The Hood River Valley Parks and Recreation District in Oregon has disclosed that it is entering into the Internal Revenue Service’s voluntary closing agreement program to protect the tax-exempt status of $2.5 million of general obligation bonds it sold in 1998.
The district announced its participation in VCAP in a material event notice filed late Monday with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system. The notice did not detail what potential tax law violations officials identified that led them to approach the IRS.
VCAP allows issuers and other transaction participants to proactively approach the IRS if they have identified problems with their bonds and want to rectify them “as expeditiously as possible,” according to the IRS’ website.
Typically, payments made as part of a closing agreement reached via VCAP are smaller than ones reached in cases where the IRS initiates an audit. The issuer essentially gets credit for voluntarily disclosing problems with the bonds to the IRS.
The bonds were issued to build sports and recreation facilities on the park district’s property, as well as to refinance a lease-purchase obligation the district entered into in 1995 to finance and refinance some work being done to the Hood River Aquatic Center, according to bond documents.
Remaining proceeds were used to pay issuance costs and to renovate existing facilities.
Clifford Gannett, the director of the tax-exempt bond office at the IRS, told bond lawyers gathered here last week that his team is specifically looking into lease purchase agreements in an ongoing initiative. But the district’s notice made no mention of whether the district found tax law violations related to the lease purchase agreement.
The bond documents stated the bonds were bank-qualified. Under federal tax law at that time, banks could deduct 80% of the cost of buying and carrying the tax-exempt bonds of issuers whose annual bond issuance is less than $10 million.
The so-called small issuer for bank-qualified bonds limit was recently raised to $30 million for bonds issued in 2009 and 2010 under the American Recovery and Reinvestment Act.
The Parks and Recreation District is charged with overseeing a skate park, sports fields at seven local schools, and several small parks and nature trails, according to its website.
Bond documents show that Ater Wynne Hewitt Dodson & Skerrit LLP, now Ater Wynne LLP, was bond counsel for the 1998 transaction. But the firm no longer does bond work, a source there said.
Lori Stirn, the manager of the district, said yesterday that it is now represented by K&L Gates LLP. She referred calls to the law firm, saying she is not aware of why the district is entering the VCAP program. Ann Sherman and Jennifer Córdova, the K&L Gates attorneys working with the district on the IRS matter, were unavailable for comment yesterday.
Strand, Atkinson, Williams & York Inc. was underwriter for the 1998 transaction and Ambac Assurance Corp. provided bond insurance. Standard & Poor’s rated the bonds AAA.