One of the first jail bond deals the Internal Revenue Service ever audited, a Texas transaction that that appears to have prompted IRS reviews for dozens of similar deals, may be headed for settlement.

Bond counsel Jackson Walker LLP, based in Houston, has tentatively agreed to pay $400,000 to settle a tax dispute between Crystal City Public Facility Corp. in Texas and the Internal Revenue Service over $13.94 million of revenue bonds issued to finance prison facilities. The bonds were issued in 2003, but have been under scrutiny by the IRS since 2010 and in default since last year when the U.S. Marshal withdrew inmates because misconduct and security problems, forcing the facilities to close in May 2012 for repairs and improvements.

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