IRS playing hardball on abusive municipal bond deals.(TAX EXEMPTS)(tax policy of Internal Revenue Service)(Brief Article)

Kiplinger Tax Letter, The, May, 2005

The Service is playing hardball on abusive municipal bond deals:

It's threatening to tax bondholders. Normally, IRS makes a deal to let issuers pay a fine so the bonds won't lose their tax-exempt status. But officials say they are now less willing to reach such settlements. They plan to start taxing some bondholders to deter future sham deals.

This saber rattling won't amount to much. The IRS may talk tough, but tracking down individual bondholders is too costly and time consuming. Instead, the agency will require issuers to pay much higher penalties.