The Internal Revenue Service has closed an audit without changing the tax-exempt status of $52 million of sales tax revenue bonds the Cleveland County, Okla., Justice Authority issued in 2009.
The authority initially received a letter from the IRS on Feb. 16, 2012 that said the agency would conduct an examination of the bonds, according to the Municipal Securities Rulemaking Board’s EMMA system.
On April 18, 2013, Allyson Belsome, manager with the IRS’ tax exempt bond office field operations notified the authority that the examination was completed and no change was made to the bonds. The authority is redeeming some of the bonds, but does not have to make any payments to the IRS for any penalties, sources said.
The proceeds of the bonds were used to construct and equip Cleveland County’s new detention center, known as the F. DeWayne Detention Center, which opened last year. It has an inmate capacity of more than 540.
Brad Waterman, a tax controversy bond lawyer, is representing authority with regard to the audit. He declined to comment.
An IRS agent visited county officials in Norman, Okla., to conduct interviews and examine bond documents for the audit, which dealt with the size of the bond issue and how the proceeds were spent. The audit was a result of a taxpayer petition, possibly originating from a disgruntled former employee, the sources said.
In December 2008, voters in Cleveland County approved a one-fourth of 1% sales tax for the next 20 years to pay for the construction, operation and maintenance of the detention facility.
The initial estimated cost of constructing the detention facility was approximately $43 million, according to bond documents. However, the final cost of the facility came in around $36 million, raising the question of whether the authority issued too many bonds for the project. The authority has contended that the bond issue was appropriate for the project and didn’t see any problem with the cost of the construction bid, the sources said.
One source said the IRS audit was a routine examination and that the economic downturn appeared to have played a role in construction costs, allowing the authority to secure bids at reduced rates.
The authority used the excess proceeds to redeem bonds.
D.A. Davidson & Co. was underwriter of the bonds, according to the official statement for the bonds. Governmental Finance of Oklahoma, Inc. was financial advisor. The Floyd Law Firm, P.C. was bond counsel and Hilborne & Weidman P.C. was underwriter’s counsel.