IRS Auditing Bonds from Colorado, Pennsylvania Issuers

WASHINGTON -- Two issuers in Colorado and one in Pennsylvania have recently disclosed that the Internal Revenue Service is auditing some of their refunding and/or single-family mortgage bonds.

The audits are of Colorado Health Facilities Authority revenue bonds issued in 2007 for the Yampa Valley Medical Center Project, four series of single-family mortgage bonds issued in 2002 by the Colorado Housing and Finance Authority, and two series of single-family mortgage revenue bonds issued by the Pennsylvania Housing Finance Agency in 2003 and 2004. They were recently disclosed in event notices posted on the Municipal Securities Rulemaking Board's EMMA system.

In the letters notifying the Colorado issuers of the audits, the IRS said that it "routinely examines municipal debt issuances to determine compliance with federal tax requirements." The Pennsylvania issuer also said its audit is routine.

The letter pertaining to the Colorado Housing and Finance Authority bonds said that bonds are being audited as part of an initiative about "arbitrage compliance in connection with the filing of a form 8038-T." The IRS also said that at this time it has no reason to believe there are any tax-law violations relating to the bonds.

The IRS did not identify the Pennsylvania issuer's bonds as being audited as part of a project, an official with the issuer said. The letter pertaining to the Colorado Health Facilities Authority bonds does not say that the bonds are being audited as part of any initiative, but the information document request asks for "focused advance refunding bond information."

Advance refunding bonds and bonds for which form 8038-Ts have been filed are among the types of bonds being audited under the IRS' market-segment program, in which random audits of bonds are conducted within certain categories.

Rebecca Harrigal, director of the IRS' tax-exempt bond office, said last week that the IRS is modifying the market-segment program so that there will be audits in sub-categories.

The audit of Colorado Housing and Finance Authority Bonds pertains to four series of 2002 bonds whose total par amount at issuance was $53.07 million. The bonds were issued to refund outstanding bonds and to finance mortgage loans for borrowers buying single-family homes. A syndicate led by Lehman Brothers underwrote three of the bond series, and the fourth was sold directly to an institutional investor. Sherman & Howard LLC was bond counsel, according to offering documents.

The Colorado Health Facilities Authority issued $42.82 million of bonds for the medical center project in 2007. The proceeds were used to refund bonds issued in 1997 and 1998 as well as to finance the expansion, renovation and equipping of an existing Yampa Valley Medical Center hospital facility. A.G. Edwards & Sons, Inc. was the underwriter and Sherman & Howard was bond counsel, the official statement noted.

The Pennsylvania Housing Finance Authority issued $59.9 million of series 2003-77B bonds and roughly $62.74 million of the 2004-81C bonds. The bonds were originally issued as period auction reset securities, and were converted to variable rate demand obligations bearing interest at weekly rates in 2008. They were issued to provide funds for a single family mortgage loan program, according to a remarketing circular for the bonds dated April 1. RBC Capital Markets was the remarketing agent, and Ballard Spahr LLP served as bond counsel for the remarketing.

For reprint and licensing requests for this article, click here.
Tax
MORE FROM BOND BUYER