WASHINGTON — The Internal Revenue Service rejected requests by bond issuers for two affiliated Iowa nonprofits to enter voluntary closing agreements, saying that certain alleged tax-law violations were unlikely to have occurred.
The IRS determined the requests were ineligible for VCAP after the IRS retroactively reinstated the tax-exempt 501(c)(3) status for each of the nonprofits, which had been revoked as of May 15, 2011. The rejection of the VCAP applications were disclosed in event notices posted on the Municipal Securities Rulemaking Board's EMMA system Wednesday.
One of the VCAP requests covered a total of $15 million of bonds issued from 2004 through 2007 for Luther Park Health Center, Inc. by Polk County, Iowa. The other covered bonds issued for Luther Park Apartments by Des Moines, Iowa. These bonds included $5.09 million of senior housing revenue bonds issued in 2004 and $3.64 million multifamily housing revenue and refunding bonds issued in 2007.
Proceeds from the sales were used to construct and improve the organizations' facilities. Luther Park Apartments provides independent retiree living units and Luther Park Health Center provides assisted living units and nursing beds, according to bond documents.
Nancy Lashnits, an attorney at Steptoe & Johnson PLLC, said it's uncommon for the IRS tax-exempt bond office to tell an issuer that it does not need to enter VCAP.
"It happens very rarely," she said, adding that issuers usually try to enter into VCAP because they've done something wrong with the proceeds of their bond sales.
Luther Care Services, Luther Park Apartments and Luther Park Health Center are three distinct but affiliated nonprofit organizations. For more than 30 years, a group 990 tax form was filed each year under the Luther Care Services name. But in February 2012, the IRS said that the tax-exempt status of each of Luther Park Apartments' and Luther Park Health Center was revoked because they failed to file required information returns for three consecutive years, according to an official with the organizations and bond documents.
In May 2013, Luther Park Apartments and Luther Park Health Center learned that the IRS had a problem with how the forms were filed. Luther Care Services filed the group 990 forms using its own employer identification number, rather than the number assigned to it for the group return, the documents said.
In July 2013, Luther Park Apartments and Luther Park Health Center filed requests with the IRS to have their tax-exempt status retroactively reinstated. Also, VCAP requests were filed so that the nonprofits could enter into settlements to ensure the bonds retained their tax-exempt statuses if the retroactive reinstatement wasn't granted.
