PUD: IRS agent has 'ax to grind'

EPHRATA — Senior officials for the Grant County Public Utility District were confident Monday the Internal Revenue Service would reverse a position it took against the district in a letter dated late last month.

The letter contained the conclusions of an IRS agent in Seattle who audited bond proceed expenditures from a 2001 electric system bond issue of more than $217 million by the district.

He specifically questioned the spending of more than $79 million in proceeds from the bond sale, which he said mostly paid for work on the Zipp fiber network and funded private activities. Less than half of the $79 million, or about 44 percent, was spent on the district's fiber "backbone," which is exclusively used by the utility.

The agent determined the proceeds spending did not meet the requirements of tax exempt bonds.

On Friday, Judy Monahan, a spokesperson for the IRS' Seattle office, declined to comment on their field agent's analysis of the district's use of the bond proceeds.

The district's senior legal and financial staff members on Monday explained their position during the weekly commission meeting.

"After some in house review, we feel fairly confident that the IRS will reverse its position," said district attorney Ray Foianini.

PUD treasurer-controller Nick Gerde agreed.

"We are not uncomfortable with the district's position," Gerde said.

"If you read the letter, he (the IRS agent) found what he wanted to find," Gerde said. "It appears he had an ax to grind."

The district has hired an independent bond attorney from Houston to work with the IRS, Gerde said.

That attorney, Gregg Jones, will handle all further communications with the IRS agent investigating the district's 2001 bond issue.

Through Jones, the district will begin by updating the IRS' information about the utility's fiber optic system.

The district has until May 20 to provide a written response to the agent's April 20 letter. The district's response and the agent's audit findings will be sent together to the IRS' national office in Washington D.C., for a final determination.