WASHINGTON -The Build America Bonds (BAB) compliance check questionnaires

issued by the Internal Revenue Service (IRS) were appropriate for gathering information

on the risk of potential noncompliance, according to a new audit report publicly released

today.

The report by the Treasury Inspector General for Tax Administration (TIGTA) also

determined that at the time of the TIGTA review, contrary to concerns expressed by the

bond industry, very few BAB examinations had been initiated.

Upon passage of the American Reinvestment and Recovery Act of 2009 (Recovery Act),

the Department of the Treasury asked the IRS to develop a plan to address possible risks

associated with BABs. In February 2010, the IRS's Tax Exempt Bonds (TEB) office

mailed 375 compliance check questionnaires to issuers of BABs. This resulted in bond

issuer concerns that responding to the compliance checks would result in wide-scale

examinations.

TIGTA's auditors found that, based on their analysis of the questionnaires, the questions

were appropriately designed to elicit responses that could indicate a high risk of potential

noncompliance without requesting information specific enough to start examinations.

However, a formal compliance check procedure had yet to be established. In addition,

TIGTA could not evaluate the IRS's plans to address any high-risk indicators from the

questionnaires because the TEB office had not completed its in-depth review of the

questionnaire responses.

"Until the IRS establishes formal guidelines for planning and conducting compliance

check programs, TEB office management will not have assurance that their compliance

check programs will comply with the Internal Revenue Code or that useful information

will be gathered to identify, evaluate and appropriately address indicators of potential

noncompliance," said J. Russell George, Treasury Inspector General for Tax

Administration.

TIGTA recommended that the TEB Director draft formal guidelines for conducting

compliance checks, which would aid in monitoring the IRS's authority in such matters, as

well as improve transparency with the bond community. The IRS agreed with the

recommendation and plans to publish new procedures for developing and initiating

compliance check questionnaires.