Ballard Spahr Reaches Favorable Settlement for Fertilizer Company in IRS Tax Dispute

Ballard Spahr attorneys recently helped an Indiana-based fertilizer company reach a favorable resolution to a dispute with the IRS.

In 2012, the Indiana Finance Authority (IFA)—the state's debt issuance and financing entity—issued nearly $1.3 billion in economic development revenue bonds to finance a state-of-the-art fertilizer plant to be built by the Midwest Fertilizer Company. The state later dropped out of the project and was replaced in 2013 by Posey County, Indiana—where the new plant was to be located—which refunded the IFA bonds.

In early 2016, the IRS began an audit of the bond financings to determine whether the bonds qualified as Midwestern Disaster Area bonds. In 2018, the IRS issued a preliminary determination that they did not and therefore were not tax-exempt. If the determination had been made final, bondholders would have been required to report any interest earned from the bonds as part of their gross income—with significant potential tax implications.

Ballard Spahr, representing the IFA, Posey County, and the Midwest Fertilizer Company, took the matter to the IRS's Office of Appeals, arguing that there should be no change to the tax-exempt status of the bonds or refunding bonds. On March 13, 2019, a settlement was reached, providing that the bonds remained outstanding as qualified tax-exempt Midwest Disaster Area Bonds.

"This is a noteworthy development because it means that the company is now in a position to move forward with the project. Although we were confident that the initial IRS determination was not correct and that we complied with the applicable rules, the existence of the audit was a barrier to further progress," said Senior Counsel Charles S. Henck, who led the Ballard Spahr team. "We are delighted to have secured such a significantly positive outcome for our clients."