IRS Announces Closing Agreement Process For At-Risk Student Loan Bonds

The IRS has released Announcement 2012-14, which permits issuers of student loan bonds that involved loan-swapping to request by July 31, 2012 a closing agreement involving a potentially substantial settlement payment to the IRS in order to preserve the tax-exempt status of such bonds.

Certain issuers of student loan bonds reallocated loans originally funded by a particular bond issue to another bond issue when calculating compliance with arbitrage restrictions on the spread between the yield on bond-financed loans and the applicable bond yield. The IRS has determined that such reallocations by an issuer among its own portfolios did not constitute actual sales or dispositions of the swapped loans and therefore were ineffective for tax law purposes. The reallocations therefore will be disregarded. If an issuer cannot satisfy its burden of proof in any audit that the bonds involved are not taxable arbitrage bonds if such reallocations are ignored, the applicable bonds