By: Libi Uremovic | Original Article at patch.com
Beaumont Elected and Appointed Officials cherry-picked through State and Federal Laws in order to fraudulently acquire over $300 Million in Municipal Bonds.
Although former City Manager Alan Kapanicas charged Taxpayers for IRS Arbitrage Services, he never filed an Arbitrage Report. Examination of IRS and SEC laws explain that because Beaumont’s Bonds were acquired by the private sector and used for private sector purposes; the bonds are not Tax-Exempt Municipal Bonds.
IRC Section 103: Federal Taxation of Municipal Bonds
Distinguishing between Governmental Bonds and Private Activity Bonds. Two distinguishing characteristics of governmental bonds are that the bond proceeds:
Will be USED by the governmental entity for its own purposes, and
the bond-financed property will be OWNED by the governmental unit.
Treas. Reg. Section 1.150-1(b) defines a governmental bond as any bond of an issue of tax-exempt bonds in which none of the bond’s are private activity bonds.
Private Activity Bonds: Generally, private activity bonds are bonds issued by a governmental unit (or related agency):
the proceeds of which will be used by an entity OTHER THAN a governmental unit, and the debt service of which will be paid from private payments.
IRC Section 141: Test for Private Activity Bonds.
Private Business Tests and Private Loan Security or Payment Test.
Definition of Arbitrage: Arbitrage is the purchase and sale of the same or equivalent security in order to profit from price differences. The term arbitrage is not exclusive to municipal securities; it applies to all types of investments.
Power to Tax
In Rev. Rul. 77-164, 1977-1 C.B. 20, the power to tax was not considered present where service and user fees assessed and collected by a community development authority were only for the benefit of property owners of the improvements, and not for the purposes of raising revenues for public or governmental purposes.