Last week the Internal Revenue Service notified the Clark County School District that its $338.4 million bond issue in 2015 will remain tax exempt, closing an audit first disclosed in April.
According to a notice listed in EMMA, the district “received a letter informing the issuer that the IRS ‘completed the examination for the issue and dates above and closed the examination with no change.'”
The ruling represents the best possible outcome for an issuer facing a grilling from the IRS. “A no change letter means the audit has been closed,” said Matthias Edrich, a tax partner at Kutak Rock LLP there. “The IRS did not find anything in the in the bond issue that will cause the bonds to become taxable. And once the no change letter is given, the audit closes, and there’s no further examination or inquiry.”
Examinations usually begin with an IRS request for more information regarding a particular transaction and often end once the clarification is provided. “This is the outcome in the majority of audits, with varying degrees of burden and expense along the way,” said Rich Moore, tax partner, Orrick Herrington & Sutcliffe.
The lawyers and the IRS maintain that unless there is evidence of fraud or malfeasance, audits are usually conducted at random.
When the bonds were issued, they carried an AA- rating from S&P and an A-1 from Moody’s. Sherman & Howard L.L.C., was bond counsel. The bonds were issued in denominations of $5,000, with maturation dates ranging from 2017-2035.
The proceeds were allocated to the district’s capital improvement plan and an advance refunding of an earlier issuance. The IRS exam was announced in April of this year as some bond attorney’s postulated that the advance refunding nature of the transaction may have triggered the exam.
The general consensus is that an IRS examination, regardless of the outcome has no effect on the possibility of a return visit from the IRS.
“There’s no way of telling what the IRS does on the back end,” said Edrich. “My experience has been when an issuer receives a no change letter, the audit is over, nothing happened or there didn’t have to be any settlement. The issuer did not get onto a radar of any sorts by the IRS as a result of the audit.”
Clark County, which includes Las Vegas is the most populous county in Nevada. Earlier this year the school district was wracked by labor disputes with the teachers’ union over an illegal strike that is still being litigated. In February, Republican Governor Joe Lombardo announced a third-party audit of the state’s seventeen public school districts and charter schools. The audit was announced via executive order and included a review of school finances.