Maryland Agency Discloses IRS Audit Of Two 2002 Hospital Bond Issues

The Maryland Health and Higher Educational Facilities Authority disclosed Friday that the Internal Revenue Service has initiated what appear to be two random audits of two hospital revenue bond issues it sold in 2002.

The audits were disclosed by the conduit issuer in two material event notices it submitted to the nationally recognized municipal securities information repositories.

The IRS is looking at $71.7 million of revenue bonds issued for Frederick Memorial Hospital, and $57.7 million of new revenue and refunding bonds issued for the University of Maryland Medical System.

According to the nearly identical notices, the examinations are likely routine, as the IRS did not indicate any anticipated problems with the bonds.

The two health care issuers said the IRS notification letters sent to them stated: "We have no reason to believe that your debt issuance fails to comply with any of the applicable federal tax requirements."

Frederick Memorial used the debt, coupled with money raised from a fundraising effort, to pay for construction of a new four-story patient tower and other capital needs. Maryland Medical System used its proceeds to finance various improvements, as well as to refund old debt.

For the Frederick bonds, the underwriters were UBS PaineWebber Inc., now UBS Securities LLC, Ferris, Baker Watts Inc., and Legg Mason Wood Walker Inc., now Legg Mason Inc. Bond counsel was McKennon Shelton & Henn LLP in Baltimore, and the hospital's counsel was Venable, Baaetjer and Howard LLP. Ballard Sphar Andrews & Ingersoll LLP served as underwriters' counsel.

On the University of Maryland deal, the bonds were underwritten by Banc One Capital Markets Inc., which was acquired by JPMorgan Chase & Co. in 2004, and McGuireWoods LLP served as underwriter's counsel. Piper Marbury Rudnick & Wolfe LLP, now DLA Piper US LLP, was bond counsel and Gallagher, Evelius & Jones LLP was the hospital's counsel.

Attorneys involved with the deal and IRS officials declined to comment on the examinations.

 

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