WASHINGTON — A Pennsylvania school district said it expects to receive a proposed adverse determination letter from the Internal Revenue Service stating that the general obligation bonds it issued in 2005 and advance refunded in 2013 are taxable.
Woodland Hills School District in Allegheny County said in an event notice posted on the Municipal Securities Rulemaking Board's EMMA website that it has "received indications" of the forthcoming action by the IRS. The school district said the IRS has concerns with the tax-exempt status of $31.65 million of GO refunding bonds it issued in 2013 and $30.85 million of Series D GO bonds issued in 2005.
The IRS' concern "posits a conclusion that there were tax law violations arising from the use of proceeds of the prior bonds that would adversely affect the tax exempt status of the prior bonds," the school district said.
Officials said that because the district has not received formal notice, it could not determine the "full scope or exact substance" of the tax violations. No timeframe was given as to when the adverse determination letter will be issued, it said.
"In the event the IRS should issue a proposed adverse determination and, thereafter, prevail in its conclusion of tax law violations … the final result could have a material adverse effect on the school district's financial affairs," district officials added in the notice.
The school district, located in Braddock in Allegheny County, filed the one-page event notice on July 21. Should the district receive a proposed adverse determination, it would have 30 days to file an appeal. Woodland Hills also said in another event notice that S&P Global Ratings notified the district on July 18 it had issued an A rating to the 2013 bonds and changed the outlook to negative from stable.
The district received a Notice of Proposed Issue (NOPI) from the IRS in November, where the agency said that the 2005 and 2013 bonds issued may be taxable due to tax violations. The IRS generally issues a NOPI when it has found potential tax requirement violations and the issuer disagrees with the findings.
The NOPI covered what was still outstanding from the two bond issues -- $24.59 million of the 2005 bonds and $25.51 million of the 2013 bonds. The district said in the event notice that it responded to the IRS' NOPI in January.
The $30.85 million of 2005 Series D GO bonds were issued to finance the construction of a new East Junior High School and improve the district's athletic facilities, according to the official statement. Proceeds from the 2013 bonds were used to advance refund the outstanding 2005 bonds as well as pay issuance and sale costs and expenses.
PNC Capital Markets was managing underwriter for the 2013 bonds, and Clark Hill/Thorp Reed, now Clark Hill, in Pittsburgh served as bond counsel. Lawyers from Clark Hill, which also is representing Woodland Hills in connection with the IRS audit, could not be reached for comment Friday. Officials from Woodland Hills School District, which includes students from 12 municipalities in suburban Pittsburgh, were also unavailable for comment.