 8038-TC

• Form 8703

(3) Unless otherwise stated the fields are valid for the above forms.

(1) Each block of re-entry documents must have a Form 3893, Re-entry Document Control. If Form 3893 is missing information, return the document or block to the Receipt and Control area. Always leave the Form 3893 on the front of the return or block. It must remain as a permanent part of the document.

(2) Form 3893 is used for re-input control of a document under its original DLN.

1. If a single document is being re-input, Form 3893 will be attached to the face of the document.

2. If more than one document from the same original block is being re-input, Form 3893 will be attached to the first document in the re-input block.

(1) Form 3753 is designed for non-IDRS input. This form can be used when refunds are:

• ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ or more

• Direct deposit is necessary

• Manual refund is generated to a different address

(2) Form 3753 will be prepared in triplicate. Two copies should be forwarded to the Manual Refund Function along with copies of the supporting documentation. Accounting will reject the Form 3753 if the document contains any alterations such as white out, strike through or correction tape.

(3) The following are line by line instructions for completing Form 3753. The DLN block is completed by the Accounting Function. Complete the "From and Return to" box with the initiator’s information.

(4) When issuing a manual refund to a person or address other than that of the entity as shown on Master File, input a TC 971 with Action Code 037.

(5) Place completed Form 5792 or Form 3753 in the designated basket for review and signature of approving official. Refer to IRM 21.4.

(1) The Form 5792 is used with CC RFUND to request an IDRS refund. This form must be used when the credit payment is less than ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡. Use the latest revision of the Form 5792. The Form 5792 will be prepared in triplicate. Two copies should be forwarded to the Manual Refund Function along with copies of the supporting documentation. The case file must be sent to the Accounting Function the same processing day the CC RFUND is input. Accounting will reject the Form 5792 if the document contains any alterations such as white out, strike through or correction tape. See IRM 21.4.4.5.1, Monitoring Manual Refunds, for controlling and monitoring requirements.

(2) The following are line by line instructions for completing Form 5792 when issuing a manual refund for a Form 8038-CP account.

(3) When issuing a manual refund to a person or address other than that of the entity as shown on Master File, input a TC 971 with Action Code 037.

(4) Place completed Form 5792 or Form 3753 in the designated basket for review and signature of approving official. Refer to IRM 21.4.

(1) The name control is invalid if it has any of these:

1. The 1st position is other than a letter or number, or

2. The 2nd, 3rd and 4th positions contains characters other than letters, numbers, ampersands (&), hyphens (-), blanks,

3. Any character follows a blank.

(1) To determine the correct name control see IRM 3.13.2, BMF Account Numbers.

(2) Line through the entry in Field 01NC and enter the correct name control above it. If the name control contains fewer than 4 characters, enter and circle the number of positions remaining.

(1) The name control under print is designed to reduce the number of unpostables that occur when the transcribed name control doesn't match with the name control for the EIN on the Entity Index File (EIF).

(2) The name control under print will be removed when the following occurs:

1. The name control under print and the entry in Field 01NC agree.

(1) This field is invalid if any of the following conditions are present:

1. The field isn't present or isn't all numeric.

2. The EIN is all zeros or all nines.

3. The first two digits are 00, 07 - 09, 17 - 19, 28, 29, 49, 78, 79 or 89.

(1) Search the return and attachments for a valid EIN.

(2) Rejects will determine the correct EIN and name control from research.

(1) This field is invalid if:

1. It’s all blank.

2. It’s not all numeric.

3. The year is after the current year.

4. The year is before 198501 on Form 8038, Form 8038-G, and Form 8038-GC.

5. The year is before 03-18-2010 for Form 8038-TC.

6. The year is before 02-17-2009 for Form 8038-B and Form 8038-CP.

7. The year is before 200712 for Form 8703.

8. The year is before 195401 on Form 8038-T.

9. It isn't equal to the Date of Issue (01DTI will also be invalid) on Form 8038, Form 8038-B, Form 8038-TC, Form 8038-G and Form 8038-GC.

(1) Correct any coding or transcription errors.

(2) Form 8038, Form 8038-B, Form 8038-TC, Form 8038-G, Form 8038-GC or Form 8703 is determined to be early filed:

(3) Rejects will:

(1) This field will be invalid if blank or not within the range identified above for each form.

(1) Correct any coding or transcription errors.

(2) If the report number is blank or other than identified in IRM 3.12.26.5.6 above, research IDRS to determine the next available report number for that tax period for that series return.

(3) In this example, you would circle out report number 001 and enter the next available report number for that tax period for Form 8038. In this example it would be 101.

(1) This field is invalid if:

1. CCC "G" is present and any CCC other than "3".

2. CCC "7" is present with both CCC "D" and "R".

(1) Correct any coding or transcription errors.

(2) If the code(s) is entered incorrectly, refer to the return and the CCC table below to determine which code(s) is necessary.

(3) If the return is an amended Form 8038, Form 8038-B, Form 8038-G, Form 8038-TC, Form 8038-GC, Form 8038-T, Form 8703, or Form 8038-CP, SSPND 640 to rejects and attach a Form 4227 stating "Cancel to EO Accounts".

(4) If the return is an amended Form 8328 process as an original.

(5) If CCC "7" (Reasonable Cause Denied) is present with both CCC "R" and "D", determine if CCC "7" is correct. If correct, delete the other codes. If not, delete CCC "7".

(6) CCC "X" and "C" is only valid for Form 8038-CP. CCC "O" is also used to restrict credit payment on Form 8038-CP.

(7) Review reasonable cause statement to determine which CCC (R or 7) is applicable. If the taxpayer indicates the failure to file or pay was due to willful neglect, reasonable cause may not be granted. Willful neglect is defined as: Conscious, intentional failure to comply with the provisions of the IRC, or reckless indifference to such provisions.

(1) This field is invalid if:

1. Not in YYYYMMDD format.

2. Later than the current processing date.

3. Prior to 19850101 on Form 8038, Form 8038-G and Form 8038-GC.

4. Prior to 19540101 on Form 8038-T.

5. Prior to 20090101 on Form 8038-TC.

6. Prior to 20090217 on Form 8038-B and Form 8038-CP.

7. Prior to 19881101 on Form 8703.

8. Not all numeric.

9. It’s blank.

10. The Received Date 01RCD is equal to or prior to the Date of Issue, 01DTI (both Fields 01RCD and 01DTI will be invalid) for Form 8038, Form 8038-B, Form 8038-G, Form 8038-TC and Form 8038-GC.

(1) Correct any coding and transcription errors.

(1) This field is invalid if one of the following conditions exist:

1. Not all numeric.

2. The date is earlier than or equal to the Return Due Date (see Exhibit 3.12.26-2 for return due dates).

3. The date is equal to or earlier than the Received Date.

4. The date is later than the processing date.

5. CCC "3" is present.

(1) Both the original Received Date and the CRD must be present

(1) Field 01NM1 is invalid if:

1. The first position isn't alpha or numeric.

2. Any characters aren’t alpha, numeric, ampersand, hyphen, or blank.

3. There is two consecutive blanks followed by valid characters.

4. Blank.

(1) Compare the screen display with the entry on the return.

(1) This field is invalid if:

1. The first position isn't alpha or numeric.

2. Any characters are not alpha, numeric, ampersand, hyphen, or blank.

3. There’s two consecutive blanks followed by valid characters.

(1) Compare the screen display with the entry on the return.

(2) If the field is transcribed incorrectly, correct the field.

(1) Correct any coding or transcription errors.

(1) The field is invalid if any of the following conditions exist:

1. The first position is blank.

2. Any character follows two consecutive blanks.

3. There are more than 35 characters present in the field.

(1) Foreign addresses shouldn’t be accepted on tax exempt bond forms. If a foreign address is present, refer to the Unprocessable procedures outlined below.

(1) Examine all attachments and schedules for information necessary to make the return processable. If the information is found on attachments or schedules, edit to the appropriate area on the return.

(2) If required information isn't found on an attachment or schedule:

1. Perfect the return as much as possible.

2. SSPND 450.

(3) Route unprocessable returns as follows:

(1) The is field is invalid if:

1. The first position is blank.

2. Any characters are not alpha, numeric, blank, hyphen (-), and slash (/).

3. There’s two consecutive blanks followed by valid characters.

4. A Major City Code (MCC) is present in Field 01CTY and a street address isn't present.

(1) Refer to the street address on the return.

(2) Correct any coding or transcription errors.

(3) To verify the major city code (MCC), refer to Document 7475, State Abbreviations, Major City Codes and Address Abbreviations.

(1) The field is invalid if:

1. The first, second and third position is blank.

2. A character follows the first two adjoining blanks.

3. Any character isn't alpha or blank.

4. The MCC is invalid.

5. The foreign country code is present, incorrect, or contains "XX".

(1) Refer to the city shown on the return.

1. Correct any coding or transcription errors.

(2) The city field (01CTY) and state code field (Field 01ST) is invalid if a MCC and a state code is present in Field 01ST. To correct, refer to the return and Document 7475, to verify the MCC.

(3) Verify the state code entered in Field 01ST is correct.

1. This field and the ZIP code field is invalid if a MCC is present and the ZIP code isn't valid for the city.

2. To correct, refer to the return and Document 7475, to determine the correct MCC and ZIP code

(1) The field is invalid if:

1. It’s blank and MCC isn't present in Field 01CTY.

2. It contains other than a valid state code.

(1) Correct any coding or transcription errors.

(2) Refer to the return and Document 7475 to determine the correct state code.

(3) Both 01ST and 01ZIP is invalid if the ZIP code isn't valid for the state. To correct, refer to the return and Document 7475, to verify the state and ZIP code.

(4) Returns with address changes in the following American possessions can be input with the return the same as a domestic address:

1. American Samoa (AS)

2. Mariana Islands (MH)

3. Puerto Rico (PR)

4. Virgin Island (VI)

5. Guam (GU)

(1) The field is invalid if:

1. It isn't all numeric or blank.

2. There is re not 5, 9, or 12 numeric characters.

(1) Correct any coding or transcription errors.

(2) Refer to the return and attachments to determine the correct ZIP code.

(3) If a valid ZIP code can’t be found, refer to Document 7475 to determine the correct ZIP code.

(1) The field is invalid if:

1. The first position isn't alpha or numeric.

2. Any characters aren’t alpha, numeric, ampersand or hyphen.

3. There’s two consecutive blanks, followed by valid characters.

(1) Correct any coding or transcription errors.

(2) If the name of issue exceeds 35 characters, enter only the first 35 characters.

(1) The field is invalid if:

1. The first position isn't alpha or numeric.

2. Any characters are not alpha, numeric, ampersand, hyphen, or blank.

3. There’s two consecutive blanks followed by valid characters.

(1) Compare the screen display with the entry on the return.