IRS probe into PUD spending stops

Investigation ends without penalty

EPHRATA — The Internal Revenue Service is no longer pursing an investigation of Grant County Public Utility District's spending of tax-exempt bond money on its fiber optic network.

PUD spokeswoman Sarah Morford declined comment Monday, beyond a statement written by the district's Houston-based bond attorney, Gregg Jones.

"Grant PUD has been advised by the IRS that the IRS will not pursue a request for technical advice with respect to the fiber optic network financed with proceeds of the bonds," according to the statement released last week by the district. "The IRS gave Grant PUD no reason for its decision other than to say there was 'insufficient private use.'"

The IRS has not informed the PUD of any other issues that would adversely affect the tax-exempt status of the bonds, Jones wrote.

Judy Monahan, IRS spokesperson in Seattle, declined to comment because of disclosure rules. She said they cannot disclose any information on taxpayers.

The IRS, in June 2005, launched an investigation into the PUD's use of $217 million from a 2001 issue of tax-exempt bonds.

An IRS agent, in an April 2006 report, concluded the PUD spent more of the bond money than is allowed by law on the portion of the fiber optic network used by private Internet service providers.

Internet service providers pay the district for use of the fiber optic network, which they use to sell Internet, telephone and point-to-point services to residents and businesses.

Tax information provided by the IRS says the tax code allows only 10 percent of the bond money to be used for any private business use.

The IRS report said the PUD actually spent 20.2 percent or nearly $44 million of the bond money on the portion of the fiber-optic network used by ISPs.

In May 2006, both PUD General Manager Tim Culbertson and then Treasurer-Controller Nick Gerde insisted the district used the bond money appropriately.

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

"We still believe it was an appropriate use of the bonds," Culbertson said. "Until it's demonstrated otherwise."