WASHINGTON – The Internal Revenue Service is auditing $73.6 million of Series A excise tax revenue refunding bonds issued by the city and county of Denver in 2009.
The city's Department of Finance disclosed the audit in an event notice posted on the Municipal Securities Rulemaking Board's EMMA system on Monday.
In the notice, the department said IRS notified it of the audit on March 18 and told it that the examination is part of a project/initiative involving financings of hotels, convention centers and similar facilities.
The IRS told the city that it has no reason to believe the Series 2009A bonds fail to comply with applicable tax requirements and that the IRS routinely audits municipal debt issuances to determine compliance with federal tax requirements, the city said in its event notice.
The city said it is cooperating with the audit.
The 2016 and Series 2009A bonds are related to bonds issued in 2001 and 2005, the latter of which were also audited by the IRS. But the IRS closed the audit of the Series 2005A bonds with no change to their tax-exempt status, according to a supplement to the preliminary official statement for the 2016 bonds.
According to the preliminary OS, the Series 2009A bonds, all of which are outstanding, are to be advance refunded with a portion of $239.4 million of Series 2016A dedicated tax revenue refunding and improvements bonds. Those bonds are to be issued next month, a rating agency said.
A portion of the $155.3 million of Series 2016B bonds are to be used to refund the Series 2005A bonds that are outstanding, the preliminary OS said.
The Series 2009A bonds under audit were issued to current refund the city's Series 2001A and 2001B excise tax revenue bonds, which were used to finance the expansion on the Colorado Convention Center in downtown Denver, according to the supplement to the preliminary OS for the 2016.
The Series 2001A bonds were advance refunded by the Series 2005A excise tax revenue refunding bonds, which were randomly audited by the IRS, the city said in the supplement.
"Despite the IRS determination with respect to the Series 2005A audit, the city can give no assurance as to the outcome of the audit of the Series 2009A bonds," the city said in the supplement. "If the IRS determines that the interest on the Series 2009A bonds is taxable, it may also determine that the interest in the Series 2016A bonds is taxable."
Neither Michelle Wang, the director of capital funding, nor Brendan Hanlon, the chief financial official for the city and county of Denver, could not be reached for comment on Thursday.
The Series 2009A bonds were underwritten by Morgan Stanley, Stifel Nicolaus & Co., and Wachovia Bank, which was acquired by Wells Fargo & Co. Co-bond counsel for the bonds were Sherman & Howard and Garcia Calderon Ruiz, both in Denver. Underwriters' counsel were Bookhardt & O'Toole and Kamlet Shepherd & Reichert, also in Denver.
Underwriters for the 2016 bonds are Citigroup, Merrill Lynch, J.P. Morgan, Drexel Hamilton, Loop Capital Markets; and Stifel, Nicolaus. FirstSouthwest, a division of Denver-based Hilltop Securities, is financial advisor. Butler Snow and Tilden McCoy + Dilweg are co-bond counsel.
