The Internal Revenue Service has closed its examination of the City of Burlington, Vermont’s $9.7 million general obligation public improvement bonds, Series 2010A Qualified School Construction Bonds with no change after the city provided a use of proceeds.

At stake was Burlington’s eligibility to continue receiving federal tax credits pursuant to the QSCBs, which like Build America Bonds, are debt instruments that were created by the American Recovery and Reinvestment Act of 2009.

“On April 14, 2022, the City received a notice from the Internal Revenue Service that determined, unless the city provided substantiation of the use of 100% of available project proceeds of the referenced bonds on the construction, rehabilitation or repair of public school buildings, the referenced bonds would not qualify as qualified school construction bonds and therefore the city would not be eligible to receive the refundable tax credits under Section 6431 of the Internal Revenue Code with respect to such bonds,” the EMMA disclosure said. 

The city, which was awarded the Government Finance Officer Association’s Certificate of Achievement for Excellence in Financial Reporting for its annual comprehensive financial report for the fiscal year ending June 30, 2020, had until May 9, 2022 to submit evidence of its use of proceeds.

“Subsequent to such notice from the IRS, the city submitted documentation and information responsive to the IRS notice in support of the status of the Bonds as qualified school construction bonds,” the disclosure said. “By letter dated Sept. 27, 2022, the IRS informed the city it has closed the examination with no change.”

Qualified School Construction Bonds are taxable, tax-credit bonds whose proceeds finance the construction, rehabilitation or repair of public school facilities, as well as the acquisition of land where the facilities will be constructed.

The QSCB program was one of several created by the American Recovery and Reinvestment Act and like other ARRA programs, their issuance was only authorized for two years. There were $22 billion of QSCBs authorized for 2009 and 2010.

The IRS has since made a priority of auditing QSCB issuances in the last few years, as evidenced by its notices sent to multiple school districts in Idaho in 2019 and 2020.

Vermont’s largest city has gone to market with multiple issuances in recent years and on Aug. 15, the Burlington City Council voted to allow a bond request on November’s ballot, where the district hopes to borrow up to $165 million to build a new high school and technical center.