Anchorage could face IRS penalties for municipal bond use in Beluga

by The Associated Press

Alaska’s largest city could be facing some IRS penalties for its use of municipal bonds in the Beluga River gas field deal three years ago.

The Anchorage Assembly approved the purchase at the time in part because cheap financing was available through tax-exempt bonds.

Now the Internal Revenue Service is questioning whether about $90 million in municipal bonds should be taxable after all. If the answer is yes, then the city could owe the IRS a penalty.

Just how large a penalty is not yet known.

The issue is whether the city can sell gas from the Beluga field on the west side of Cook Inlet to companies other than Municipal Light and Power, the city’s electric company. Tax laws require that a venture funded with tax-exempt bonds benefit the public, and that it not be used to fund a moneymaking venture.

The IRS is expected to wrap up its audit within the next year or two, officials said.