Role of the internal revenue service s office of tax exempt bonds
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Role of the Internal Revenue Service’s Office of Tax-Exempt Bonds. Under the Constitution. Under the authority of the Constitution, Congress created the Treasury Department under Section 7801 of the Internal Revenue Code.

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Under the constitution
Under the Constitution Tax-Exempt Bonds

  • Under the authority of the Constitution, Congress created the Treasury Department under Section 7801 of the Internal Revenue Code.

  • Section 7803 establishes a Commissioner of the Internal Revenue Service in the Department of Treasury.

    • The Commissioner is charged to administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws.

Under the constitution1
Under the Constitution Tax-Exempt Bonds

  • Section 7804 authorizes the Commissioner of Internal Revenue to employ such number of persons as the Commissioner deems proper for the administration and enforcement of the internal revenue laws.

  • Section 6201 authorizes the *Secretary or his delegates to make inquiries, determinations, and assessments of all taxes.

    * Secretary refers to the Head of the Treasury Department. This term is generic in that through delegation orders, one becomes the Secretary charged with oversight of overall enforcement of the laws.

Role of the internal revenue service s office of tax exempt bonds

Tax Exempt & Government Entities Tax-Exempt Bonds

Sarah Hall Ingram, Commissioner (202) 283-2500

Joseph H. Grant, Deputy Commissioner (202) 283-2700

Joe Urban, Tech. Advisor, (202) 283-8925

Rick Trevino, Exec Assistant, (202) 283-9963

Mike Daly, Exec Assistant, (202) 283-9964

VacantSr Technical Advisor

(202) 283-8804

Moises C. Medina

Director, Government Entities

(202) 283-9738

Rob Choi

Acting Director, Employee Plans

(202) 283-9660

Lois G. Lerner, Director, Exempt Organizations

(202) 283-0289

Michelle Marx

Executive Assistant

(202) 283-9743

Diane Letourneau, (202) 283-8861Executive Assistant

Sue Lehman, (202) 283-8857 Mgr, Program Mgt Staff

Peter McConkey, (202) 283-9531Executive Assistant

Lou Leslie, (202) 283-9612Mgr, Program Mgt Staff

Lisa J. Beard

Program Manager

(202) 283-9799

Cliff Gannett

Director Tax

Exempt Bonds

(202) 283-9820

Christie Jacobs

Dir Indian

Tribal Govts

(720) 956-4504

Andy Zuckerman

Dir Rulings

& Agreements

(202) 283-9660

Mark O’Donnell

Dir Customer

Ed & Outreach

(202) 283-9532

Monika Templeman

Dir Examination

(410) 962-4092

Melaney Partner

Acting Dir Customer

Ed & Outreach

(202) 283-8845

Holly O. Paz

Acting Dir Rulings

& Agreements

(202) 283-9473

Nanette Downing

Dir Exam

(214) 413-5425

Paul Marmolejo

Dir Federal/State/Local Govts

(559) 443-7601

(202) 283-9818

Mark Kirbabas

Dir Customer

Ed & Outreach

(202) 283-9742

Cindy Thomas



(513) 263-3519

Jackie Grissom

Manager Exam

Programs & Review

(214) 413-5404

Betty McClernan

Mgr Exam

Programs & Review

(410) 962-5659

Vicki Surguy



(513) 263-3583

Jayne Maxwell


Field Operations

(512) 499-5070

Robert (Bob) Henn


Field Operations

(718) 488-2014

John Saltmarsh


Field Operations

(909) 388-8162

Donna Abner


Determination &

Qual Assurance

(513) 263-3696

Jason Kall

Manager Compliance Strategy (281) 721-7760

Colleen Patton

Area Mgr

Pacific Coast

(720) 956-4533

Daniel Jones

Mgr Determ

Qual Assurance

(513) 263-3422

Steve Chamberlin


(636) 255-1290

Phyllis Burnside

Acting Mgr FSLG


(401) 525-4205

Steve Bowers


(714) 347-9430

William Dolce

Area Mgr


(860) 258-2020

Joan Hirsch

Area Mgr

Pacific Coast

(562) 400-1801

Bill Hulteng

Mgr EP Tech

(202) 283-9508




Michael Sanders

Area Mgr


(215) 553-7613

Marian Bodart

Dir Business Systems Planning

(202) 283-8864

Peter Lorenzetti

Area Mgr


(718) 488-2010

David Fish



(202) 283-8909

Joyce Kahn

Acting Mgr EPTech

Guidance &

Qual Assurance

(202) 283-9586

Bobby Zarin

Dir Communication & Liaison

(202) 283-8868

Janice Gore

Area Mgr

Great Lakes

(262) 513-3465

Joanne Dorling

Area Mgr


(908) 301-2653

Cynthia D. Dunn


(202) 283-9959

Janet Mak

Acting Mgr Voluntary


(718) 488-2383

Craig Bellanger

Area Mgr

Gulf Coast

(504) 558-3135

Regeina HallActing Area Mgr

Great Lakes

(214) 413-5434

Bryan Musselman

Dir Finance

(202) 283-9906

Tom Murray

Dir Human Resources

(202) 283-9894

Mary Epps

Area Mgr

Gulf Coast

(404) 338-8214



(877) 829-5500

Imraan Khakoo

Dir Planning

(202) 283-9907

Kathie Averett


Compliance Area

(801) 620-2119

Roy E. Olson

Dir Research & Analysis

(202) 283-9855

February 2011

Compliance and program management
Compliance and Program Management Tax-Exempt Bonds

  • TEB Compliance and Program Management staff is responsible for:

    • Coordinating referral information with the TEB Referral Committee;

    • Seeking to resolve Voluntary Closing Agreement Program (VCAP) submissions;

    • Development of an ongoing Outreach Program;

    • Updating the Internal Revenue Manual and assisting in the issuance of Revenue Procedures

    • Coordinating with the Office of Associate Chief Counsel on procedural on guidance matters;

    • Assisting Field personnel in the identification and development of complex and emerging technical issues;

    • Administering TEB’s quality review of closed examination cases;

    • Administering questionnaires and market segment surveys; and

    • Classifying returns related to general examination program activity

Voluntary closing agreement program vcap
Voluntary Closing Agreement Program (VCAP) Tax-Exempt Bonds

  • Purpose: The primary purpose of VCAP is to encourage issuers, conduit borrowers, and other parties to bond transactions to exercise due diligence and to attempt to correct any issuance and post-issuance infractions of the applicable sections of the Internal Revenue Code.

  • In accordance with Notice 2008-31, VCAP was expanded to include tax credit bonds.

  • It is the continuing policy of the Service to attempt to resolve violations of the Code without taxing bondholders.

Role of the internal revenue service s office of tax exempt bonds
VCAP Tax-Exempt Bonds

  • VCAP is not available when:

    • The violation can be remediated under existing remedial action provisions or tax-exempt bond closing agreement programs contained in the regulations or other published guidance.

    • The bond issue is under examination.

    • The tax-exempt status of the bonds is at issue in any court proceedings or is being considered by the IRS Office of Appeals.

    • The Service determines that the violation was due to willful neglect.

Vcap resolution standards
VCAP Resolution Standards Tax-Exempt Bonds

  • IRM section sets forth resolution standards under TEB VCAP for certain identified violations.

    • Excessive nonqualified use;

    • Failure to provide notice of defeasance;

    • Failure to defease within 10.5 years of issuance;

    • Alternative minimum tax adjustment;

    • Capital expenditure limitation failure;

    • Maturity exceeding 120% of economic life;

    • Impermissible advance refunding; and

    • Failure to timely reinvest proceeds into 0% SLGS.

Questionnaires and market segment surveys
Questionnaires and Market Segment Surveys Tax-Exempt Bonds

  • Purpose: Gather data regarding the practices and procedures of issuers regarding record keeping and monitoring of the rules applicable to their financings.

    • As part of developing relationships with State officials, TEB will seek to partner with states to address record retention.

  • Allows TEB to monitor non-compliance trends for the purpose of designing proactive education and outreach products for use by TEB Customers.

  • Failure to respond may result in an examination.

Classification Tax-Exempt Bonds

  • The process by which returns are selected for examination.

  • Classification attempts to include financings that address:

    • Key areas identified through examinations and compliance check project initiatives;

    • Market segment risk assessment; and

    • Annual Work Plan criteria.

  • Classified returns are either:

    • Examined by CPM staff as part of a classification redesign that limits the focus of examinations

    • Examined by Field Operations

Field operations
Field Operations Tax-Exempt Bonds

  • The focus of TEB’s Field Operations is to identify and correct noncompliance with fairness and the highest level of integrity.

  • Examinations are conducted at the issuer level, consistent with the continuing policy to attempt to avoid taxing individual bondholders.

  • Field Operations personnel located throughout the country conduct comprehensive and limited scope examinations, and assist in the delivery of outreach to the bond community.

Field operations1
Field Operations Tax-Exempt Bonds

  • TEB Field Operations is responsible for:

    • Conducting examinations that include

      • Annual Work Plan examination

      • Limited scope

      • Project initiatives

      • Referrals

    • Consideration of fraud and IRC section 6700 promoter penalties

    • Conducting pre-payment and post-payment compliance activity with respect to direct payments related to Build America Bonds and other Direct Pay Bonds;

    • Coordinating with other business operating divisions to assess tax on bondholders and conduit borrowers, when appropriate; and

    • Processing requests for recovery of overpayments of rebate.

Examinations Tax-Exempt Bonds

  • As part of TEB’s general program work, the Field:

    • Conducts comprehensive examinations of a wide variety of governmental and private activity bonds

    • Seeks to resolve identified violations through closing agreements.

Examinations Tax-Exempt Bonds

  • The primary objective of a TEB examination is to determine if the bond issuance is in compliance with the qualification provisions of the Internal Revenue Code, which permit bondholders to exclude from gross income interest received on the bonds.

Examinations Tax-Exempt Bonds

  • In a tax-exempt bond examination the Issuer of the bonds is considered the “taxpayer,” so the burden of maintaining and producing adequate records necessary to conduct a quality examination is placed on the Issuer.

  • In the examination of a private activity bond many records are often secured from the Conduit Borrower, and sometimes from other parties to the transaction. However, they are considered third parties in a tax-exempt bond examination.

Examinations Tax-Exempt Bonds

  • Under the provisions of IRC section 6103, the Service may contact third parties to obtain information.

  • Generally, contacts with third parties are made when the Service is unable to obtain the information from the issuer or to verify information provided by the issuer.

  • IRC 7602(c) requires the IRS to:

    • Provide advance notice to the taxpayer that third party contacts may be made.

    • Periodically provide a list of all third party contacts to the taxpayer.

    • Provide a list of third party contacts to the taxpayer upon request.

Examinations Tax-Exempt Bonds

  • At the inception of the examination, the issuer is notified in writing of the initiation of an examination of an identified financing.

  • Four types of letters

    • General

    • Project Initiative with no identified problems (green)

    • Problematic financings, but not identified with respect to the examined bond (yellow)

    • Referrals - External or internal sources that identify specific bond issues as problematic (red)

Examinations Tax-Exempt Bonds

  • During the course of an examination, TEB seeks to identify and resolve issues as expeditiously as possible

  • Issues may be resolved without the issuance of a formal report, or subsequently thereafter

  • Jeopardizing violations are resolved through a closing agreement with the issuer and may include other parties to the transaction

  • Resolution of violations through closing agreements

    • Includes negotiated terms that typically include

      • payment of a settlement amount and/or

      • redemption of bonds

    • Consider, in part, the due diligence of issuers and their representatives to act in good faith to resolve violations in a timely manner.

Examinations Tax-Exempt Bonds

Closing agreement settlement amounts are determined based on a variety of factors, including

  • Taxpayer exposure

    • Calculated for periods for which there are “open statutes” for the assessment tax on bondholders determined as of the date the issuer was notified of a bond violation (generally three years after the filing of the tax return)

    • Computed at a 29% tax rate on interest paid on the bonds plus deficiency interest

  • Negotiated settlement amounts that appropriately reflect the nature and severity of the violation to be resolved.

Examinations Tax-Exempt Bonds

  • Failure to resolve an identified violation through a closing agreement results in:

    • The issuance of a Form 5701 (if not previously issued)

    • A proposed adverse letter

  • Pursuant to the issuance of a proposed adverse letter, the issuer may request the matter to be considered by the Office of Appeals

  • Failure to timely request an appeal will result in the issuance of a final adverse letter pursuant to which the interest on the bonds is includible in the gross income of bondholders (or a credit is not allowable.)

Examinations of advance refunding bonds
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • One of the key audit aspects of an advance refunding issue is to determine that the yield on the escrow fund is not more than .001% above the bond yield of the refunding bonds.

  • To ensure such compliance, requested documentation typically includes:

    • The Verification Report,

    • Investment records, and

    • Proof of securities purchased to fund the escrow.

Examinations of advance refunding bonds1
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • Proof of securities purchased can include:

    • For escrows funded with United States Treasury, State and Local Government Series (SLGS) Securities, including zero interest securities:

      • copies of the final SLGS subscription forms with proof of date subscribed, principal amounts, interest rates, maturity dates, issuance dates, first interest payment dates, appropriate signatures, and Federal Reserve Bank received stamps.

Examinations of advance refunding bonds2
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • For escrows funded with open market securities, forward float contracts, and similar securities, documentation establishing the purchase of such securities at fair market value is requested, e.g., copies of dealer trade confirmations and bid documents.

Examinations of advance refunding bonds3
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • In the event of an escrow restructuring involving the sale of:

    • SLGS, a copy of the Early Redemption Calculations Report from the Bureau of Public Debt is requested.

    • Open market securities, copies of all dealer trade confirmations with proof of sale dates, interest rates, and sale prices

Examinations of advance refunding bonds4
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • The focus of any advance refunding bond examination is largely driven by the funding of the escrow fund:

    • SLGS,

    • Open Market Securities, or

    • A combination of both (0% rollover SLGS).

Examinations of advance refunding bonds5
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • SLGS-funded escrows:

    • Focus on verification that the issuer in fact purchased what was depicted in the Verification Report and no deviations occurred.

  • Escrows with open market securities:

    • Same as above, but with additional consideration to the purchase of the securities at fair market value.

  • Escrows requiring reinvestment into 0% SLGS:

    • Verify the reinvestment occurred and occurred timely.

Examinations of advance refunding bonds6
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • Violations resulting from the failure to reinvest or timely reinvest in 0% SLGS can result in a yield on the escrow fund that is higher than the yield on the refunding bonds.

  • VCAP offers a standardized resolution for this violation.

  • The Field Operations resolution will result in a harsher resolution to foster self-identification of failures.

Examinations of advance refunding bonds7
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • Requirements under the VCAP resolution:

    • the issuer submits the request within 60 days of the next required computation date following the date of the reinvestment failure,

    • the issuer (or the escrow agent through the issuer) agrees to pay an amount equal to the sum of the following:

      • (1) An amount which, if treated as a payment with respect to the investments held in the escrow, reduces the yield on the escrow to the bond yield; plus

      • (2) An amount equaling interest accrued at the underpayment rate under IRC section 6621 beginning on the date the payment would have been due if treated as a yield reduction payment and ending on the date the payment is actually paid to the IRS.

Examinations of advance refunding bonds8
Examinations of Advance Refunding Bonds Tax-Exempt Bonds

  • For this purpose, proceeds held by the trustee due to this reinvestment failure may be treated as invested at the applicable federal funds rate (AFFR)

  • Trustee certifiesthat

    • Its customary practice is to invest its overnight balances at a rate which approximates the AFFR

    • the proceeds were likely invested in such a manner

  • Certificate is required even if trustee is not a party to the VCAP

News flash
News Flash! Tax-Exempt Bonds

  • The Treasury Department announced the suspension of sales of State and Local Government Series (SLGS) nonmarketable Treasury securities until further notice, effective 12:00 noon Eastern Daylight Time (EDT), May 6, 2011. This suspension is necessary because the statutory debt ceiling has not been raised. The suspension will assist Treasury's management of the debt subject to limit.

  • The suspension applies to demand deposit and time deposit securities. Subscriptions for SLGS received by the Bureau of the Public Debt prior to 12:00 noon EDT, on May 6, 2011, will be issued on the date requested. New subscriptions for SLGS will not be accepted during the suspension.

Yield restriction compliance when slgs window is closed
Yield Restriction Compliance when SLGS Window is Closed Tax-Exempt Bonds

  • Generally, the proposed Treasury Regulations (into which an issuer may elect) may elect) allow an issuer to make a yield reduction payment for investments purchased when the SLGS window is closed.

    Prop. Treas. Reg. 1.148-5(c)(3)(viii) (09/26/2007)(viii)

Whistleblower fraud 6700
Whistleblower/Fraud/6700 Tax-Exempt Bonds

  • TEB continues to address referrals from the Whistleblower Office and the application of section 6700 penalties and fraud considerations when warranted.

Whistleblower Tax-Exempt Bonds

  • In 2006, legislation was enacted establishing the Whistleblower Office such that previously existing Code section 7623 was re-designated as section 7623(a) and a new section (b) provision was added.

  • Primary difference between “a” and “b” is that b claims are those for which the amount of tax due is over $2M and are subject to a “Taint Analysis.”

Whistleblower Tax-Exempt Bonds

  • Taint analysis takes into consideration whether the informant’s claim might be tainted, e.g. as a result of current employment with the identified taxpayer or illegally obtained information.

  • In conjunction with counsel, TEB conducts taint analyses and makes recommendations to the WBO as to whether a referral item should be examined. (TEB is not required to conduct an examination even if a recommendation to the WBO to do so is made.)

Whistleblower Tax-Exempt Bonds

  • TEB has received approximately 30 whistleblower claims to date.

  • One submission can include identification of multiple bonds.

  • Only the Director of the Whistleblower Office can decide whether and in what amount a claim for award may be paid.

  • An award between 15% and 30% of the amount of proceeds collected by the Service could be awarded.

Fraud and 6700
Fraud and 6700 Tax-Exempt Bonds

  • In all examinations, consideration is given to the potential for fraud and whether the application of the Code section 6700 penalty is appropriate.

Fraud and 67001
Fraud and 6700 Tax-Exempt Bonds

  • Section 6700 is applicable to any person who:

    • organizes or assists in organizing

    • and makes or furnishes (or causes another person to make or furnish) certain statements, including statements regarding exclusion of income and allowability of credits

    • and for which the person knows or had reason to know such statement was false or fraudulent as to any material matter,

    • shall pay a penalty of 50% of the gross income derived from the activity.

Fraud and 67002
Fraud and 6700 Tax-Exempt Bonds

  • Fraud involves a willful attempt.

  • Section 6700 is not a fraud penalty.

  • Section 6700 requires that the person knows or should have known that the statements were false or fraudulent.

  • It is not necessary that a determination be made that bonds do not qualify as a tax advantaged bond in order to assert a penalty.

Initiatives Tax-Exempt Bonds

  • There are two primary methodologies used to initiate a project initiative. They are:

    • Market Segment Compliance Measurement:

      • Systematic selection of each market segment over a period of time to measure noncompliance of that segment or type of bond, e.g., small issue manufacturing bonds and single family housing bonds would constitute separate market segments.

    • Emerging Issues:

      • Identification of cases based on the existence of potential emerging or identified issues within the TEB return population, e.g., an identified abuse resulting in the failure to properly determine investment yield.

Initiatives Tax-Exempt Bonds

  • Recent examples of project initiatives include:

    • Tax Increment Financing

    • Smaller Variable Rate Issuers

    • Independent Multi-Purpose Special District

    • Student Loan Bonds

Limited scope exams
Limited Scope Exams Tax-Exempt Bonds

  • Project initiatives can take the form of a limited scope examination.

  • Limited scope examinations can be expanded to a more comprehensive examination if it is deemed warranted by the Field Operations examining agent and approved by the Field Operations Group Manager.

Limited scope exams1
Limited Scope Exams Tax-Exempt Bonds

  • Examples of current and future limited scope examinations include:

    • Form 8038-T Filing Compliance Initiative,

    • Pooled Financings Initiative, and

    • Advance Refunding Initiative.

Teb field operations and cpm teams
TEB Field Operations and CPM Teams Tax-Exempt Bonds

  • As part of a collaborative effort between Field Operations and CPM, TEB has assembled numerous teams within TEB to help facilitate the goals set forth in its Work Plan.

  • Examples of these teams include:

    • The Arbitrage Team

    • Direct Pay Tax Credit Bonds Compliance Team

    • State Outreach Team

    • Distressed Government Entities Team

Direct pay bonds
Direct Pay Bonds Tax-Exempt Bonds

  • Section 54AA(g) provides for the issuance of Direct Pay Build America Bonds

    • Governmental bonds only

    • Taxable bonds that would otherwise qualify as tax-exempt bonds

    • Issued in 2009 or 2010

    • All proceeds used for capital expenditures

    • An information return is filed with the Service

Direct pay bonds1
Direct Pay Bonds Tax-Exempt Bonds

Direct pay bonds2
Direct Pay Bonds Tax-Exempt Bonds

Direct pay bonds3
Direct Pay Bonds Tax-Exempt Bonds

  • Issuer receives a 35% credit from the Federal government for the interest paid on the bonds

  • To receive the credit, an issuer must file a Form 8038-CP which is a claim for refund

  • The refund claim is a tax return or claim for refund, not an information return

Direct pay bonds4
Direct Pay Bonds Tax-Exempt Bonds

Direct pay bonds5
Direct Pay Bonds Tax-Exempt Bonds

Form 8038-CP signatures

  • An officer of the issuer with authority to bind the issuer must sign the form

  • Any paid preparer must sign the form

Who is a tax return preparer
Who is a Tax Return Preparer? Tax-Exempt Bonds

  • Person, including a partnership or corporation) who prepares:

    • For compensation,

    • All or a substantial portion of a return or claim for refund is considered a tax return preparer.

  • An individual is the preparer even if a superior reviews his/her work.

  • A preparer can be a “signing tax preparer” or a “non-signing tax preparer.”

Direct pay bonds6
Direct Pay Bonds Tax-Exempt Bonds

All Form 8038-CP claims undergo a review process.

  • Initial Review – to evaluate whether procedurally

    • The information return was properly filed

    • The refund claim was properly filed

  • Continued Review – the Service may consider

    • information set forth in the refund claim and related information return

    • procedural requirements related to the allowance of the credit

    • Qualification requirements related to the refund claim obligations

    • Information obtained from publicly available sources

    • Any other information deemed necessary for such purpose.

Direct pay bonds offsets
Direct Pay Bonds - Offsets Tax-Exempt Bonds

Credit payments are subject to offset against other liabilities, e.g., unpaid federal tax liabilities and past due debts owed to other federal agencies.

  • The issuer of the refund claim obligation, and not any other person who makes bond interest payments or receives the credit payments on behalf of the issuer, is the person whose liabilities are subject to offset.

Direct pay bonds7
Direct Pay Bonds Tax-Exempt Bonds

Erroneous and Disallowed Refund Claims

A revenue procedure is being developed to address any erroneous or disallowed credits.

Examinations of direct pay bonds
Examinations of Direct Pay Bonds Tax-Exempt Bonds

  • Currently TEB has initiated approximately 25 examinations of Build America Bonds.

  • These examinations are being conducted by the Direct Pay Tax Credit Bonds Compliance Team.

  • Focus is being given to:

    • Issue price,

    • Cost of issuance limitation,

    • Purchase of bond insurance,

    • Proceeds properly used for capital expenditures

    • Appropriateness of the time of issuance (in light of expiring legislation.)

Claims Tax-Exempt Bonds

  • All claims for refund of a prior rebate or yield reduction payment are filed through the Ogden Service Center and are forwarded for processing.

  • Claims are a priority case within TEB.

  • To better facilitate the processing of claims, all claims are being reviewed by the Arbitrage Team at the direction of the Arbitrage Team Leader.

Claims Tax-Exempt Bonds

  • Some claims require taxpayer contact and others can be closed based on the information provided with the claim.

  • Failure to respond to requested information for a claim can result in the denial of the claim.

  • Upon a review of a claim, a claim can be either allowed, partially denied, or fully denied.

  • An issuer may appeal the partial or full denial of a claim.