Tax Watch: Tax-exempt bonds are getting a closer look

JAN 15, 2001
The Internal Revenue Service's exempt-bond unit is working to bolster its audit and outreach activities, according to Mark Scott, director of tax-exempt bonds. Speaking at the National Association of College and University Business Officers' annual tax forum in Washington, Mr. Scott said his office has 250 examinations open and 90 correspondence examinations under way. If IRS exempt-organization auditors find bond issues in an audit, bond experts from his shop will be brought into the examination, he added. New guidelines out on software costs * The IRS has issued guidelines for the treatment of computer software costs, replacing guidelines that had not been updated since 1969. In the preamble to the new regulations, the IRS advises taxpayers that they may no longer rely on that earlier Revenue Procedure (Rev. Proc. 69-21) to the extent that the procedures are inconsistent with the tax law or regulations. The IRS defines computer software and explains the circumstances under which it will not disturb a taxpayer's treatment of costs paid or incurred in developing, acquiring, leasing or licensing computer software. Cite: Revenue Procedure 2000-50, 2000-52 IRB Court rejects a tax priority * The 6th U.S. Circuit Court of Appeals has ruled that the bankruptcy court properly applied the so-called "prudent-investor" rule in calculating a bankruptcy claim. The claim was made by the Pension Benefit Guaranty Corp. According to the appeals court, the PBGC's claim was not for taxes and thus not entitled to priority as a tax. Copperweld Steel Co. began missing minimum funding contributions for three of its defined-benefit pension plans in 1993. On Nov. 22, 1993, Copperweld filed a Chapter 11 bankruptcy petition. Then the PBGC filed in district court seeking involuntary termination of the three plans. The parties settled, the plans were voluntarily terminated, and the PBGC became trustee. Kathryn Belfance, Copperweld's Chapter 11 trustee, brought an action in bankruptcy court due to disagreements over the amount and priority of the PBGC claim. The parties moved for summary judgment. The bankruptcy court granted summary judgment in favor of Ms. Belfance, holding that the "prudent-investor rate" should determine the return from the invested funds. The parties stipulated that 10% was a prudent rate. The court also held that the portion of the missed minimum funding contributions attributed to normal costs was entitled to an "administrative" priority under bankruptcy laws. The PBGC appealed the bankruptcy court's order to district court, which affirmed the bankruptcy court. The district court noted that no portion of the missed minimum-funding contribution claim was entitled to priority as a tax under the bankruptcy laws. The PBGC appealed. Judge James L. Ryan ruled that while the PBGC has the authority to promulgate regulations governing the valuation of unfunded benefit liabilities, it cannot subordinate the authority of the bankruptcy court to value claims in bankruptcy proceedings. Thus the court concluded that using the "prudent-investor rate" to value the claim was appropriate. Mr. Ryan dismissed the PBGC claim that the missed contributions in excess of $1 million are entitled to a "tax" priority due to the tax lien imposed by the tax laws. The court held that the "plain language of those tax laws requires only that the amount to which a lien is imposed be treated as taxes." Noting that the lien imposed by the rules would not have arisen 60 days after Jan. 15, 1994, the date the missed minimum funding contributions exceeded $1 million, the judge dismissed the PBGC's argument because Copperweld had filed for bankruptcy in 1993, triggering the automatic stay provisions. The court held that because a lien was never imposed on the missed minimum-funding contributions, the PBGC's claim cannot be treated as a tax and doesn't warrant a priority status. Cite: Pension Benefit Guaranty Corp. v. Kathryn A. Belfance in re CSC Industries Inc. & Copperweld Steel Co., No. 99-4243

Latest News

Fidelity faces class action over August data hack
Fidelity faces class action over August data hack

Two New York residents are seeking retribution for the retail investment titan's failure to prevent an incident that exposed tens of thousands of its users' sensitive data.

Raymond James, hit by two hurricanes, gives assistance to workers
Raymond James, hit by two hurricanes, gives assistance to workers

The company has raised funds in both its Friends of Raymond James nonprofit and for community support, following Hurricanes Helene and Milton.

Nuveen taps industry veteran Moshe Bajnon in private wealth push
Nuveen taps industry veteran Moshe Bajnon in private wealth push

The asset management giant is looking to solidify its relationships with wealth platforms, broker-dealers and RIAs through a newly created global leadership role.

A fresh look at high-net-worth spending and saving
A fresh look at high-net-worth spending and saving

Survey of youngerHNWIs offers insights on spending habits, income sources, and the pursuit of financial independence.

Indiana-based hybrid Thurston Springer inks acquisition deal
Indiana-based hybrid Thurston Springer inks acquisition deal

The firm's definitive agreement to snap up a financial services firm and its subsidiaries will add 120 financial advisors to its network.

SPONSORED Destiny Wealth Partners: RIA Team of the Year shares keys to success

Discover the award-winning strategies behind Destiny Wealth Partners' client-centric approach.

SPONSORED Explore four opportunities to elevate advisor-client relationships

Morningstar’s Joe Agostinelli highlights strategies for advisors to deepen client engagement and drive success