Missouri transportation district seeks VCAP tax settlement with IRS

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WASHINGTON -- The University Place Transportation Development District affiliated with the University of Missouri-St. Louis is seeking agreement with the Internal Revenue Service under the Voluntary Compliance Agreement Program involving tax-exempt bonds issued in 2009 for construction of a parking garage.

The pending VCAP involving an adverse ruling by the IRS on the tax-exempt status of the bonds was publicly disclosed last week in an event notice on the EMMA database of the Municipal Securities Rulemaking Board.

The ruling appears to have involved private use of the parking garage which is located in a research and development office park for private companies to develop “cooperative relationships and to provide for shared resources” with the university.

The 24.17-acre transportation district was created to enable the construction of roads and parking adjacent to Interstate 70 for development of the office park.

The proposed settlement involves the Jan. 3 issuance of $7.3 million in transportation development refunding revenue bonds that are being used to defease the outstanding remainder of $9.55 million in tax-exempt bonds issued in 2009 for construction of a parking garage. The issuer hopes that will resolve the tax audit.

The major occupant of the office park is Express Scripts Inc., which is headquartered there.

The new issue was split into two series, one of which is taxable and the other tax-exempt.

The $4.6 million in taxable 2019A series bonds have an interest rate of 5.875% and $2.695 million in tax-exempt 2019B series bonds have an interest rate of 4.375%.

The bond counsel for the issuer, Rachel Orr of Armstrong Teasdale, declined to comment on the case, instead
referring questions to the official statement released last month for the 2019 bonds.

The OS said the “district expects to enter into the closing agreement with the IRS, the purpose of which is to preserve the exclusion of interest on the Series 2009 bonds from gross income for federal income tax purposes” shortly after the issuance of the 2019 bonds.

VCAP negotiations and signings, however, have been suspended during the partial government shutdown.

According to the OS, “The closing agreement is expected to require the district to (1) accomplish the legal defeasance and redemption of the Series 2009 Bonds on April 1, 2019 and (2) make a cash payment to the IRS which is not expected to exceed the amount initially deposited in the expense fund. The District intends to finance the cash payment from amounts deposited to the expense fund."

In addition, the OS said the proposed VCAP “will prevent the IRS from contesting the tax-exempt status of interest on the Series 2009 bonds, but only with respect to the specific violation described therein.”

“The closing agreement does not bar the IRS from opening a separate audit examination with respect to the Series 2009 bonds or any other bonds issued by the district, or from asserting other violations of tax law as result of the audit examination, nor is the closing agreement binding in the event of a material misrepresentation,” the OS also said.

“In the event the IRS fails to sign the closing agreement or otherwise opens an examination with respect to the Series 2009 bonds or other bonds issued by the district, the district may need to devote substantial amounts of its limited revenues to respond to the examination and/or to settle claims,” the OS said.

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Tax audits Municipal disclosure IRS Washington DC Missouri