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2 municipal bond issues fail to get tax-free status

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From Reuters and Times staff

The Internal Revenue Service has rejected tax-exempt status for two California municipal bond issues used for a hotel and convention center.

The $145.5 million in bonds were sold for the Cabazon Band of Mission Indians in Riverside County.

They include $110.5 million of revenue bonds issued by the California Statewide Communities Development Authority (East Valley Tourist Development Authority-Series 2003A) and $35 million of subordinate revenue bonds issued by the same entities (Series 2003B).

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If the issuers don’t work out a settlement with the IRS -- and don’t appeal the agency’s proposed ruling -- the bonds will be subject to federal income tax in 30 days.

The IRS rejection was confirmed in a letter from the East Valley authority to investors. The authority said it would continue to press for tax-exempt status.

At issue is whether the bonds were sold to fund an essential government function, the letter said. The IRS determined that they were not.

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