The Internal Revenue Service is auditing some 2002 auction rate securities issued by an Alaska authority and has closed an audit of some 2006 Louisiana transportation bonds with no change to their tax-exempt status.
The IRS notified the Alaska Student Loan Corp. on Jan. 2 that it was auditing $62.5 million of Series 2002A and 2002B education loan revenue bonds, which were actually auction rate certificates.
The ASLC disclosed the audit in an event notice, saying it “cannot predict the outcome of the audit at this time.”
Ballard Spahr LLP, ASLC’s current bond counsel and underwriters’ counsel for the 2002 transaction, is representing the corporation in the audit, said Charlene Morrison, the corporation’s chief finance officer.
None of the bonds or ARCs from the 2002 transaction are currently outstanding, Morrison said. The ASLC did not enter in the IRS’ voluntary closing agreement program, she said.
The IRS has been auditing several student loan bond issues since becoming concerned that issuers were tying student loans to bonds others that the ones used to finance them.
Under federal tax rules, the yields on student loans cannot be more than 2% above the yields of the bonds that were used to make the loans. The IRS contends some issuers tied higher-yielding student loans to higher-yielding student loan bonds to ensure they stayed under the 2% limit and were not forced to make yield-reduction payments to the federal government.
Last spring, the IRS announced issuers could enter into a special voluntary closing agreement program for student loan bonds.
Steve Chamberlin, acting director of the IRS’ tax-exempt bond office, said late last year that the TEB was working with 16 issuers under the special VCAP program. But other issuers declined to enter into the program.
UBS Paine Webber Inc., now UBS, and Salomon Smith Barney, now Citi, underwrote the 2002 bonds or ACRs. Wohlforth, Vasser, Johnson & Brecht, PC was bond counsel.
Meanwhile, the Louisiana State Bond Commission said the IRS notified state officials on Jan. 30 that it had closed an audit on more than $1 billion of 2006 Series A gasoline and fuels tax revenue bonds without changing the tax-exempt status of the bonds. The commission disclosed the audit closure in an event notice filed on EMMA. IRS had opened the audit last September.
