The Internal Revenue Service has accepted the City of Alpharetta, Georgia’s Voluntary Closing Agreement Proposal in connection with a $24.7 million bond issuance in 2016.
“The Issuer, the City and the Internal Revenue Service have entered into a closing agreement under Code Section 7121 of the Internal Revenue Code of 1986,” the city disclosed in an EMMA filing. “Pursuant to the Closing Agreement, holders of the Bonds shall not be required to include interest paid on the Bonds in gross income relating to the violation contained therein.”
In October 2020, Alpharetta, a suburb of Atlanta situated in northeast Fulton County,
The IRS’ Tax Exempt Bond program’s VCAP was developed in 1997 “to assist governmental issuers in resolving violations of the federal tax laws applicable to their tax-exempt bonds, tax credit bonds, or direct pay bonds,” accprding to the IRS. “Under TEB VCAP, issuers can conclusively resolve violations through the execution of closing agreements with the IRS. Any VCAP filing requires a minimum settlement of $2,500.
The violation occurred when the privately-held Avalon Hotel Associates sold its leasehold interest in a conference center financed with the proceeds of the Development Authority of Alpharetta revenue bonds.
“The primary objective of the TEB VCAP is to encourage issuers and other parties to bond transactions to exercise due diligence in complying with applicable federal tax laws and to provide a vehicle to correct tax violations as expeditiously as possible,” the IRS said.
In its public VCAP filing in 2020, Alpharetta said it didn’t know whether the IRS would accept the proposal.
The closing agreement is final and conclusive as the IRS’ TEB are not permitted to annul, modify, set aside or disregard the agreement “unless there is a showing of fraud, malfeasance or misrepresentation of material fact,” the IRS said.
But unlike private letter rulings, closing agreements under the IRS VCAP program “may not conclusively resolve matters of tax law relating to future events or actions impacting the tax advantaged status of bonds,” the IRS said.
The City of Alpharetta as well as its bond counsel did not immediately respond to interview requests.
