SECTION 2. BACKGROUND

Gross income does not include interest on any state or local bond that meets the requirements of section 103 and related provisions of the Code. Under certain circumstances, an issuer may take remedial action under provisions such as sections 1.141–12, 1.142–2, 1.144–2, 1.145–2, and

1.147–2 of the Income Tax Regulations in order to cure a violation of the Code and to prevent interest on a bond from becoming includible in gross income.

The Service has previously provided formal tax-exempt bond closing agreement programs such as the program described in Rev. Proc. 97–15 (1997–1 C.B. 635). Violations of section 103 and related provisions of the Code that cannot be remediated under existing remedial action provisions or other tax-exempt bond closing agreement programs contained in regulations or other published guidance may be resolved by entering into a closing agreement under TEB VCAP.

Section 7121 of the Code and the regulations thereunder authorize the Commissioner to enter into written closing agreements with any person in connection with the tax liability of such person (or of the person or estate for whom he acts). Section 301.7121–1 of the Income Tax Regulations provides, in part, that a closing agreement may be entered into in any case in which there appears to be an advantage in having the case 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.