Jefferson County Sewer Bonds Under IRS Investigation


The IRS has opened investigations into Jefferson County’s sewer bonds that enjoy a tax-exempt status because they have almost landed the county into bankruptcy. The IRS has asked for information on the sewer bond sales of 2003. The purpose of the bonds was to raise money in order to pay off previous bond investors who lent part of the $3.2 billion borrowed to fix the county's sewer system. And since they were issued as tax-free bonds, the bondholders do not have to pay any taxes on any periodic interest payments.

The IRS is evaluating the tax-free status of the bonds known as the 2003 fixed rate warrants, auction rate warrants and variable demand warrants. As such, the county has cautioned that bond interest payments might ‘be declared taxable and a tax liability could be assessed against the holders.

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