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County's Jail Loan Hampered By IRS Ruling

CHICKASHA, Okla. (AP) -- The Internal Revenue Service said the Grady County jail houses so many federal inmates that $17.7 million in bond money issued for the jail's construction has been deemed taxable.

The IRS decision -- which has been protested by the Grady County Industrial Authority, which issued the bonds -- also could keep the county from receiving a $2.9 million loan it needs to finish construction of the jail.

The jail has been plagued by financial issues since it opened in 2003. Not only is the county dealing with the IRS ruling on the jail construction financing, but the county's Home Finance Authority has received a "taxpayer demand" letter from a group of local citizens.

That letter -- the first step toward the filing of a taxpayer lawsuit -- asks that the Home Finance Authority return $1.03 million it gave to the Industrial Authority so that it would not default on the jail construction bonds.

The jail's day-to-day operations are not affected by the two issues, said John Mosley, the chairman of the Industrial Authority.

"We don't think we've done anything outside of our original intent," Mosley said.

Federal inmates occupy 90 percent of the jail's 222 beds, and the jail receives $47 a day per inmate from the federal government. The IRS said in an April 3 letter to the county that because the government uses the jail so extensively, the government qualifies as a "private business" and that tax-exempt bonds cannot be issued to benefit such a business.

"Most disturbing is the necessity in this instance to require federal government use of the facility at such a high level in order to keep the facility open," the letter said.

A ruling on the county's appeal of the decision could take months, Mosley said.

The county is seeking a $2.9 million loan from the U.S. Department of Agriculture's Rural Development agency in order to finish construction on the jail's fourth floor.

The loan has been approved, but Brent Kisling, the Oklahoma director of the federal agency, said "there are a number of issues" that need clarification before the loan is finalized.

The IRS ruling could be one of those, Kisling said.
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