Georgia city asks IRS for unusual VCAP
A city in the northern suburbs of Atlanta has filed a proposal with the Internal Revenue Service to prevent its revenue bonds from becoming taxable following the sale of a bond-financed conference center.
The city of Alpharetta in northeast Fulton County filed a public notice Friday with the Municipal Securities Rulemaking Board reporting it has submitted a proposal under the IRS Voluntary Closing Agreement Program to repurpose the $24.72 million in bonds issued in 2016 by the Development Authority of Alpharetta.
“Because existing remedial action rules available under Treasury Department regulations (the “Regulations”) do not address the facts and circumstances relating to the city’s receipt of the sale contingent rent payment, on October 23, 2020, the city and the issuer filed a Voluntary Closing Agreement Program (“VCAP”) request,” the public filing said.
The city and the development authority are proposing “to cure the violations relating to the bonds under Section 141 of the Code” by using the money “to pay for identified governmental capital projects or other capital governmental projects within six months of entering into the closing agreement.”
The proposed uses include “milling and resurfacing of city roads, sidewalk repair, replacement and improvements, stormwater system repair and improvements including pipe replacement, roof repair/replacement, HVAC replacement, and greenway extension or other capital governmental projects.”
Alpharetta said in its public filing it does not know whether the IRS will accept the proposal.
However, the city and the issuer said they “believe that their VCAP request proposal and requested closing agreement provides a fair and reasonable outcome based on the facts and circumstances described above and intends to fully cooperate with the IRS.”
The VCAP program, which started in 1997, requires a minimum settlement of $2,500. There were 27 VCAP cases in fiscal 2018, the most recent year for which data is available.
The bond violation arose on Sept. 15 when privately-held Avalon Hotel Associates, LLC sold its leasehold interest in a conference center financed with the proceeds of Development Authority of Alpharetta revenue bonds.
According to Thomas Harris, Alpharetta’s director of finance, the sale of the hotel/conference center was scheduled to close prior to the COVID-19 pandemic but was delayed because of it.
The purchaser was GPIF II Acquisition, LLC an affiliate of Crescent Real Estate in Fort Worth, Texas.
Harris said in an email that the conference center has been “very successful to date and we expect that to continue.”
The $112 million Hotel Avalon and Alpharetta Conference Center opened in January 2018, according to the Atlanta Business Chronicle. The 44,000 square foot conference center adjoins a 330-room hotel.
The project was a public-private partnership with the city of Alpharetta, which contributed nearly $25 million through an increase in the hotel/motel tax.
The original owner has been refocusing its business from real estate ownership to hotel management.