Bonds' tax status at risk after Camden school fails to file with IRS
The tax-exempt status of a Camden charter school was revoked by the Internal Revenue Service following the school's failure to file proper nonprofit financial statements for three years, putting $8.5 million of bonds at risk of losing their tax exemption.
LEAP Academy University Charter School said in a statement its decision not to file the IRS annual Form 990 for a three-year period was "due to conflicting advice on the administrative need to do so as a New Jersey charter school."
Through its spokesman, James McQueeny of Winning Strategies, LEAP would not elaborate on the "conflicting advice" and declined to provide any info beyond the statement. Lynn Walker, a spokeswoman for Rutgers University-Camden — which guaranteed the bonds issued by the Delaware River Port Authority on LEAP's behalf — also would not provide information in response to a reporter's questions.
The Bond Buyer first reported the charter school's tax-exempt status problems Friday.
According to a DRPA spokesman, Tim Ireland, the agency sold bonds to the securitized debt market and lent some of the money collected from the sale to various nonprofit and for-profit entities through an economic development program that ended in December 2010. Under that program, the DRPA issued $8.5 million of bonds in 2003 for LEAP to finance the school's construction and development costs. Rutgers guaranteed debt service on those bonds and TD Bank serves as the trustee, according to LEAP and DRPA.
Ireland said, "DRPA toll payers will get the money back, regardless," since Rutgers-Camden guaranteed to pay back the money with interest to DRPA so that it can pay the bondholders.
In the statement, LEAP said it first became aware of the revocation of its tax-exempt status in December 2011 — more than a year after the status had been revoked by the IRS in November 2010 after the charter school failed to file Form 990s for fiscal years 2007, 2008 and 2009.
In its statement, LEAP said it "has continued to maintain its status as a New Jersey nonprofit corporation, and a qualified charter school, in carrying out its charitable and educational mission in accordance with state law."
LEAP said it has since prepared and filed the outstanding forms "in connection with the goal of restoring its federal tax-exempt status retroactively," and made a timely submission for the latest tax year.
"Discussions with the IRS to reinstate LEAP's tax-exempt status retroactively are continuing," the charter school said in the statement. "LEAP is committed to resolving this matter to ensure that the tax-exempt status of the bonds is preserved."
The IRS could assess that LEAP owes federal income taxes or revoke the tax-exempt status of the bonds' interest earnings if it determines the charter school failed to its tax exemption.
In an effort to maintain the tax-exempt status of its bonds if it does not prevail, LEAP said it will seek a closing agreement with the IRS, though the LEAP and Rutgers spokespeople would not elaborate on the details of that potential agreement.
LEAP said in the statement it "does not believe this matter has, or will have, any effect on the operations of the school, or the quality of the educational services it provides to students in Camden County."