The Ohio County Board of Education announced Friday it received a $400,000 settlement in a lawsuit regarding 1997 school bonds that were not properly structured to be tax exempt, causing Ohio County Schools to pay the Internal Revenue Service a $330,000 penalty in 2011.
School Board President James Jorden said the board filed a lawsuit on Oct. 29 against the Bowles Rice law firm and Wells Fargo in Ohio County Circuit Court, seeking damages of $330,000 plus interest, attorney's fees, costs and expenses.
In November 1997, the board contracted with Wheat First Securities to serve as bond underwriter of nearly $14.7 million school bonds, Jorden said. First Wheat Securities has now been merged into Wells Fargo.
Photo by Joselyn King
State Sen. Jack Yost, D-Brooke, and Delegate Erikka Storch, R-Ohio, listen to concerns at Friday’s Ohio County Board of Education meeting.
The school board also contracted with Bowles Rice to serve as counsel, and structure the sale of the 1997 bonds as excludable from gross income for federal income purposes.
The bonds were issued in December 1997, and sold as tax exempt bonds, according to Jorden.
In fall 2008, the board learned the 1997 bonds had been structured in such a way the IRS would find them to be taxable arbitrage bonds and they self-reported the matter to the agency. The IRS calculated the potential costs to school district at $1.1 million, but the board reached a settlement agreement in August 2011 through which they paid the IRS $330,000.
Jorden said since that time, the school board had been working to receive restitution for the money they were forced to pay. A settlement was reached this week.
A spokeswoman at the Bowles Rice office in Moundsville said the attorney handling the matter could not be reached for comment Friday.