The Internal Revenue Service appears to be escalating its audit of $15 million of school improvement bonds that were issued by Cave Creek Unified School District No. 93 of Maricopa County, Ariz., in 2006 to finance a renovation project.
The school district filed a material event notice that was posted with the Municipal Securities Rulemaking Board's EMMA system on Tuesday disclosing that the IRS has requested additional information on the bonds for the third time since May 24, when the agency notified the issuer of the audit. At that time, the IRS indicated the audit was part of its routine examination of muni debt issuances and asked for information about the bonds as well as bond documents.
But since then, the IRS has sent two additional letters, one dated Sept. 7 and the other dated Dec. 1, seeking more information.
The agency appears to be interested in when the bonds were issued and the proceeds spent and is auditing related bonds as well, said one source familiar with the matter. Issuer officials and other transaction participants could not be reached for comment.
But the source said that while the bond counsel for the bonds, Gust Rosenfeld PLC, has been assisting the school district with the audit, the school district is considering hiring another law firm to represent it before the IRS that has no previous connection to the bonds.
The $15 million of bonds was the third installment of a total of $41.6 million of school district bonds that were authorized by voters in a Nov. 7, 2000, election and by a resolution approved by the district's governing board on April 11, according to the official statement.
Following the sale of the $15 million of bonds, the district estimated it would have $650,000 of bonds authorized but still unissued. The district lost authority to issue the bonds on Nov. 6, 2006, under Arizona state law. But the date of the Series C 2006 bonds was Sept. 1, 2006.
The bonds, insured by Financial Security Assurance Inc., now Assured Guaranty Municipal Corp., were underwritten by Peacock, Hislop, Staley & Given Inc., which was acquired by Wedbush Securities Inc. in 2008. Greenberg Traurig LLP was underwriter's counsel.
