WASHINGTON -- A regional education service center may issue tax-exempt bonds on behalf of its state or local governments, the Internal Revenue Service concluded in a recent letter ruling.

The center, which was not identified in private letter ruling 9430025, was established under state law at the request of several local boards of education to help improve the quality of public education in the area.

The center's mission is to provide a variety of educational programs and services for its members, which consist of 35 local and one regional boards of education.

These activities range from special needs programs for students to minority teacher recruitment services, according to the ruling.

The center was authorized under state law to issue bonds and to acquire, lease, and sell property to carry out its mission, the ruling said.

But under the-tax law, taxexempt bonds can only be issued by or "on behalf of" political subdivisions.

In its ruling, the IRS appeared to rely on two earlier revenue rulings and certain information in the center's case to conclude that the center would qualify as an "on behalf of" issuer.

The IRS considered Revenue Ruling 57-187, which concluded that an industrial development board formed under state law could issue bonds on behalf of a municipality.

It also looked at Revenue Ruling 60-248, which held that the New York State Housing Finance Agency could issue bonds on behalf of the state.

In the center's case, the IRS noted, the center was specifically authorized under state law to assist boards of education in carrying out their statutory duty to provide public education.

In addition, the IRS said, the center is governed and managed by its member boards. The boards politically control the center.

Under the education service center's constitution, none of its net earnings could "inure" to the benefit of any private person.

Further, if the center ever goes out of business, all of its property is to be sold at public auction. Any proceeds left over after liabilities are paid are to go to the center's member boards.

"Therefore, the center satisfies the criteria for qualification as a constituted authority with respect to its members," the IRS said in the ruling.

"Obligations issued by the center qualify as obligations issued by or on behalf of any state of local governmental unit by a constituted authority empowered to issue such obligations ..." the IRS said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.