Tax Policy:

Preliminary Data on Tax-Exempt Bonds Used to Finance Housing for the Elderly

GGD-89-7: Published: Oct 14, 1988. Publicly Released: Oct 14, 1988.

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In response to a congressional request, GAO provided data on tax-exempt bonds issued to finance housing for the elderly.

GAO found that: (1) private organizations that provide housing for elderly or low-income individuals can apply to the Internal Revenue Service (IRS) for tax-exempt status under section 501(c)(3) of the Internal Revenue Code (IRC); and (2) although 501(c)(3) organizations cannot issue tax-exempt bonds to finance their operations, state and local governments can issue tax-exempt bonds on behalf of such organizations if the bonds meet certain requirements. GAO also found that: (1) state and local government units must file an information return, Form 8038, when they issue private tax-exempt bonds; (2) Form 8038 does not identify the 501(c)(3) organization that will use the proceeds of the issue; (3) since IRS cannot link particular bond issues with individual 501(c)(3) organizations, it cannot easily enforce the $150 million limit on the outstanding bonds of an individual 501(c)(3) organization; and (4) 145 retirement community projects, representing over 1,000 tax-exempt bond issues with an aggregate value of $1.265 billion, have defaulted since the early 1980s.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The revised form has been published as of October 13, 1989.

    Recommendation: The Commissioner of Internal Revenue should require that the employer identification number of the users of qualified 501(c)(3) bonds be reported on Form 8038. With such data, IRS can make computer checks by organization to ensure they comply with IRC.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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