The City of Billings is required by the Internal Revenue Service (IRS) to file a form 8038 when bonds are sold. The IRS added two lines to their form 8038 (lines 43 and 44 on Attachment B) in October of 2011. The two questions relate to having a formal policy that covers issuing the bonds and what happens after the bonds have been issued.  Dorsey & Whitney LLP (Bond Counsel) is uncertain about the consequences of not having a policy, but recommends that the City of Billings adopt a formal policy to avoid an unwarranted IRS audit of the City’s bonds.

The Policy (Attachment A) establishes practices relating to the use of bond proceeds, bond-financed property, investing bond proceeds, record management/retention, assigning responsibility for following the policy and practices, reimbursement using bond proceeds and IRS remedial provisions.  The City currently does everything required by the Policy, so the Resolution simply formalizes the practices.

Council may approve the resolution, or not approve the resolution. Not approving the resolution may make the City susceptible to an IRS audit of existing and future tax exempt bonds.

There should be no financial impact for adopting the policy.

Staff recommends that the City Council approve the resolution to adopt the Tax Compliance Policy For Tax-Exempt  Bonds.