Tax-exemption reinstated for Minnesota charter school bonds

“We haven’t received a response to the previous notice we sent asking you to file your annual information return or electronic notice,” the Internal Revenue Service said in a March 16 letter.

Bloomberg News

The Internal Revenue Service recently reversed an earlier ruling and reinstated the tax-exempt status of $26.1 million in charter school lease revenue bonds for a school in Minnesota.

Twin Cities International School and MIMCS Building Company announced the reversal in a public notice filed Monday on the Municipal Securities Rulemaking Board’s EMMA database.

The school serves as an umbrella organization for the Minnesota International Middle Charter School and the Twin Cities International Elementary Charter School, both of which are Minnesota nonprofit 501 (c)(3) organizations.

The schools, which together provide classes for grades K through 8, were established in 2000 to better meet the needs of East African students with “a rigorous education with cultural sensitivity to all students.”

The $26.1 million in tax-exempt conduit bonds that were in jeopardy of becoming taxable were issued in 2017 for MIMCS Building Company LLC, a Minnesota non-profit formed to facilitate the charter school facility improvements.

Minnesota prohibits charter schools from direct ownership of their facilities.

Twin Cities International School is leasing the upgraded and expanded facility from MIMCS Building Company LLC, which services the bond debt and maintains the school.

The city of Minneapolis, which served as the conduit issuer, is not responsible for the repayment of the conduit revenue bonds.

The original IRS ruling suspending the tax-exempt status of the bonds came in a letter dated March 16.

“We haven’t received a response to the previous notice we sent asking you to file your annual information return or electronic notice,” the IRS said.

“Because you haven’t filed for three consecutive years, your organization’s tax-exempt status was automatically revoked by law, effective November 15, 2019,” the letter said. “You are no longer tax-exempt. In addition, if you were eligible to receive tax-deductible contributions, you are no longer permitted to do so. Your organization’s name was added to our list of organizations that are no longer tax-exempt.”

The IRS keeps a list of charities that have lost their tax-exempt status on its website at

The school rectified the oversight by filing a Form 1023, and the reinstatement of tax-exempt status was effective Nov. 15.

“We approved your request for reinstatement under Revenue Procedure 2014-11,” the IRS said in a letter dated Sept. 9. “Your effective date of exemption, as listed at the top of this letter, is retroactive to your date of revocation.”

The IRS advised the school to search its website for Publication 4221-PC, Compliance Guide for 50l(c)(3) Public Charities, which describes IRS recordkeeping, reporting, and disclosure requirements.

Nationally, there are around 7,500 charter schools in 44 states in addition to the District of Columbia, according to the National Alliance for Public Charter Schools.

Loss of tax-exempt status is not common among charter schools, “but it occasionally happens, particularly with charter schools that are self-managed and have a small management team,” according to Kareem Spratling, an attorney at Bryant Miller Olive P.A. in Tampa who specializes in charter school financing.

“I have not personally been involved in a situation where it happened after tax-exempt bonds were issued,” Spratling said in an email. “Where I’ve encountered the problem is in doing my diligence prior to the issuance of a series of tax-exempt bonds. Maybe once in every two dozen deals, we’ll find that a school has had its 501(c)(3) status revoked for failure to file 990s and was not aware of it.”

Most issuers Spratling works with require their borrowers to adopt tax post-issuance compliance procedures.

“These procedures are meant to be reviewed by the borrower’s leadership on a regular basis and can serve as a checklist to highlight many of the common tax issues that endanger the tax-exempt status of the bonds,” Spratling said.

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