Vernon City Tax-exempt Bond under IRS Probe

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The city of Vernon issued $419 million worth of tax-exempt bonds in 2009 which has come under IRS investigation. This has now become the third major tax investigation of the city over the past one year. In its audit notification to the city, the IRS said that it had received information that “causes a concern that the debt issuance may fail one or more provisions” of the Internal Revenue code. There has been no official comment from the IRS on the matter and city officials say they have not been briefed about the details of the audit.

Vernon’s troubles are not limited to tax issues. Recently, three top city officials have been convicted of corruption and the state legislature is contemplating disincorporation of the city. In addition, the city has suffered huge financial losses over investments in its power business. The city racked up a $130-million loss in net assets and nearly half a billion dollars in debt between 2005 and 2010.

Although no official details of the audit has been released by the IRS, most legal experts say that the violation is probably due to the city’s use of the bond proceeds. Federal law allows local governments to issue tax-exempt bonds for certain types of ‘qualified purposes’ like big infrastructure developments and construction projects. But Vernon issued its bonds in 2009 to fund a supply of natural gas the city had bought 3 years earlier.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Darrin Mish, Tampa Tax Attorney, The Law Offices of Darrin Mish, P.A. | Attorney Advertising

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