It’s in the best interests of the United States to enter into the agreement.

The U.S. won’t sustain a disadvantage through consummation of such an agreement.

An issuer may take remedial actions impacting tax-exempt bonds under 26 CFR 1.141-12, 1.142-2, 1.144-2, 1.145-2, and 1.147-2.

An issuer may correct its failure to expend 100 percent of available project proceeds of qualified tax-credit bonds for qualified purposes under IRC 54A(d)(2)(C) by the close of an expenditure period by redeeming all of the nonqualified bonds, generally within 90 days after the end of such period.

An issuer may take remedial actions under 26 CFR 1.1397E-1(h)(8) for violations impacting qualified zone academy bonds issued under IRC 1397E.

An issuer may take remedial actions impacting certain tax-advantaged bonds under Rev. Proc. 2018-26.

Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, line 21 allows issuers of direct pay bonds to adjust by a net increase or net decrease previous credit payments to correct prior clerical or computational errors. This line of the form isn’t intended to and doesn’t remediate violations of the IRC or Regulations applicable to direct pay bonds.

To resolve matters of law on future events or actions that may impact the tax-advantaged status of bonds. Issuers seeking guidance on the tax implications of future events or actions may request a private letter ruling in appropriate circumstances.

If the bond issue is under audit. A bond issue is generally treated as under audit on the date we mail a letter opening the audit.

When the tax-advantaged status of the tax-advantaged bonds is an issue in any court proceeding or is being considered by the IRS Independent Office of Appeals.

If TEB Technical determines that the violation was due to willful neglect.

If the transaction giving rise to the violation occurred, but the issuer has not filed a Form 8038 series information return for the bond issue for which VCAP is sought.

Evaluate appropriate resolution methods for novel or unique violations

When there’s uncertainty as to how to appropriately resolve the violation.

Prepare a briefing memo including background, description, analysis, and a recommendation. The recommendation generally includes a proposed draft response letter (for example, Letter 5562), which indicates either: i) a proposed resolution of the described violation (a "Resolution Recommendation" ) or ii) an explanation that the request doesn’t fit within the VCAP scope of IRM 7.2.3.1.4 or the limitations in IRM 7.2.3.1.5(3) or (4) (a "Non-eligible Recommendation" ).

Prepare the draft response letter.

Attach the briefing memo and the draft response letter to the VCAP approval document (the "Closing Agreement Approval Document" ) after informally discussing with your group manager, the Committee (including obtaining input from Committee members on the draft response letter), and the representative submitting the request.

Secure e-mail the Closing Agreement Approval Document to your group manager for review and concurrence.

After receiving the TEB Program Manager’s final concurrence via the signed Closing Agreement Approval Document, prepare the final response letter and secure e-mail it to your manager to submit to the TEB Technical Program Manager for signature.

After receiving the TEB Program Manager’s signed response letter, mail the letter to the representative submitting the request.

Review and provide feedback/concurrence to the Specialist.

For Resolution Recommendations, secure mail the Closing Agreement Approval Document to the Committee.

For Non-Eligible Recommendations, secure mail the Closing Agreement Approval Document to the TEB Program Manager for electronic signature.

Review the briefing memo and the draft response letter (for example, Letter 5562).

Consider whether the general resolution framework described is consistent with other TEB closing agreement resolution terms and if not, whether there is a valid business reason for the difference, such as another closing agreement is the result of an exam.

Recommend any changes to the draft response letter by noting them and any other comments on the Closing Agreement Approval Document.

Digitally sign the Closing Agreement Approval Document and secure mail it to the group manager.

Return the Closing Agreement Approval Document to the specialist for additional development.

Secure e-mail the Closing Agreement Approval Document to the TEB Program Manager for electronic signature.

Offer comments to the Committee (if a Resolution Recommendation) and group manager, if any, on the proposed response letter (for example, Letter 5562).

If approving, electronically sign the Closing Agreement Approval Document and response letter and securely e-mail each to the group manager and Specialist.

If not approving, return the Closing Agreement Approval Document to the group manager, who notifies the Specialist the case needs further development.

See TEB VCAP Model Closing Agreements.

The issuer must follow the VCAP Model Agreement when completing the submitted draft closing agreement. If the issuer believes a deviation is necessary, they should notate the proposed change on their submitted draft closing agreement and the reason the deviation is necessary.

If the VCAP request is for a violation for which the IRS has provided a specialized closing agreement template (not a VCAP Model Agreement) in an Announcement or other form of guidance describing a particular type of violation (a "Specialty Template Agreement" ), the issuer should follow the announcement/other guidance instructions in its proposed agreement.

Verify the issuer submitted an executed Form 14429, the required penalties of perjury statement per IRM 7.2.3.2.1 (2) and a copy of the signed Form 8038 series information return for the bonds. Neither Form 14429 nor Form 8038 is required for an anonymous request.

Research the bond issue’s audit history and if currently under audit, notify your group manager and send a copy of the submission to the exam group’s manager, return the request to the issuer informing the issuer that VCAP is unavailable, don’t establish on RCCMS, and take no further action.

If the submission doesn’t contain the signed Form 14429, the required penalties of perjury statement, or a copy of the signed Form 8038 series information return for the bonds, within five business days of identifying the missing information, request issuer to send the missing or incomplete information:

If the submission contains the Form 14429, the required penalties of perjury statement, and a copy of the signed Form 8038 series information return for the bonds, either as originally submitted or after supplementation after contact, then establish and process the case for assignment per IRM 7.2.3.3.1.

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Establish a compliance activity in the Reporting Compliance Case Management System ("RCCMS" ) for the VCAP case. Establish each Form 8038 series information return for the submission request as a separate compliance activity. Establish in status 8.

Assign the compliance activity to TEB Technical requesting status 10.

Within five business days, give the issuer or authorized representative your contact information and submit Form 2848 or Form 8821 to the Centralized Authorization File. Follow the guidance in IRM 4.81.5.5.2.1 and IRM 4.5.2.2.3. Follow up by sending Letter 5585. Notate your actions in the case chronology record.

When you first charge time to the case, update the status to 12 in RCCMS.

Review the request to verify that it has all the required completed information per IRM 7.2.3.2.1.

Determine if you need any additional information or authorizations. Remember to secure Forms 2848 and 8821, if applicable. If a borrower is involved, consider if it needs to provide Form 8821, as well. If you need additional information/authorizations, request the information/executed forms from the issuer/representative. The issuer/representative must submit any additional information in written statements under penalties of perjury per IRM 7.2.3.2.1(2).

Request the issuer submit the additional information or executed forms within 21 business days, using Letter 5685 . You may, with your group manager’s approval, allow one 21-day extension. The TEB Program Manager must approve any additional extensions. Document the extension with a specific date in Letter 686(DO) sent to the issuer. Copy any representative with Letter 937.

If the issuer doesn’t timely provide the information, follow the procedures in IRM 7.2.3.3.6 to determine whether to close the case due to the failure to provide the required information.

When processing the case, call the issuer or authorized representative with regular status updates as often as appropriate and at least monthly. Notate any granted extensions, all contacts, updates and reminders on the case chronology record.

When you receive all required information, analyze it, determine the recommended case resolution, and resolve the case.

Negotiate the terms of the closing agreement. Use the issuer drafted agreement per IRM 7.2.3.2.1 for suggested terms.

Draft the agreement to be executed. In some cases, you/your group manager may ask the Committee to help draft closing agreements.

Upon your group manager’s and the TEB Program Manager’s concurrence, draft a final demand letter notifying the issuer that we’ll close the case without resolution 14 days from the date of the letter unless specific actions are taken.

Use Letter 5734 and explain the specific actions required and the reasons for the letter.

E-mail the final demand letter to the TEB Program Manager for electronic signature.

Upon receipt of the signed letter, mail it to the issuer and authorized representative.

Include a copy of the signed letter in the RCCMS case file.

If you don’t receive a timely response, close the case per IRM 7.2.3.3.6.

Note your recommendation (and your group manager/TEB Program Manager’s concurrence) and the expected date of next action on the case chronology record.

Update the status to 38 on RCCMS.

Apply the standard resolution terms of IRM 7.2.3.4 unless you have compelling reasons to deviate from those terms.

You may increase the resolution amount based on factors such as time delay between the date of the violation and the submission.

When no standard resolution term applies, defer to the standard resolution terms for guidance.

If the issuer received correspondence in response to an anonymous request, consider it in light of the facts in the complete submission.

Are fair and equitable.

Promote voluntary compliance and encourage due diligence in complying with all applicable federal tax laws.

Recognize the difference between the IRS enforcement and voluntary compliance programs.

Reviews the proposed resolution terms to determine whether the resolution terms are generally consistent with other TEB closing agreement resolution terms. If not, the Committee evaluates the facts and circumstances of the case and determines whether there’s a valid reason for the difference (for example, a significant difference in the facts or an agreement submitted under VCAP rather than an agreement from an examination case.)

If the closing agreement language has been substantively modified from the standard language, assesses whether the closing agreement is enforceable.

Makes any relevant comments or recommendations to the resolution terms and closing agreement terms.

Signs and returns the Closing Agreement Approval Document with attached documents to the group manager.

May seek advice from the Chief Counsel ad hoc members, such as when a proposed closing agreement contains nonstandard terms.

Informs the group manager if, after consulting with the Chief Counsel ad hoc members, the Committee determines needed changes to make the agreement enforceable.

If concluding that the proposed resolution isn’t consistent with other TEB closing agreements, inserts the reasons in the Closing Agreement Approval Document.

Reviews and considers any comments and/or recommendations from the Committee.

Discusses with the TEB Program Manager the Committee recommendations that the Specialist and group manager propose not to adopt.

Forwards the Closing Agreement Approval Document to the TEB Program Manager for final review and approval indicating whether the issuer/authorized representative has agreed to the recommended closing agreement and resolution terms.

Reviews the Closing Agreement Approval Documents.

Discusses any concerns with the Committee.

If in agreement, notes approval by signing the Closing Agreement Approval Document and returns the approved document to the group manager, with a copy to members of the Committee.

If not in agreement, discusses concerns with the Committee and group manager and returns the case for further development.

Verify payment receipt and secure e-mail the issuer-executed agreement and Letter 5567 to your manager for review and the TEB Program Manager’s signature.

Mail a copy of the executed agreement and Letter 5567 to the issuer.

Sign transmittal Letter 937 and/or Letter 5735 in your name, and mail to the authorized representative(s) and other parties to the agreement with copies of the agreement (if applicable).

Send a draft of the proposed closing agreement to the issuer or authorized representative to obtain the issuer or representative’s input on the draft.

Make sure the issuer understands the terms are presented only for negotiation and are not binding on the IRS.

If issuer disagrees with any revisions made to the closing agreement in the review process or proposes other changes, discuss any proposed modifications to the draft closing agreement with your manager. If the changes are substantive, submit to the Committee for review.

Once the closing agreement is finalized and approved, send it out for signature:

Monitor and confirm receipt of the closing agreement payment (if any) by e-mailing the Field Agent Support Team (FAST) at tege.fast@irs.gov, including a copy of the Taxpayer Information Worksheet for the EFTPS deposit and requesting confirmation. Include “VCAP” and the Report Number from Part I of the Form 8038 series information return in your e-mail.

Put evidence of receipt of payment in the RCCMS case file.

Verify the EIN and electronic funds transfer information match the agreement.

Include electronic copy of the signed Form 3870, Request for Adjustment, in the RCCMS file. In the Reason for Adjustment section of Form 3870, include all identifying information from the second paragraph of the Taxpayer Information Worksheet for Electronic Federal Tax Payment System Deposit found in the closing agreement. Also, include the report number of the Form 8038 and a statement that the adjustment is due to a VCAP resolution payment.

Verify the agreement has not been altered from what the Committee approved (or what management approve if Committee approval is not required), check for required signatures for agreements other than pre-executed agreements, including signature on the Consent to Disclose Tax Information.

Prepare closing transmittal Letters 5567, 5735 and 937, as applicable, for sending the executed closing agreement to the issuer and authorized representative(s) and Borrower, as applicable. Letter 5567 is signed by the TEB Program Manager; the Specialist signs the other letters.

Secure e-mail the closing agreement and issuer’s closing transmittal letter (Letter 5567) to your manager for review. Include in your e-mail confirmation that:

Send the transmittal and case closing letter (Letter 5567) and signed closing agreement to the issuer, as applicable, authorized representative and Borrower (if any) under the appropriate transmittal letters.

Include in the RCCMS case file, copies of the final transmittal and case closing letter, all other transmittal letters, and the signed closing agreement.

Notify the issuer if issuing an approved response letter closing the case without a closing agreement, and send the appropriate closing letter (for example, Letter 5562, Letter 5564, Letter 5566, or Letter 6065) signed by the TEB Program Manager.

Complete the RCCMS case file.

Transfer the case to your group manager (or delegate) within RCCMS.

If you recommend closing the case as unresolved, discuss with your group manager, consider an audit referral. Document your consideration of an audit referral, and if applicable follow TE/GE referral procedures.

If your group manager agrees with you, prepare the appropriate closing letter (for example, Letter 5566 or Letter 6065); a briefing memo explaining the reasons for closing the case; and your determination of whether to make an audit referral, and forward to your group manager.

Send the closing letter to the TEB Program Manager for review and concurrence. If the TEB Program Manager concurs, they electronically sign the closing letter and return it to you.

If the TEB Program Manager approves, forward the signed closing letter to notify the Specialist to close the case per case closing procedures in IRM 7.2.3.3.5.

If the TEB Program Manager doesn’t approve, notify the Specialist that the case needs further development.

The VCAP request covers multiple violations, even if all the violations are described in this paragraph.

The VCAP agreement doesn’t meet the conditions of IRM 7.2.3.1.4.

The VCAP’s specific violation isn’t a violation specifically described in this section.

The issuer submits a VCAP request after the latest date specified for resolution under the applicable resolution standard.

TEB Technical determines the issuer is not acting in good faith or proceeding with due diligence towards the resolution of the request.

The issuer doesn’t timely respond to TEB Technical’s requests for additional information or to TEB Technical’s closing agreement proposals.

Covered violation. When an issuer takes a deliberate action that results in the amount of proceeds allocated to nonqualified purposes exceeding the defined percentage limitations.

Base Amount. The taxpayer exposure on the Total Nonqualified Bonds computed per IRM 7.2.3.3.2.2(2), with the period for computing taxpayer exposure beginning on the date of the deliberate action and ending on the date the Total Nonqualified Bonds are redeemed and retired or cancelled.

Additional requirements. The issuer must redeem and retire and cancel the Total Nonqualified Bonds.

Covered violation. When property provided with the net proceeds of a qualified 501(c)(3) issue is owned by a person other than a 501(c)(3) organization or a governmental unit.

Base Amount. The taxpayer exposure on the Total Nonqualified Bonds computed per IRM 7.2.3.3.2.2(2), with the period for computing taxpayer exposure beginning on the date of the deliberate action and ending on the date the Total Nonqualified Bonds are redeemed and retired or cancelled.

Additional resolution standards. The issuer must redeem and retire and cancel the Total Nonqualified Bonds.

Covered violation. When an issuer doesn’t successfully remediate nonqualified bonds because it inadvertently doesn’t notify the IRS timely in writing that it established a defeasance escrow to remediate nonqualified bonds as required under 26 CFR 1.141-12(d).

Resolution amount. When the issuer submits a VCAP request within six calendar months of the end of the required period to provide timely notice that it established a defeasance escrow, the issuer may resolve the failure under a closing agreement by paying $2500. When the issuer submits the request more than six calendar months but within one year of the end of the required period to provide timely notice, the resolution amount is double that amount.

Covered violation. When the issuer fails to successfully remediate nonqualified bonds by timely establishing an irrevocable defeasance escrow because all or a portion of the defeased nonqualified bonds are not callable within 10.5 years of the issue date.

Base Amount. The taxpayer exposure on the bonds for only non-qualified bonds that are not callable within 10.5 years of issuance, with the period for computing taxpayer exposure beginning on the later of the date 10.5 years after the issue date or the date of the deliberate action and ending on the date the bonds will be redeemed under the defeasance escrow.

Additional requirements. The issuer must establish an irrevocable defeasance escrow for all nonqualified bonds, under the rules for creating a defeasance escrow under 26 CFR 1.141-12(d), other than 26 CFR 1.141-12(d)(5).

Covered violation. When a change in the use of the proceeds of a bond issue not subject to the alternative minimum tax ("non-AMT bonds" ) occurs resulting in the bonds being re-characterized as subject to the alternative minimum tax ("AMT bonds" ). A violation is covered only when the proceeds of the bonds were first expended for a purpose that at the time of the expenditure would not make the bonds subject to the alternative minimum tax.

Base Amount. The Base Amount for this violation is the alternative minimum tax adjustment on the bonds (see IRM 4.81.6.5.3.4) beginning on the date of the deliberate action and ending on the date the bonds are no longer outstanding.

Covered violation. When the net proceeds the issuer allocates to property are from bonds that have an average maturity greater than 120% of the average reasonably expected economic life of that property.

Resolution standards. When the issuer submits the VCAP request within six calendar months of the violation date giving rise to the request, the issuer may resolve the violation by redeeming or defeasing to an early redemption date an amount of the bonds sufficient to reduce the weighted average maturity of the issue to 120% of the economic life of the financed property and paying the IRS a resolution amount of $2,500.

Any qualified private activity bond issue other than a qualified 501(c)(3) bond issue, or

Any governmental bond issue or qualified 501(c)(3) bond issue that has already been advance refunded.

Covered violation. When a party to the escrow agreement violates the escrow agreement by not timely reinvesting proceeds of a refunding issue, upon the maturity of investments (for example, failure to reinvest proceeds of a matured guaranteed investment contract in 0% U.S. Treasury Securities – State and Local Government Series (SLGS) in an efficient escrow).

Resolution standards. When the issuer submits the VCAP request within 60 days of the next required computation date after the date of the reinvestment failure, the issuer may resolve the violation by ensuring that the IRS receives payment of an amount equal to the sum of the following:

Covered violation. A violation is covered by this paragraph when an issuer of private activity bonds for which TEFRA Approval is required issues the bonds without obtaining approval from an applicable elected representative as defined in IRC 147(f)(2)(E)(i)(II).

Resolution standards. When the issuer submits the TEB VCAP request within six calendar months of the date of issuance, the issuer may resolve the violation by paying an amount equal to the greater of (i) $2,500 or (ii) 5% of taxpayer exposure, with the period for computing taxpayer exposure beginning on the issue date of the bonds and ending on the date of the closing agreement. The issuer will represent in the closing agreement that:

Covered violation. When the holder of an obligation that is extinguished for purposes of IRC sections 103 and 141-150 excludes from gross income the interest income paid on such obligation.

Resolution standards. The issuer may treat the extinguished bonds as outstanding even though the issuer holds the bonds during the period. (the "extinguished period" ) that:

Covered violation. When the issuer fails to successfully remediate nonqualified bonds because it doesn’t timely file with the IRS a completed information reporting form prescribed for such purpose.

Resolution standards. When the issuer submits the VCAP request within six calendar months after the deadline for filing the appropriate information reporting form with the IRS, the issuer may correct the failure by paying $2,500. The issuer is required to file the completed information reporting form before the IRS executes the closing agreement. When the issuer submits the request more than six calendar months but within one year after the deadline for filing the information return, the resolution payment is double the $2,500 amount.

Covered violation. When the issuer takes a deliberate action that causes its build America bonds, recovery zone economic development bonds or qualified tax credit bonds to be used in a way that doesn’t comply with the applicable requirements or limitations under IRC 54AA, IRC 1400U-2, and IRC 54A(d), as applicable.

Base Amount. The credit maintenance amount calculated for the Total Nonqualified Bonds. For this purpose, the credit adjustment period used to calculate the credit maintenance amount begins on the date of the violation and ends on the date the nonqualified bonds are redeemed and retired or cancelled, but may be shortened when the issuer and TEB Technical agree to modify the debt service schedule to treat the nonqualified bonds as no longer outstanding for purposes of requesting IRC 6431 credits (See IRM 4.81.6.5.3.2).

Additional Resolution standards. The issuer must identify the nonqualified bonds in a manner consistent with Regulations section 1.141-12(j). The issuer must identify the amount of disposition proceeds, if any, resulting from the compliance failure. Any disposition proceeds not applied to the redemption of bonds or the payment of the resolution amount under the agreement must be used for a qualifying use of proceeds of the bonds (without considering time limits imposed for use of those proceeds). For submissions more than six months but not more than one year after the deliberate action resulting in the compliance failure, any closing agreement permitting the shortening of the credit adjustment period through a prospective modification of the debt service schedule for purposes of calculating IRC 6431 credits require such modification to be structured such that the issuer is prevented from requesting refundable credits with respect to an amount of bonds equal to 110% of the nonqualified bonds.

Covered violation. A violation is covered by this paragraph on the issue date when any maturity of bonds for which the issuer receives direct payments, pursuant to IRC 6431 is issued at a price in excess of the permissible price.

Resolution standards. When the issuer submits the VCAP request with respect to one or more fixed rate direct pay build America bonds, recovery zone economic development bonds, or specified tax credit bonds described in IRC 6431(f)(3), the issuer may resolve the violation under the following closing agreement terms. For purposes of the closing agreement, the stated interest rate for each maturity originally issued at a price in excess of the permissible price will be adjusted to an interest rate that corresponds to the yield of the maturity assuming that the maturity was sold at the maximum permissible price (the Adjusted Interest Rate). The issuer will pay an amount equal to the greater of (i) $2,500 or (ii) 120% of the credit maintenance amount on the bond maturity, computed by assuming that the bond maturity accrued or will accrue interest (taking into account scheduled sinking fund payments but without regard to any optional call) at an interest rate equal to the difference between the original interest rate on the bond maturity and the Adjusted Interest Rate. For this purpose, the credit adjustment period used to calculate the credit maintenance amount will begin on the issue date but may be shortened when the issuer and TEB agree to modify the debt service schedule for purposes of requesting IRC 6431 credits (See IRM 4.81.6). Any closing agreement permitting the shortening of the credit adjustment period through a prospective modification of the debt service schedule may provide an Adjusted Interest Rate for each maturity that will be used for purposes of calculating IRC 6431 credits thereafter.

Covered violation. When an issuer claims a refundable credit with respect to interest on extinguished bonds that accrued or that will accrue from and after the date of the Initial Acquisition. An issuer may later sell those bonds to the public (a Subsequent Sale), in which case the bonds may be treated as reissued. The deliberate action causing this compliance failure occurs on the date the issuer engages in the transaction that extinguishes the bonds.

Base Amount. The credit maintenance amount on the portion of the bonds acquired by the issuer through the Initial Acquisition (taking into account scheduled sinking fund payments on a pro rata basis, if any). For this purpose, the credit adjustment period used to calculate the credit maintenance amount begins on the date of the Initial Acquisition and ends on the first interest payment date on the bonds scheduled after the date of the closing agreement. If the Initial Acquisition occurred during the primary offering of the direct pay bonds, the Base Amount also includes an amount equal to any profits realized by the issuer or any related party to the issuer from the Subsequent Sale.

Additional resolution standards. In the request, the issuer must represent that at all times from their original issue date the bonds acquired by the issuer through the Initial Acquisition: