WASHINGTON - The Internal Revenue Service has determined that the interest earnings from seven black box bond issues are taxable, the trustee bank told hundreds of bondholders in recent notices.
The IRS has not moved to tax the interest earnings from the seven black issues, which were sold in December 1985 for two local issuers in Missouri, the St. Louis County Industrial Development Authority, and the Springfield Industrial Development Authority.
But IRS agents have asked to meet with officials from the two authorities this month to discuss the bond issues. The issues were supposed to have financed apartments and a business park, but the proceeds were never used for the projects, authority officials have said.
Mark Twain Bank, the trustee for all seven issues, notified the bondholders recently that the IRS had stated in court documents that it had determined the interest earnings from the bonds "do not qualify" for tax exemption.
The IRS had filed the documents with the U.S. District Court for the Eastern District of Missouri several weeks ago to obtain a summons to force Mark Twain Bank to turn over information on the bondholders.
Bank officials said yesterday that the bonds from the seven issues, which total $69 million, are held by more than 750 investors. They said they have a list of about 750 names, but that the total number of bondholders is probably far greater because the list includes broker-dealers and other representatives of large groups of bondholders.
The bank said in the notices that it had provided the IRS with the bondholders' names, addresses, and taxpayer identification numbers and interest earnings for 1989 and 1990, after being served with the summons.
The bank told the bondholders that the IRS "is attempting to obtain the same information for 1991 and 1992 to date" but has agreed not to require the bank to provide information for 1986 through 1988. A three-year statute of limitations would prevent the IRS from collecting taxes on the interest earnings from those years, sources said. The bank said it would give the IRS bondholder information for 1991 and 1992 only "if so ordered by the court."
The bank told the bondholders that it currently plans to file Form 1099-INTs reflecting the amount of interest they paid on the bonds in 1992 and 1993. Form 1099-INTs typically are filed to report taxable interest to the IRS. But the bank said that the forms would state that the interest "may or may not be includable in federal gross income for tax purposes."
The bank's notices assured the bondholders that the IRS' determination that the bonds are taxable "does not affect the guaranteed investment contract which is intended to provide the cash necessary to make the required principal and interest payments" on the bonds.
The seven bond issues, which were underwritten by either Matthews & Wright Inc. or Donaldson, Lufkin & Jenrette Securities Corp., are not scheduled to be redeemed until Dec. 1, 1993.
Five of the seven black box bond issues were sold for the St. Louis County authority. The size of these black box issues and the apartment projects they were to finance were: $9.1 million for Apple Creek II, $10.65 million for Apple Creek IV, $12.75 million for Plantation Hills, $13 million for Southview, and $10.5 million for Ridge Ranch apartments. The other two issues sold for the Springfield authority were $10 million for the Glenstone Business Park and $3 million for the Sunshine Terrace apartments.