The Internal Revenue Service has notified the Hennepin Schools Building Company that its tax-exempt status has been revoked as of Nov. 15, 2025. The notice is dated April 6 of this year.
The city of Minneapolis is listed as the issuer of Charter School Lease Revenue Bonds Series 2021A, a tranche of $17.09 million and a taxable series 2021B of $475,000.
According to the official statement, the proceeds were loaned by the issuer to the non -profit company to finance the acquisition of 12.5 acres of land and a 100,000 square foot school building. The bonds were secured by a mortgage lien.
U.S. Bank National Association served as the trustee.
According to the IRS, things went awry due to the "company's failure to file Form 990 for three consecutive fiscal years ending June 30, 2023; June 30, 2024; and June 30, 2025."
"Form 990 is the annual tax return filed by 501(c)(3) organizations," said Rich Moore, a partner at Orrick's San Francisco office.
"There is some level of burden to preparing and filing so, if an organization's trusted advisor told it not to file and the organization did not know any better, I could see why an organization would take this advice."
The company's one and only 990 filing was performed by accounting firm, BerganKDV Ltd.
The company then hired U.S. Financial Advisors & Audit Firm who, according to the IRS, "advised the company's leadership that no further annual Form 990 filings with the IRS were required for subsequent fiscal years."
"UFAAF based this advice on its position that the company was a 'component unit' of Hennepin Schools under Governmental Accounting Standards Board standards," said the IRS.
The IRS doesn't agree and moved to nullify the tax exemption.
The crux of the disagreement over filing 990's and component units caused the agency to publish
"Submitting the missing 990s and providing a reasonable cause statement for not filing are the core components of this process," said Moore.
The company has since terminated its contract with UFAAF. According to the IRS "UFAAF's advice was the direct cause of the failure to file."
The company has hired new financial advisors, filed the delinquent returns, an application for retroactive reinstatement of federal tax-exempt status and a reasonable cause statement.
The IRS statement lays out the timeline for next steps.
"The company anticipates that it will submit the outstanding 990s and form 1023 to the IRS within 60 days. It is expected; the IRS will process the reinstatement application within 180 days of submission."
"The company will file supplemental material event notices to inform bondholders of the outcome of the reinstatement application, including (a) confirmation of retroactive reinstatement, if granted, or (b) any adverse determination and planned next steps."
"In the interim, it is uncertain whether the bonds are tax-exempt, and investors are stuck with that uncertainty," said Moore.
"In the long run, if 501(c)(3) status is retroactively reinstated, the tax-exempt status of the bonds will be unchanged. If that does not happen, however, bondholders will find themselves holding taxable bonds."
The director of the Hennepin Schools Building Company could not be reached for comment.
