WASHINGTON - The Internal Revenue Service claims that some of the bonds issued in 2013 by the Scottsdale, Ariz., Municipal Property Corp. to refinance the term of a lease for a garage are taxable.
The IRS made the assertion in a "notice of proposed issue" it recently sent the corporation, according to an event notice the corporation filed with the Municipal Securities Rulemaking Board's EMMA system.
The IRS claims stem from an audit of some of the $65 million of excise tax revenue and refunding bonds the MPC issued on behalf of Scottsdale in early 2013 to, among other things, refinance the then-initial lease term of the Scottsdale Fashion Square Parking Garage Lease Agreement.
Bond counsel for the deal was Gust Rosenfeld. The financial advisor was Piper Jaffray & Co.
Neither the bond counsel nor Bruce Washburn, the city attorney, could not be reached for comment.
But the event notice said the IRS "asserts that the allocation of a portion of the proceeds for bonds to refinance the initial lease term of the existing municipal Scottsdale Fashion Square Partnership Parking Garage Lease Agreement (as originally described in the official statement for the bonds) causes interest on the bonds to be taxable."
The IRS has given the corporation and the city an opportunity to respond to the claims, according to the event notice.
"The city disagrees with the positions of the IRS" and "continues to discuss this matter with the IRS," the MPC said in the event notice. The corporation added that it will respond to the IRS.
"The city believes the bonds comply fully with all applicable federal tax law requirements for interest on the bonds to be excludable from gross income for tax purposes," the MPC said in the notice.
