IRS Threatens to Declare Bonds Taxable.

• Position: Brief Article

Investors holding some tax-exempt bond issues may be getting an unwelcome letter from the Internal Revenue Service (IRS). The IRS is negotiating closing agreements with a dozen or more issuers over charges that the issuers misused tax-exempt bond funds. If settlement agreements cannot be reached, then the interest income earned by investors in those bond issues will be declared taxable. The identities of the issuers has not been disclosed, but the IRS is collecting names of investors before negotiations are completed because the three-year statute of limitations on' collecting interest is nearing expiration in the cases. In at least two cases, the IRS currently is in the process of notifying major investors that they need to pay taxes on municipal bond interest. The IRS over...