District Court Gives IRS Summons Power To Find Bondholders In Deal Held Taxable
WASHINGTON - A recent court ruling allows the Internal Revenue Service to issue summonses to obtain the names of investors in a $41.58 million Louisiana Public Facilities Authority multifamily housing bond issue that the IRS declared taxable earlier this year.
Judge John V. Parker, with the U.S. District Court for the Middle District of Louisiana in Baton Rouge, last week said the IRS can issue so-called John Doe summonses to Premier Bank, the trustee bank for the $41.58 million issue, and any other firms or companies that might have the names of the bondholders.
The IRS needed the ruling because it currently does not have those names. It had pressed for the decision, indicating that despite the passage of a three-years statute of limitations deadline it has not given up on trying to tax the interest earnings of holders of the bonds.
The IRS had concluded earlier this year that the authority's 1984 issue was not tax-exempt, saying that at the time of issuance there was no reasonable expectation the bonds would be used to finance four apartment complexes that were never built.
Authority officials reject that finding and say the projects were stifled by a downturn in the local economy.
The officials had hoped the service would not be able to tax bondholders because tax laws give the IRS only three years from the date tax forms are filed to notify taxpayers that taxes are due.
The bonds were redeemed in 1987. So bondholders who reported their last interest earnings from the bonds on tax forms filed April 15, 1988, could not be assessed taxes by the IRS after April 15, 1991, unless they waived the three-year statute of limitations for the bonds.
But lawyers for the authority said yesterday that the IRS must be convinced that some bondholders received extensions and did not file their tax forms for 1987 until late 1988.
"The IRS must think there is a bondholder or two out there whose statute of limitations hasn't run out," said Greg Pletch, a lawyer with Pletch & Associates who is representing the authority.
According to Mr. Pletch and other lawyers, taxpayers who do not wish to file tax forms on April 15 can seek a four-month extension until Aug. 15. After that, they can seek another two-month extension until Oct. 15.
"Six months is the maximum extension they are allowed," Mr. Pletch said.
The authority has put aside up to $750,000 to indemnify bondholders should they be taxed by the IRS. But officials at the authority have said they would fight any IRS attempts to tax the bondholders.
Officials yesterday denied press reports that the authority had reached a settlement agreement with the IRS. The press reports, they said, were confused about the purpose of the $750,000 fund to indemnify bondholders.
"There is no payment and no settlement agreement," said Billy L. Gordon, managing director of administration and finance for the authority.
The deal was a collapsible escrow housing bond issue. The deal was collapsed and the bonds called when four planned apartment projects were not built after three years.
The bond issue was to provide $13.2 million for the Old Shermond Oaks apartments to be developed by a partnership of the same name; $12.32 million for the Hyde Park apartments to be developed by Robert S. Cunard Sr. and Jr.; $9.6 million for the Monte Sano Oak apartments to be developed by a partnership of the same name; and $6.38 million for the St. Louis apartments to be developed by the Baton Rouge 84 Partnership.
The bonds were underwritten by Donaldson, Lufkin & Jenrette Securities Corp., Matthews & Wright Inc., and Scharff & Jones Inc. The bond counsel was McCollister, McCLeary, Fazio & Holliday in Baton Rouge. Underwriter's counsel was Wickwire, Gavin & Gibbs, P.C. in Washington. The trustee bank was the Louisiana National Bank of Baton Rouge, now Premier Bank.