WASHINGTON — The New Hampshire Health and Education Facilities Authority has proposed paying the Internal Revenue Service an undisclosed sum of money under the voluntary closing agreement program to settle a tax law dispute over some of the $135.4 million of adjustable-rate education loan revenue bonds it issued in 2011.

The NHHEFA filed the VCAP application on July 30, 2012, just one day before the IRS deadline for issuers under  the student loan VCAP program the agency announced in March.

The proposed settlement was disclosed in an event notice filed on the Municipal Securities Rulemaking Board’s EMMA diclosure system on Tuesday.

“The corporation continues to believe that the methodology it has followed in the past, complies with the requirements of the Internal Revenue Code and the Treasury Regulations,” the NHHEFA said in the disclosure, referring to the New Hampshire Higher Education Loan Corp., which used the board proceeds for student loans. “The corporation has agreed to provide funds to the authority that are required for any agreed upon settlement payment.”

As with all VCAP applications, the authority offered to make a payment to the IRS to ensure the bonds would remain tax exempt. The tax-exempt bond office responded and provided it’s initial calculation of the amount that would be due under the VCAP initiative. However, it is unclear how much the NHHEFA will end up paying the IRS. The negotiations are still ongoing, sources said.

The corporation said in its notice that it has reserved sufficient funds to pay a settlement as of the close of its Sept.30, 2012 fiscal year.

“The corporation is unable to predict whether the authority and TEB will negotiate a resolution that is acceptable to all parties,” the NHHEFA said.

Brad Waterman, a tax controversy lawyer, is representing the authority. He could not be reached for comment.

Earlier this year, the IRS unveiled a VCAP program for student loan bonds after the Pennsylvania Higher Education Assistance Agency paid $12.3 million to settle tax law violations made in connection with $250 million of student loan bonds, the first public settlement in this area.

Under federal tax rules, the yields on student loans can’t be more than 2% above the yields of the bonds that were used to make the loans.

In these kinds of VCAP settlements, the issuer must agree to two requirements: as of the date of the closing agreement it must discontinue the practice of reallocating student loans from one bond issue to another and it must agree to pay a settlement amount equal to 40% of the taxpayer exposure on each issue of bonds, IRS officials have said.

Bond lawyers and trade groups have said that more issuers would have agreed to proposed settlements under the VCAP program if the formula wasn’t so costly and difficult to understand.

“The calculations are very complex,” said Vince Sampson, president of the Education Finance Council.

The EFC asked the IRS for an extension of the July 31 deadline on behalf of all of their members. The IRS denied their request and said there is always a voluntary pathway to a settlement.

“It was such a short time window and the exposures could be so varied, we thought it would be better to have the full calendar year to work on this,” Sampson said. “This whole process can take time and I don’t know if the IRS fully appreciated what the decision making process was to decide to enter into a VCAP.”

RBC Capital Markets was the underwriter. Kutak Rock LLP was bond counsel on the NHHEFA deal, according to bond documents.

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