HARRISBURG, Pa. (AP) — The quasi-state agency that provides low-interest tuition loans and grants to Pennsylvania college students is paying more than $12 million to settle an IRS investigation into the proceeds from its tax-exempt bonds.
The Pennsylvania Higher Education Assistance Agency made the disclosure Nov. 17 in a quarterly report and a filing with the federal Municipal Securities Rulemaking Board in what accountants and others say involves federal laws meant to prevent tax-exempt borrowers from profiting from bond proceeds.
Tax-exempt organizations are typically supposed to pay any such profits to the Internal Revenue Service.
PHEAA is the first student-loan agency to settle with the IRS in what is a wider IRS scrutiny of the industry's practices, PHEAA spokesman Keith New said.
The student-loan agency admitted no wrongdoing and the IRS, in the settlement agreement, did not raise any issues as to PHEAA's good faith, New said.
PHEAA would not release a copy of the settlement agreement, since it could be considered a selective disclosure by the U.S. Securities and Exchange Commission, New said.
An IRS spokesman said he could not comment on matters that involve individual taxpayers, such as PHEAA.
The IRS investigation encompassed $205.3 million of PHEAA's outstanding tax-exempt bonds. As part of the settlement, PHEAA said there is no change to the treatment of interest paid on the bonds.
The IRS review of student loan-backed bonds appears to be ongoing elsewhere.
The Vermont Student Assistance Corp. said in a July 14 disclosure that some of its bonds were being investigated as part of an IRS program announced in 2008 to begin randomly examining tax-exempt student loan bond transactions.
The IRS, it said, has questioned its accounting treatment for student loans and a certain "federal consolidation loan rebate fee." The agency said it was contesting the IRS' assertions.
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