IRS Rules That $19.8M of URI’s Tax-Exempt Bonds Are In Violation and Now Taxable

IRS Rules That $19.8M of URI’s Tax-Exempt Bonds Are In Violation and Now Taxable

The IRS has sent notice to the University of Rhode Island notifying them that two series of higher education bonds issued in 2018 are now considered taxable as a result of being in non-compliance with Section 149(g) of the IRS Code.

An IRS 149(g) violation, also known as a "hedge bond" violation, occurs when an issuer of tax-exempt bonds is deemed to have issued bonds too early, essentially "hedging" against future interest rate increases rather than for a genuine, immediate need. 

The total of the two bonds is $19.8 million.

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URI refused to respond to requests for comment.

GoLocal asked URI officials about the potential exposure to bondholders and if the University would appeal the ruling.

The violation was first reported by the Bond Buyer.

 

State's Bond Agency

The URI bonds were issued by the state of Rhode Island’s little-known agency called the RI Health and Educational Building Corp (RIHEBC).

“RIHEBC is aware of the Internal Revenue Service's Notices of Proposed Issue in connection with two series of bonds issued in 2018 that are payable by the University of Rhode Island,” said Chris Hunter, a spokesperson for RIHEBC.

“The notices make a preliminary finding that the bond proceeds were not expended within required timeframes. This is not a final determination, and the University is evaluating how it will respond. We are working with the University and have full confidence the issues will be resolved to protect RIHEBC bondholders,” Hunter added.