California school bonds in tax peril
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The Internal Revenue Service may strip $283 million of bonds sold by nine California school districts of their tax-exempt status because the proceeds may have been used to purchase overpriced Treasury securities.
The bond issues are among 26 identically structured transactions that are being audited by the IRS, said Richard Eyre, a vice president with Kinsell, Newcomb & De Dios Inc., a Carlsbad-based underwriter, which disclosed the audits Tuesday in a notice to investors.
Eyre said the firm was working toward a settlement with the IRS so that investors wouldn’t be taxed on their investments.
The firm’s statement disclosed audits of bonds sold by the Delano Union, Fontana Unified, Natomas Unified, Fowler Unified, Sanger Unified, Pomona Unified, West Contra Costa Unified, Alvord Unified and East Side Union High school districts.
IRS rules limit what securities firms can charge state and local governments for Treasury bonds in so-called refunding transactions. In such deals, the state or local government uses the proceeds from selling tax-exempt bonds to buy higher-yielding Treasuries.
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