SECTION 2. TAX EXEMPT

BONDS VOLUNTARY CLOSING AGREEMENT PROGRAM (TEB VCAP)

.01 Pursuant to the TEB VCAP program set forth in Notice 2008–31, 2008–1 C.B. 592 (March 17, 2008), the IRS will consider requests from issuers of qualified student loan bonds for voluntary closing agreements. Such requests will be processed under the administrative procedures described in section 7.2.3 of the Internal Revenue Manual (the “IRM”).

.02 The closing agreement will provide: (A) The interest on the bonds covered by the agreement (the “Bonds”) will not be includible in gross income of bondholders solely as a result of an action relating to the allocation of student loans as purpose investments that occurred subsequent to the issue date that caused the Bonds to fail to meet certain requirements of §148 of the Internal Revenue Code, as amended (the “Code”).

(B) The Issuer represents that as of the date of the closing agreement, the Issuer has discontinued the practice of reallocation of qualified student loans from one bond issue to another other than pursuant to the transferred proceeds rules in § 1.148–9 of the Income Tax Regulations (the “Regulations”) or the universal cap rules in § 1.148–6 of the Regulations.

(C) Prior to the IRS’ execution and delivery of the agreement, the Issuer shall

cause to be electronically paid to the IRS a settlement amount (the “Settlement Amount”). The Settlement Amount will be an amount equal to the sum of (a) forty percent (40%) of the taxpayer exposure on each issue of the Bonds computed pursuant to IRM 4.81.6.5.3.1 and (b) based on the Issuer’s existing records, an amount equal to the excessive arbitrage profit (as defined in IRM 4.81.6.5.3.8) on the Bonds from the issue date to the beginning of the first year included in the calculation of taxpayer exposure, calculated as follows: (Step 1) determine the aggregate amount of excess earnings on each issue of the Bonds separately from the issue date to the date the VCAP request was filed, (Step 2) allocate the amount determined for each issue of the Bonds equally to each calendar year (including partial years as full calendar years) between the issue date of each issue of the Bonds and the date the VCAP request was filed, and (Step 3) add the amounts resulting from Step 2 from the issue date of each issue of the Bonds to January 1 of the year that is the earliest year used in computing the taxpayer exposure pursuant to IRM 4.81.6.5.3.1. Payment of the Settlement Amount shall not be made from proceeds of bonds described in § 103(a) of the Code.

(D) The Settlement Amount will not be refundable, subject to credit or offset, or deductible for Federal income tax purposes under any circumstance.

(E) Payment of the Settlement Amount will eliminate any liability under § 148 of the Code for yield reduction payments or rebate amounts in respect of any student loans allocable or allocated to the Bonds producing a yield that is materially higher than the yield on the Bonds accrued through the date of this Agreement, or accruing thereafter through the

2012–14 I.R.B. 722 April 2, 2012