DALLAS - The Internal Revenue Service has closed an examination of $35.4 million of project revenue bonds issued for a for-profit jail in Central Texas without revoking the tax-exemption, according to a
"This a preliminary determination, and is not yet a final position for the IRS on this matter," the notice said.
The Burnet County Public Facility Corp. issued the bonds in 2008 to build a privately operated jail that has since defaulted on its debt payments, according to the trustee U.S. National Bank Association.
The payment due Feb. 1 was $1.26 million, but the issuer paid only $327,700, according to a previous notice.
In March 2014 Burnet County took over operation of the jail after Southwestern Correctional ended its contract. The private company had operated the 586-bed facility since 2008, when it opened.
County leaders and the PFC sought another operator, but negotiations fell apart, according to local news reports.
The original tax-exemption opinion was written by the law firm of Hunton & Williams, the bond counsel for the issuer, a conduit created and managed by Burnet County.
The IRS notified the issuer of its examination Aug. 8, 2013. The no-change notice was posted Feb. 11.
"We have made a determination to close the examination with no change to the position that interest received by the beneficial owners of the Bonds is excludable form gross income," according to the IRS letter.
The corporation defaulted on its debt in 2011 and has posted several disclosures since then. According to a Feb. 4 notice, the county is negotiating with bondholders on a purchase of the jail while considering building a new, less costly jail that would house inmates from other counties. The county is also considering remodeling its current sheriff's office as a jail.
Herbert J. Sims & Co. and Municipal Capital Markets Group Inc. were underwriters.
