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Kelly asks IRS to withdraw proposal affecting tax-exempt bonds ‘in entirety’

From the August 9, 2017 issue of Public Power Daily

Originally published August 8, 2017

By Jeannine Anderson
News Editor

The Internal Revenue Service should withdraw a proposal it issued early this year that would change the definition of the term “political subdivision” for purposes of tax-exempt bonds, said Sue Kelly, president and CEO of the American Public Power Association, in an Aug. 3 letter to the IRS.

Writing to IRS Commissioner John Koskinen, Kelly said the Association believes that the proposed regulations “disturb well settled law and, as such, create unnecessary confusion” — and also would not improve administration of the federal income tax laws.

Kelly reiterated that, as the public power group said in a May 2016 letter on the same topic, the Association recommends that the proposed regulations be withdrawn “in their entirety.”

The Large Public Power Council and several individual public power utilities, as well as other organizations with an interest in tax-exempt bonds, also filed comments with the IRS on the proposed regulation in May 2016. Of the 107 comments filed as of the deadline (May 23, 2016), the overwhelming majority were in opposition.

In her Aug. 3 letter, Kelly noted that the current Treasury regulations regarding political subdivisions were promulgated in 1972, while the regulatory definition of “political subdivision” for purposes of tax-exempt bonds dates back to the Revenue Act of 1936. Moreover, she said, “the basic concepts and principles contained therein have a lineage dating back more than 100 years.”

Kelly said the proposed regulations stem from an enforcement action in Florida that was described in a June 2015 technical advice memorandum, or TAM.
“The Association believes that other paths exist for the IRS to successfully address any perceived abuses described in the TAM without having to undertake a wholesale re-write of century old precedent,” she said.

The proposed regulations “reverse well established precedent,” Kelly wrote. “They also raise tax policy and technical questions that will be difficult to resolve, consuming time and resources of the Treasury Department, the IRS and the public finance community.”

 “The Association does not believe that the existing regulations require any clarification,” Kelly wrote. Moreover, the Association “is not aware that other members of the public finance community have requested guidance or clarification in this area,” she said. “To the contrary, the existing Treasury regulations and related authorities have been more than adequate to address this subject matter.”

Accordingly, she concluded, “the Association strongly recommends that the proposed regulations be withdrawn in their entirety.”


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- James Farrar - I would be helpful in an article like this if you included what the IRS proposal is as opposed to just stating that APPA asked it to be withdrawn. Or in the alternative, provide a link to the proposal and the TAM.

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