TEB - Tax Exempt Bonds Closing Agreements

A closing agreement may be entered into to resolve violations of the federal tax laws applicable to tax-advantaged bonds. A closing agreement is the vehicle used to permanently and conclusively resolve such violations. By doing this, the holders of the bonds or investors in the credits, who generally don’t know how the proceeds were used, continue to receive tax benefits on the bonds and issuers of direct pay bonds protect the subsidy associated with their bonds.

The Internal Revenue Service (IRS) may enter into and approve a written closing agreement with any person for his/her liability (or the person or estate for whom she/he acts) in respect of any internal revenue tax for any taxable period (IRC 7121 and the corresponding Regulations). This authority includes conclusively resolving any specific matters jeopardizing the tax-advantaged status of bonds with the issuer of the bonds even though the issuer may not have tax liability for the bonds.

Regulation section 301.7121-1(a) further provides that a closing agreement may be entered into in any exam case in which there appears to be an advantage in having the exam permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the Commissioner that the United States will sustain no disadvantage through consummation of such an agreement.

The Commissioner delegates to the Director, GE (the Director) and the TEB Program Manager the authority to enter into and approve written closing agreements involving examinations under their jurisdiction (Delegation Order Number 8-3 (formerly Delegation Order 97, Rev. 34) in IRM 1.2, Servicewide Policies and Authorities).

Typically, TEB enters into a single closing agreement covering all identified violations and all known tax periods. However, TEB may enter into a series of closing agreements for a single tax-advantaged bond transaction when appropriate.