Alliance, Ohio, disclosed yesterday that the Internal Revenue Service is conducting an audit of $55 million of hospital revenue bonds it issued in 2003.

However, the examination is "routine," according to the material event notice disclosing the IRS action. Bank of New York Mellon Trust Co., which served as dissemination agent for the issuer, filed the notice with the EMMA system Monday morning.

The bonds, which were auction-rate securities, were issued to pay to acquire, construct, equip, and furnish two new hospital buildings for the Alliance Community Hospital system: an acute-care facility; and a nursing facility, according to bond documents.

The new 229,000-square-foot acute-care facility would have 102 licensed acute care beds as well as 10 licensed geriatric psychiatric beds. The 41,550-square-foot nursing facility would have 78 licensed beds and would be located on a 17-acre site located to existing hospital facilities. As part of the new facilities project, the hospital planned to spend $5.7 million from its own funds to build a new, 51,000-square-foot office building, according to the bond documents.

Squire, Sanders & Dempsey LLP was bond counsel on the Ohio deal, Goldman Sachs & Co. was underwriter and Foley & Lardner LLP was underwriter's counsel.

The audit marks the most recent attempt by the service to look into the bond issues of tax-exempt hospitals.

In May, the service began audits of $65 million of 2003 hospital revenue bonds issued by the Colorado Health Facilities Authority and $57.5 million of variable-demand revenue bonds issued by the Illinois Health Facilities Authority in the same year.

The IRS focused its attentions in the latter audit on two former members of the Rosalind Franklin University's board of trustees who have pleaded guilty to defrauding the university and orchestrating kickback schemes.

In April, the Maryland Health and Higher Educational Facilities Authority disclosed that the IRS was auditing $149.7 million of revenue bonds it issued in 2005 to finance hospital projects.

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