BRADENTON, Fla. – Jefferson County, Ala., paid $5.37 million to the Internal Revenue Service to repay excess earnings on tax-exempt school warrants issued in 2004, the county said in a notice Monday.
The county issued a notice about the earnings violation and payment through Digital Assurance Certification on Monday.
The notice said Jefferson County determined that some of its 2004-A limited obligation school warrants were invested in 2005 and 2006 at interest rates higher than allowed by federal tax laws.
Some $449.8 million of the 2004 school warrants were outstanding as of Sept. 30, 2014, according to the latest comprehensive annual financial report.
The county said it self-reported the violation to the Internal Revenue Service and applied to resolve the issue under the IRS's Voluntary Closing Agreement Program.
"After taking into account a rebate payment previously made by the county in 2011, the county and the [IRS] agreed that an additional payment of $5,376,354.83 would be sufficient to repay the excess earnings owed to the United States Treasury and to resolve the violation resulting from the investment of warrant proceeds," the notice said.
The county wired a payment to the IRS on March 1, and the closing agreement was final on March 4.
In 2011, the IRS examined the county's 2003B and C sewer warrants, and determined that arbitrage and swap termination payments on $2.12 billion of outstanding variable- and auction-rate sewer debt violated of the tax code.
Jefferson County paid $4.5 million to protect the tax-exempt status of the sewer debt.
Alabama's largest county filed for Chapter 9 bankruptcy in 2011, and exited two years later after issuing $1.8 billion in sewer refunding warrants to write down $1.4 billion in related sewer debt.
Shortly after the debt was sold, a group of ratepayers on the sewer system appealed the plan, which has yet to be resolved.
The 11th Circuit Court of Appeals in Atlanta tentatively set the week of May 16 to hear oral arguments in an appeal filed by Jefferson County after a lower court ruled that it could potentially overturn a portion of the bankruptcy plan of adjustment.
